Updated: Oct 10, 2021
𝗪𝗵𝗮𝘁 𝗶𝘀 𝗠𝗼𝗻𝗲𝘆?
A printed paper with serial code which has some perception value is money. Human resides in society and there is exchange of materials is day to day activities common for all. Money is tool to exchange goods. We will deal with some mind blown on economics.
𝗩𝗮𝗹𝘂𝗲 𝗼𝗳 𝗠𝗼𝗻𝗲𝘆?
Is value of perception? Is it value of paper with printing costs? What if everyone denied all the currency? To exchange material much more transaction rates required to remember so to ease this condition concept of money arises. It’s easy to trade now. Every government prints paper, create some value for those serially printed papers and circulate into society. Central Bank of that government maintain that book.
As history reveals that value of money decreases over time. For example in 2015 I can bought a chocolate for 1₹ while in 2021 same chocolate costs me 5₹. Here actually value of 1₹ in 2015 = value of 5₹ in 2021. It is clearly dictates value of money decreases. We can conclude that value of money decreases over time.
Is Debt a fraud with society?
As you already know debt or loan. The money lended by lender with agreement that it will be returned in future with some interest on it. But when you actually look at debt structure you will get to know that something fishing is their. Who lends the debt? Government. Who uses the debt? Government. Who mortgages the assets? Government. Who’s resources are mortgaged to lend debt? Government 🤔😵
Did you understand? Let me explain consider the whole world as single economy. Now whole world takes loan from government(by people for people) for business expansion, home loans, investment loans. Consider whole leverage becomes 2:1. Means consider whole world has 20million units cash only , while govt issues 40 million units cash as loan.
What if all borrowers defaulted. Action taken against those borrowers all the assets seized while to fulfil required cash crunch, Government print more money, value of money decreases and whole situation settles again. This cycle will occur again who actually screwed here? Govt seize property, borrowers caught up in lawsuit, inflation got raised up. Those who are at low level cash their living standard lowered as inflation gets high.
What happens if all borrowers pay all the debt with interest? This time market booming while this time government will leverage more and lends more Money . Living standard rises. More opportunity opens. In both the condition govt used govt resources to lend money to govt. The condition is good as most will pay their debts with interests . When defaulters increased this will lead to disaster.
% Returns ?
In 2018 my investor friend Mudassar invested 100₹ in real estate. At the end of the year he gets return of 8% while inflation rate was 9%. Is Mudassar makes any profit? In nominal terms he get 8% return while in real terms he loses 1% . Next time Mudassar decided to bet on with energy stocks and succeed to get 16% return while inflation was 8% . Pure 8% rise in Mudassar portfolio.
How money created out of thin air?
Credits the most used way to create money out of thin air. Where private banks issue loans to the borrower even when bank didn't mortgaged nothing while borrower mortgaged the assest. What about mortgaging for credit ? To explain this consider again Mudassar deposits 2000₹ in his saving account. While reserve requirements of RBI is 30% . It means bank can lend 1400₹ to another borrower from Mudassar deposits. Now look at the scenario. What's the money in economy before Mudassar deposits (2000₹). What's the money today in economy (Mudassar 2000₹deposit+ 1400₹ credit of borrower=3400₹) . How just a bank created 1400₹ out of thin air? At the end of day what happens as Mudassar deposits expires he will draw his money with some interest, While borrower paid the loan with intrest new money again added into economy and cycle continues.
A myth about Economic inequality?
Consider a village I gave up 500k ₹ to every villager and seized all borders of that village. Now as time goes transactions done, trade done after some couple years of time someone is richer someone is poorer while all started with same initial amount. Now their exist gap in rich and poor. As trade cycle continues new riches adds, some richer becomes poorer, some poorer gets richer, most of villagers remain average. If we see this scenario in particular time frame you will definitely come up with inequality conclusion while if you consider whole time horizon you will get to know that it was just a transactions in trade cycles. No one remains rich whole the time while no one is poorer for whole the time.
Every media house, newspaper always tries to show economic disparity, inequality. Difference between rich and poor. It created a perception in point of time that their exist inequality in society. These are just mere transactions which are more in time towards the richer than poorer. If inequality really exist still then a king in 17th century still enjoys his wealth. But In actually no such case. The feasible way to make up that inequality gap which is point analysis can be minimized by increasing trade cycle frequency.
What blows minds ups from above?
1.Value Of Money decreases with time.
2.Debt is just a piece of paper can be ruined Or can be tool for economic growth
3. It’s real rate of return matters than nominal returns.
4.Economic inequality is just point analysis conclusion. At big time horizon it is just a transaction.
5.Point analysis conclusion of inequality can be minimized by increasing trade cycle frequency.
6.Credits are created out of thin air.
Now starts think about how you manage your own economy with or without financial literacy and decide whether to ignore it or not?
I am just trying to channelize the young enthusiastic thoughts to increase awareness of reality with idealism. Happy Reading !!
Active Analytical Thinker, Currently working on financial literacy.
Enthusiastic about Leadership and Psychology
Publicity Co-Ordinator Syncing.GCEK