Elephant On An Eggshell - How Money Creation Works

in #money3 months ago

Hey Jessieggshells

The world of fiat money is a strange and complicated beast if you think cryptocurrency has layers of complexity; it’s because you don’t know the depths at which fiat money operates! Think I am lying?

Please do me a favour, ask any normie family member where do they think money comes from and jot down their answers and then follow up with what gives money value!

You’ll soon notice most of them don’t have an answer they’ve never questioned it before and they won’t question it as it would unravel their entire life of working for these pieces of paper with dead presidents on it.

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Bank reserves

Ever since we moved off the gold standard central banks have had their balance sheet tied to nothing; they can create limitless amounts of bank reserves on their balance sheet and lend it out to private banks at low, zero or negative rate of interest, it doesn't matter to the central bank. All they are doing is creating reserves that backstop private banks and encourage them to go out and issue loans to consumers to create more money.

Bank reserves are the first issue, these may be backed by treasuries and in some parts gold or precious metals but for the most part, especially since 2008 and now, it's very much the majority of its digits on a screen created from thin air, this is where the initial money printer goes brrr.

These bank reserves can also be used to buy bad debt and loans of banks and hedge funds to try and give them additional liquidity to operate. While bank reserves do have its limitations, it's the first step into where things tend to fall apart when you don't have sound money.

If you can create money out of thin air, you can always bail out banks, which allows them to go out and do more risky things, get bigger and become too big to fail.

Banks may have failed in the past, but they're not destroyed their effects are only consolidated under one brand as we see with accounting firms and other financial institutions, it's all about consolidation fo power and resources.

Private money creation

Once the banks have their fractional reserves, in order oft hem to make money off those reserves, they need to use it to lend it out and create new money. This step is on that many don't realise, people still think their deposits are what secure loans for others and then earn interest for the bank and the deposited.

Instead, it's all about these bank reserves, banks then go out and issue home loans, student loans, car loans and credit cards to try and drive more money creation.

So essentially the money out of thin air allows them to multiply and create more money out of thin air, which then has value as it's paid back through people working to earn wages to pay back the new money that was created in an instant.

Debt instruments

Then these loans are taken and packaged up, into new products such as the CDO's that brought down the banking sector in 2008. What banks do is instead of sitting on the loans they've issued and collecting interest, they group them all into a diversified investment of let's say home loans or car loans.

This packaged debt is then sold to other companies such as hedge funds or pension funds looking for yield which they will et from the loan repayment and interest and the banks walk away with the spread.

Then only to repeat the process and create new loans.

This means you've taken money created from thin air, created new money out of thin air, and then packaged all that new money into a new product that is worth more than the original amount creating even more money out of thin air.

Financial engineering

Then on top of all this money creation, there are things like futures/ETF's, stocks, index funds, insurance contracts, shorts, call options and a host of other products that are based on this fake money and traded in the trillions each day.

Creating new money based on the underlying perceived value of the fake money we create out of thin air.

Oh what a tangled web we weave

This is just a high-level view of how we create money without the need for productivity and why money is more meaningless than it's ever been, measuring anything in fiat is only a measure of belief and indoctrination.

BTC might not be perfect, but at least it's UTX's are unique, I am the only one who owns this combination of BTC, no one else, it took resources to create this, and there are very few of it around, even if it's digital, we see how the new generation value digital over physical.

Digitisation of everything is coming whether you like it or not and you can try to hold on to old money principles and try to play this rigged game or you can move into something new that has the potential to change the way the world works and how we all see money and value storage.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

Let's connect

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We have gone from some real value money (gold and silver coins) to the peice of paper without any backing ,can be counterfeited too with no idea of supply to general public.

Printing more paper does not create more money or value, it just bounce back as less purchasing power even having more paper money.

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Totally and yet we make it out to be as if this is normal, it's not been normal its the greatest robbery in history its financial sleight of hand and it continues because the public doesn't want to understand the implications of it.

Money is just a number, purchasing power is what we want and want to protect

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Good old, banks, always having so much money to bounce back from any setbacks and things they do which cause uproar all around. Making all that money into more money and passing themselves off as a good bank.

I only trust them as long as I need them and it is so I can live and use it for what I need.
Cryptocurrency will be my money printer but if I ever got to making a lot of money, I would look to donating to charity once more, as I haven't had the money for that in a long time, since I last did it.

Hive printer is jamming right now, but the bottom is looking there before the rise.
Let's BrrrrrHive on!

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You'd think that a system that can create infinite nominal value that we all believe in would be able to throw some more at good causes, yet it all seems to be concentrated and people thinking they "earned" that wealth its so laughable how we humans can find a way to be entitled to anything even when the game is rigged.

I too only trust them with the fact that we're both holding knifes to each others throats lol, I am more bullish in BTC than I've ever been and buying Bitcoin every day has become the norm for me as well as earning crypto through HIVE :), I just keep stacking sats and try to deleverage myself more from the system

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Because the big, bad, corporate wolf likes money too much to give out freely. They make so much money for the higher ups and they just live their rich lives.

Yes HIVE earnings are always good, as with other things tied to it, like LEO.
Keep stacking and keep moving forward to being more sustainable off cryptocurrency!

