if i asked you the question
what is man's greatest invention
what would your answer be
there's a lot of options
would it be fire
because it gives us warmth protection
and the ability to cook our meals
or perhaps you would pick the wheel
because it's the driving force behind
the beginnings of trade commerce and
travel
while both of these are excellent
choices
most of the time when we think about the
greatest inventions of mankind
we tend to forget one of the most
important ones of all
money
but unlike man's other great inventions
money is immaterial
maybe that's why we don't often think of
it in the same breath as some of the
other great inventions
things like fire in the wheel are
tangible
but not money
money is merely an idea an illusion
whose value is non-existent only
determined by the importance we place on
it
or at least money as we know it today
however the fact that money is an
illusion does not in any way undermine
its importance
before we created money we were forced
to trade goods and services directly in
what we refer to as the barter system
people exchanging goods and services for
other goods and services in return
because there was no arbitrary value
placed on these items every single trade
was determined by what each party was
willing to give up for something that
they wanted
it was kind of like a game if i wanted
some of your vegetables for dinner but i
only reared cattle i would have to give
you one of my animals in exchange for a
bag of vegetables
if i wanted shoes to wear but i only
made tents i would have had to give you
an entire tent in exchange for a pair of
shoes
and immediately you can already see one
of the major problems with the system of
trade
it's the asymmetry
as a tent maker there's no way i
wouldn't feel cheated having to exchange
an entire living space for simple
footwear
because there was no standardized medium
of exchange it was very difficult to get
two people who needed things from each
other to come to an agreement
having to wait until a double
coincidence of once where two people
need the exact opposite thing at the
same time was also very difficult and
inefficient
and that wasn't all
you see
our money is not only a medium of
exchange it's also considered a store of
value
and before the invention of money some
people could never store their wealth
for no fault of their own
think about the farmer who sells
tomatoes and the man who makes tents
the man who makes tents can create an
entire village of real estate and barter
it out with anyone who needs a place to
rest their head all year long and he
would probably cash out on that
but the farmer who sells tomatoes can
only barter when tomatoes are in season
and because tomatoes are perishable
goods you cannot keep them for a long
period of time
so although he would be putting in the
same effort into his business as the
tent maker there's absolutely no way for
him to remain wealthy all year long
there's also the problem of having
something that only very few people want
nowadays when starting a business you're
often told to find a niche a small group
of people who are very interested in
what you have to offer
before money was a thing that advice
would have you left with nothing worth
bartering
the people who had the most were those
who own things that everyone wanted
things like weapons animal skin and salt
but then since everyone knew that
everyone wanted these things they
started buying them even if they didn't
need them at the time just so they could
trade with them later
and so commodity money became a thing
people would exchange goods and services
for the most common items like salt or
weapons and just use that to trade for
what they want from someone else
from salt and weapons to tiny
collectibles like shells and bees
humanity had found a better way to trade
and transact
instead of exchanging goods and services
for goods and services you may not need
at the time you can exchange your goods
and services for arbitrary objects to
act as placeholders of value in iou
or i owe you
after that you can use these
placeholders to get goods and services
you actually want from someone else
the idea was brilliant so brilliant that
the entire world slowly moved away from
the barter system to the money trading
system
but there was still one problem with
this medium of exchange
you see for money to be worth anything
it needs to be scarce
the more available something is the
lesser its implied value that's basic
economics
if everyone can get their hands on
something it can't be worth that much
right
so things like sand or shells that you
could easily pick up on any beach
weren't really a good measure of value
as a result around the year 770 bc the
first metal coins were created in china
as a sort of homage the chinese made
miniature versions of the tools that
were once regarded as currency
they made the coins circular so that it
was easy to reach into your pocket and
take them out without hurting your
fingers
then they cast the coins in bronze
this was it
money was finally worth something
you couldn't just go to a beach
somewhere and pick up bronze it was
scarce it had value
at this time
money wasn't yet an illusion the value
of a coin was determined by the value of
the metal the coin was made out of
if you had a coin that was made from 1
gram of gold it was worth 1 gram of gold
you could easily measure it and see for
yourself that it is
in fact one gram of gold
however
kings and rulers quickly discovered the
power of money
they realized that the more of these
tiny precious metals you had the more
power you could control and so in 600 bc
aliati's king of lydia created the first
official money mint
he created the coins using a mix of
silver and gold and stamped an image on
the coin to act as denominations
now people could easily tell the value
of the piece of metal they were holding
simply by looking at the picture on its
face
but the kinks of the world wanted more
money and precious metals were too
expensive
to produce more money they started
slimming down the coins
then mixing the more expensive metals
with cheaper metals
soon all the coins in circulation were
worth less than what the image on their
face said they were worth and so the
illusion of money was born
the value of the coin was no longer
determined by the value of the metal
the value of the coin was now simply
what the rulers in the bank said it was
so one british pound sterling
represented one pound of sterling silver
however when international trade became
a thing people realized that metal coins
were too heavy to log around and so
kings around the world started issuing
iou certificates for long distance
trading
because these pieces of paper were
stamped by the king
people trusted its value and believed
that they could use it to get back
whatever it was worth in coins
and that was true for the time being
as more of these iou certificates
flooded the market people needed coins
less and less
until finally the paper was worth what
we believed it was worth even if we no
longer exchanged it for physical pieces
of gold and silver
from ancient kings to modern day
governments and central banks
money has remained an illusion
a mere representation whose value was
determined by the importance people
place on it
the most valuable bank note in
circulation today is the 10 000
singapore dollars note
