Making Good Money
“It is well enough that people…do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford
Do you know how your money is created and destroyed?
Most of us know hardly anything about money. Clickbait headlines announce that these are the secrets the moneymen don’t want us to know. It is probably true, but as I see it, they are not the ones who prevent us from learning about finances.
We know so little because most of our caring parents, teachers and education ministries believe that economics is absolutely unfathomable. Therefore they teach us nothing and hope we will figure up, as we go, whatever we need.
They are wrong, of course.
We don’t learn enough to make our lives, and others’, as good as they should have been.
And finances are not incomprehensible at all.
Everyone can understand them.
Moreover, everyone should understand them, because knowledge is power. The power to improve our lives, and the lives of the people around us.
As I learned when I started to be a social activist.
My Financial Hero’s Journey
I discovered my ignorance when I volunteered as an editor in one of Occupy movement’s Internet sites, back in 2012. As articles about inequality and exploitation were too depressing for me over time, I focused on finances. I realized there were too many things everyone should have known, but I had to study from scratch.
Some fundamental ones were:
What is money?
Mainly lines in banks’ computers, which no longer represent any existing property. People commonly imagine banks’ information to be trusted, though most banks have proven themselves to be fairly untrustworthy.
Who creates money?
How is money created?
Banks have the privilege of lending non-existent money, according to their private preferences. That’s why irresponsible cronies get billions – it’s strange how Trump’s name pops into mind – while individuals and small businesses are rejected, or requested to pay an interest that can be much bigger than the loan.
To give a loan, the bank ensures it has a reserve (about 10%) of the loan’s sum, and then adds the full sum to the borrower’s record, creating the money out of thin air. While people borrow more money, there is more money in the market. When a loan is paid back, the bank deletes the original sum from the records, so the money becomes non-existent again.
Money, therefore, is normally created just for the short term. Only central banks’ new money can last longer, until there is a decision to destroy it.
As you can see, my life was full of astonishment.
Over time, I realized that financial information can serve not only political uses, but also individual and social ones. Learning economics is startlingly practical.
Moreover, I learned that personal and social uses tend to happily go together.
Cryptocurrencies are a good example.
All Kinds of Money
When I first encountered an article about Bitcoin, I already knew that money is actually another name for trust. There is no real difference whether the currency you trust, and willing to get in exchange for services and property, is metallic coins, units of Local Exchange Trading System, time of Time Banking, or sums written in bank computers. When people are willing to give more for a Euro, for instance, its value rises, and vice versa. Cryptocurrencies are just the same – their value reflects the demand.
When I read about cryptocurrencies back then, one Bitcoin cost few dollars, and not many people were interested in it, or have even heard about it. Yet, to me, it seemed to be a better currency than the existing ones:
It is created by an open source program, so its rules are known and fixed, contrary to other currencies that governments inflate and manipulate.
Besides, its information is completely private, so our financial actions and conditions can’t be constantly tracked by commercial and governmental entities.
Also, its transactions’ fees are significantly lower.
In addition, it is global, and it is created by the global community, so it’s not used to strengthen the rich countries on behalf of the poor countries, the way the usual currencies are used.
My Journey’s Obstacles
I published an article about cryptocurrencies on our site. I also sent the link to my spouse and told him that we better invest some money in it.
My partner, a technological genius, examined the subject. These currencies have significant advantages other coins don’t have, he concluded. (Ethereum, for instance, includes an entire selling contract in it.) The cryptocurrencies are good not only for society but also for our family, he agreed, and we better buy some.
Unfortunately, buying cryptocurrencies was took some time and technical knowledge back then. I didn’t have the knowledge, and my love didn’t have the time because he was too busy working. (Had he bought it then, he could have stopped working then and there, because we would have swiftly become super-rich.)
A few years ago, however, we did buy several kinds of digital coins. One Bitcoin’s price was 2,000$ at the time. When I write these lines, it’s over 50,000$.
The cryptocurrencies’ prices will undoubtedly decline and rise again and again in the future. But their overall rising has reasons.