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Absolutely and then they still have the arse about them to think their frivolous spending is "job creation" oh how we need to bow down to their altruistic nature lol its such a joke

You too man, we need more bullish middle class in these spaces, people willing to hold stake regardless of the prices, the way I see it is I may be catching a falling knife short term but long term something pegged to BTC tends to do well over time. I don't need 9 million percent returns over 10 years like BTC has done, I could do with a fraction of that in 10 years and be happy as a clam

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For me, it is currently dCity which is my small money maker. But if I can keep growing it, also chucking some more into LEO so my votes are bigger, those 2 will continue to be good to me.

I don't have the investments in other crypto right now, because of investing into dCity haha.
But we just got to keep going at what we have so it grows well.

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I do play Splinterlands but thats about it, just stacking all tokens I can get and investing in various staking coins and buying BTC every day in small amounts, is slow boring but its steady and who knows where it will lead with fiat losing so much value all the time, i feel each month crypto becomes a safer bet

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What do you think the Hive bottom point will be? 10 cents?

I was actually talking to @nickyhavey about this and we said around 10 cents or 800 Sats, but nothing will surprise me. I mean bigger accounts aren't stupid they're not going to sell, so either its someone who wants to suppress the price or its a whole bunch of small investors who are willing to sell at any price or a combination of it.

Who knows? I think if it dips below or gets to 10 cents I'd like to put in a big buy order, I've already set a few on binance so we'll see if they get filled

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Yeah, I've been having my orders filled that I never thought would be - prices are now around 850 sats which is 8.8p so I've just been loading up on HIVE the last couple of days. It could well go below 800 sats and further at this rate but, unless the price really tanks and goes down to 1 cent (unlikely) then chances are, you will make it back from HIVE earnings from posting and curating anyway.

It's a great time to bolster HP, put it to work with some long term leases or distributing by voting on content/curation rewards or Hive-Engine tokens, whatever really!

It is looking likely, would be probably where lots of orders are kept at for buying, plus lots of other big whales would be waiting for the bottom to buy bulk again and becoming bigger whales.

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Lol lets not forget the minnows, dolphins and orcas who see this as a growth opportunity, It also makes earning HIVE so much easier too. I've never been one to fixate on the price I think HIVE and HE tokens are great to learn to trade with since there are so many sellers at any price, they don't care so you can easily get orders filled for small amounts since many smaller accounts treat it like a faucet

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Oh it's a great opportunity to grow for people of all sorts.
Helpful if you don't have lots of money but can make some on HIVE and HE to make life easier overall.

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Exactly and even if you have a little money lets say you put in $20 in HIVE right now so you get just short of 200 HIVE right, for every HIVE you earn posting and curating you now result in reducing the cost you paid so you now have 220 HIVE for your $20 spend so you can reduce your investment risk over time

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Any thoughts on how this is about to play out over the next 6 month as shit hits fans?

The way I see it now is the insolvencies of individuals and businesses are still working through the system, people are dipping into their savings, businesses are cutting costs and they all hoping for some recovery so they can get back to it and add back to the reserves, each day that doesn't happen another business goes belly up and another person goes broke. That means a strain on debt, car, home and other repayments, that means knock-on on financial markets like insurance its all unfolding slowly.

I still think we won't see the worst of it until late 2021/22, it also remains to be seen what governments do will they backstop salaries, do UBI, do massive job creation programs on more debt? The IMF said they willing to back just about anything so it's not impossible to bail out the situation at the expense of most currencies losing 25-40% of their value to do that

I also think crypto takes a knock as there are still many holders who might face margin calls or financial strain so they have to dump, but that's okay I am happy to hold and buy through that.

I've already set myself up for the worst of the worst-case here in South Africa but I hope it does not come to that

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It's not looking good!

I'm thinking cryptos will go up as fiat hyperinflates, but this week my confidence in that is getting a bit wobbly...

I try not to look at the snapshot and try to look at where I think it's going, so I buy BTC every day and try not to worry about missing out. I think your right currencies have to hyperinflate to keep everything else seem like there's value, think its a lesson we have to learn the hard way because clearly we don't want to accept that price discovery is the best way towards getting the most value out of any market

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I can't believe this has lasted this long, I believe all roads lead back to gold, silver, and cryptos! This could be the one thing our generation will be remembered for, the new kind of money with cryptos. Let's not make the mistake of letting the same money-changers control it again!

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Me too, Its actually quite impressive if you think about the level of irrationality needed to keep this thing going and yet here we are 50 years later still at it thinking oh if we just print a few more trillions we'll be okay that's all we need more numbers, it's ridiculous, but you can't move society easily but still amazing case study of how we as people thin.

I do think that this only changes as the boomer generation dies and more people who understand digital move into higher positions and accept this new form of money and finance. Being early can seem a lot like being wrong, but when I talk to people in crypto and listen to how passionate, smart and open to debate they are, I feel like this is something worth supporting with my time and my purchasing power

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It's almost too big to believe, how these Countries are all in cahoots to devalue currency at an even pace so it doesn't seem like a big deal to the average six-pack Joe. Just give them bread a circus and keep the game going. It's like those guys on the Titanic playing their fiddles on the way down!

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LOL sounds like someone has been listening to the Kaiser report because they always say that, oh Joe bag of doughnuts will always trust big daddy government and banks they know best, amazing how they know best so they eat the best and you live on the scraps, logic is lost on us.

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You guessed it, I love that show on RT! That max cracks me up I tell ya!

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It's one messed up situation this Fiat system.

and we're all suckers for it I mean how long were being duped before we found crypto? Even now we are still so leveraged into it

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