Articles: Index
Creating Money: Securing Your Future
Page One of Four
You were told long ago that you should save 10% of your weekly income. You were assured this would make you rich, but it didn't. What happened? Did you get discouraged because the money you thought was going to come your way didn't? Your advisor's lack of knowledge about what to do with that 10% was probably part of the learning experience. Your advisor didn't know, because your advisor had not succeeded in saving his way to wealth. This article will show you how to carefully and intelligently design a plan for creating a secure financial future.
What is Money?
Do you know what money is? Do you know how money "'works"? Do you know how you can get more of it without significant risk? Do you know how to make your money multiply?
The ability to create, manage, and spend money wisely is inherent to living a life by design. We will begin by looking at what money is. By considering a thumbnail sketch of the history of money, you will discover some of the challenges inherent in designing a lifestyle that will help you create wealth.
Long ago there was no money. If you wanted pheasant for dinner you would trade something for that pheasant. You traded a string of beads you had made that day for the pheasant. What you did not grow or make yourself, you traded to someone who did make or grow what you wanted.
2,000 years before the birth of Christ the concept of money began. Some 1,300 years later, money became standardized, at least in the country of Greece. Aristotle noted,
"The various necessities of life are not easily carried about, and hence man agreed to employ in their dealings with each other something that was intrinsically useful and easily applicable to the purposes of life, for example, iron, silver, and the like. Of this the value was at first measured by size and weight, but in process of time they put a stamp upon it, to save the trouble of weighing and to mark the value."
Those looking for an extra advantage over those they did business with would shave off portions of gold and silver from the "nuggets" that were used as a means of exchange. This was the first "inflation." The Roman Empire fell in part, because of this "shaving." Copper coins which early on weighed a pound eventually were shaved to less than one ounce. Similar dishonesty occurred world wide in developing countries. This brought in the notion of weights and measures. Metals (iron, silver, gold, copper) were in demand for several reasons. Metals were essential ingredients in fine jewelry, objects of worship, tools, weapons and so on.
In the 18th and 19th centuries, gold became the standard unit of exchange in the United States and many other developed countries. The problems with metals as a standard was that metal was very heavy to carry around. Carrying gold and silver was clumsy and not effective for trading goods.
Money is a Belief
Enter paper. Various governments began to store precious metals and issued paper imprinted with various amounts in terms of dollars, pounds, francs, etc. on the paper. It was "monopoly money" with one exception. There was an equal amount of "monopoly money" in print as there was value in the metals in government storehouses. The paper itself was worthless, but the governments issuing the paper "vouched" for the value of the paper. They created a belief. It wasn't long before the metals backed very little of the money.
Once beliefs are created, then those who wish to take advantage of believers enter. Instead of people shaving gold and silver in financial exchange as was done centuries ago, banks formed to create an area of exchange. It was here that shaving would begin again. Banks created another belief. If you brought your paper to let them keep safe for you, they would return it to you on demand with interest. Of course your money was not safe. It was being loaned to other people to build and speculate in other pursuits. This process is certainly beneficial to growth, but it also opens the way for corruption and erosion of the value of "money."
As time passed, governments would issue more currency (creating inflation) and spend money without having anything to back up the paper they were distributing. This created federal deficits. (Spending more money than was being taken in from taxes.) Money was no longer real. The belief had become belief in an illusion.
For some reason unbeknownst to this author, most countries allowed the creation of central banks. Central banks in the United States are part of what is called the Federal Reserve. When the United States needs money, say one billion dollars, they ask the Federal Reserve for a loan. The United States then owes the Federal Reserve one-billion dollars plus interest. However the government does not produce income, so it cannot pay back the Federal Reserve. Therefore the United States taxes its people for part of the money and then borrows money from its citizens by issuing bonds. The bonds promise to pay the citizen interest on the loan to the government.
This money in turn is paid to the Federal Reserve to pay the interest the government owes to the Federal Reserve.
Who benefits in this transaction? The cost of printing one billion dollars by the Federal Reserve is approximately $1,000 in paper. Most of the difference is profit to the owners of the banks. The government is benefitted in that it can spend money without responsibility for the repayment. Because the government is essentially a non-producing entity, it can only collect taxes and place the burden on the person paying taxes and accumulating their portion of the national deficit.
The loser is the citizen. However, it does not end here. This may seem very distant and unreal to you. Consider the following impacting reality and realize why learning to create money in a purposeful fashion is critical to living a life by design:
The Federal Reserve, in large part, determines how much you will be paying in interest for the next home you purchase. They have the right to set interest rates to smaller banks at any level they wish. Smaller banks then loan you money. When interest rates go up, smaller banks do not benefit significantly, but the Federal Reserve certainly does. Additionally, the Federal Reserve is loaning the bank you do business with your money. You then pay an unreasonable interest rate for your new home. Here's what happens.
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