The Change Of Times
One of the reasons for the recent meteoritic rise of Bitcoin is probably the pandemic. To be precise, the way many of our leaders took care of it – in about the worst possible way. (And sometimes even worse than that.)
Many people’s trust in our governments decreased, not to say dropped like a stone. A currency that is not affected by the idiocy of our leaders, unlike our economy and our usual coins, seems more trustworthy than ever. Since countries no longer create money that represents property, and trust is the only thing any currency is based on, the cryptocurrencies soar.
Another main issue in recent years was privacy. Private currencies are more desired than ever. (The cryptocurrencies allegedly bother governments who try to trace criminal and terror organizations as well. Yet, these shady organizations, like any rich corporate, have ways to find loopholes and secretly transfer money anyway. Ordinary citizens’ privacy, on the other hand, is hardly protected without cryptocurrencies.)
Moreover, many investors feel that during the pandemic the stock market lost its built-in connection with the real struggling economy, and became a bubble. (Trump’s government borrowing 3 trillion dollars and giving them to the stock market, while a third of the American workers lost their jobs, is one gloomy reason.) Investors who anticipate the crash of this bubble, and a plummeting of the shares’ prices, buy cryptocurrencies to balance this fall. (Like they used to buy gold in such disasters, which were usually created by many of them.)
Although cryptocurrencies are accused of being non-eco-friendly, because their creation requires electricity, other currencies require polluting buildings, work and transportation. Cryptocurrencies seem suspect because they are virtual, but so are the rest of the currencies nowadays. They reduce governments’ ability to tax income, but it may push our governments to tax property instead, which is fairer, anyway. To make a long story short, people accuse cryptocurrencies of practically anything, including gluing our children to screens, but, unfortunately, cryptocurrencies don’t have so much effect yet.
However, I believe that cryptocurrencies are still in their infancy. I think that the prices will rise (unsteadily) much more over the next decades, and that this communal money may change both our economy and our society.
Best Of Times, Worst Of Times
Understanding economics leads us to realize how unjust the laws are, which is a little maddening. The fact that the same small group of rich moneymen frequently moves between the jobs of private firms’ managers, governmental regulators, and supposedly-objective academicals who counsel our authorities (regardless of the absolute conflict of interests) can be considered outrageous. As economist Thomas Piketty writes,
“We know something about billionaire consumption, but it is hard to measure some of it. Some billionaires are consuming politicians, others consume reporters, and some consume academics.”
The reality in which these people, who deliberately crashed the world economy in 2008, are still keeping their influential jobs is also awkward. The fact that for each law-maker in the US there are five lobbyists, so for the last decades almost any newly created money and any other financial action we take enriches this small group of wealthy moneymen, is also somewhat frustrating. So is the fact that many of these men’s corporations destroy our planet, our health and our society practically unrestrictedly.
And we can change it, too, and we can prosper in the process.
So, What Are We to Do?
The usual, quite satisfying reaction is to complain. However, some other actions may be more effective, and we may want to consider them as well.
The first, and maybe most important action to take, is to learn. As the Redditors have proven lately, knowledge can be not only power but also a lot of money. We better search for understandable financial YouTube channels, blogs, websites or books, examine who finances them, and choose our favorites. This is probably the best thing we can do for both our pockets and our society.
At the same time, we better support organizations that protect our rights and our privacy. In addition, we should vote for leaders who advance equality, fair taxation, regulation and law-enforcement for all, even for the rich.
Besides, we may want to consider moving our bank accounts to cooperative banks or credit unions. These non-profit banks are more reliable, and cheaper. And, by the way, they are way more just. They enable us to create a better society.
Moreover, we may want to buy some cryptocurrencies, preferably an amount that won’t devastate us if they fall. We may also want to make investments that are advantageous for both us and the world, like Socially Responsible Companies index funds or sustainable index funds.
Remember, however, that I’m not a professional counselor. All I can offer is my personal knowledge and experience. It is up to you to study your investment options, and make the best changes for your life and for others.
Because you can, and should, work your money better.
To benefit yourself, your family, your society, and the world in general.
Checking one financial subject at a time.
Making one advantageous decision at a time.