although not being produced anymore
this single piece of paper worth 7
345 us dollars at the moment is still
regarded as a legal tender so you can
still use it to buy things valuable
things like houses cars and even metals
like gold
the banknote itself costs less than 20
cents to produce
but the illusion of the fiat currency
system means it's as valuable as 120
grams of gold
fiat is the fancy word we use to
describe the modern day illusion
it's a latin word that translates to let
it be done
it's a decree by the government that in
the case of money determines what its
value is and enforces it as legal tender
the illusion of money is one that we
never really think about but just like
the kings of old the governments of
today understand the power of money and
as always
want more of it
they know that the more of these pieces
of paper you have the more power you
have
so what do they do
well they can simply create more pieces
of paper out of thin air
yes if for example the united states
government wanted 340 million dollars
for
i don't know maybe another f-22 jet
they can simply print the money to do so
but there's one problem with this
inflation
the thing about money is that primarily
it needs to be a means of exchange to be
considered valuable
so the amount of money in circulation
needs to reflect the output of the goods
and services that are being produced
when more money is printed than there
are goods and services
all other things being equal the prices
of these goods and services increase and
the value of the money itself drops
this is why many economists and even
everyday people like you and me are
worried about the current global reserve
currency
the united states dollar
2020 was a terrible year for the entire
world
in the wake of the pandemic most
economies had to be shut down the goods
and services available in the general
output of the economy was reduced to
mere trickles
and the world kind of came to a halt for
a while
because there wasn't as much money
flowing around to keep the economy from
going under and basically our world
falling apart the us government started
printing money at a rate faster than has
ever been printed before in its entire
existence
right now
40 of the us dollars in existence today
were printed in the last 18 months alone
that's
outrageous and because the output of the
country hasn't really increased by that
much
eventually the prices of the goods and
services might start to skyrocket
you can see this taking place in the
price of commodities such as lumber
which had as much as tripled in price
from just a year ago
if you haven't noticed
some of the prices of the things that
your favorite restaurants are now
slightly higher than they were last year
it's an ever so small increase maybe the
guac at chipotle is 20 cents higher but
it's happening right there under your
nose
on the surface it seems like a good
thing that governments decided to send
out stimulus and unemployment checks to
their citizens
but the reality is it's a double-edged
sword
of course it helps those most in need
and that's a good thing
we're at the point where because of
inflation in a slowed economy people
really aren't able to get the right jobs
at the right times
sometimes it's not even because they
don't want them but because it's simply
worse than the alternative
for example in the united states at
least if you're a waiter or waitress you
aren't required by law to be paid even
minimum wage
some are literally paid two to three
dollars an hour with the rest of their
income coming from tips
but with a lot of restrictions and rules
in place around the country and not as
many people going out there's less
customers
less customers with less money means
less tips
if your employees aren't making enough
money
they're going to quit simple as that
if your business doesn't have employees
to help you run it you're going to go
under
it's a domino effect
but what can you even do
when you can earn more money from
unemployment and stimulus checks than
you would from being employed
why even look for a job in the first
place
you see
the federal reserve of the united states
is a very sneaky way for the government
to essentially create money out of thin
air and pump it into the economy without
people thinking too much about it
before 2020 the united states was 29
trillion dollars in debt
it's an unbelievable and inconceivable
amount of money to even begin with
this debt is obtained in the form of
bonds and treasury notes which are
basically just pieces of paper that say
the government will pay you so and so
amount plus interest
right now a 10-year us treasury bond
will return you about 1.23 on your
investment at expiry so if you put in a
thousand dollars today you'll have made
12 dollars and 30 cents by 2031.
that sounds terrible already but to add
icing onto the cake
it doesn't even keep up with inflation
which is targeted to stay around 2 a
year
it's a lot higher than that but that's
for another time
by investing in government notes of your
own country which issues the currency
you use every single day
you actually lose buying power over a
decade
it is weakened by the day
but regardless banks businesses and
individuals around the world buy these
bonds and treasury notes and the
government uses all that money it gets
back how it sees fit
however when it's time for the
government to pay its debt all the money
they made has already been spent
so they buy back all the treasuries and
bonds but only from the big financial
institutions and then pay them back with
new money
created out of thin air
since march 2020 the federal reserve has
bought back over one trillion dollars in
bonds and is planning to continue to do
so for the foreseeable future
with all the new money pumped into them
by the government banks can now give out
more loans to people earn more interest
and help grow the economy but this
increases the total amount of money in
circulation
reducing the value of each dollar
with multi-trillion dollar stimulus
payments and infrastructure packages it
makes you wonder how long the stuff can
go on for
new money steals value from old money
the amount in your bank account doesn't
change but because of the new money the
government has just printed out of thin
air your money is no longer valuable as
it once was
basically
every second you store your wealth in
any fiat currency such as the us dollar
it is being devalued
you could stare at your bank balance and
day by day
you'll be able to buy less and less
things with whatever you have left
the reality that money is nothing but an
illusion is one that we must all embrace
because only then will the path to
financial freedom become clear
it's all a game a game that never truly
ends
understanding that money does not have
any intrinsic value in itself but
instead only inherits the value we give
to it will prevent you from trying to
store up your wealth in currency
instead
using that money to acquire assets that
will appreciate faster than inflation is
the only way to win the game
and it's not really winning it's
avoiding total loss
as more and more money is printed each
and every day the value of each dollar
in your pocket will continue to decrease
but the dollar value of the assets
around the globe will continue to
appreciate in value
but it's all a mirage it's smoke and
mirrors
a stock market that is literally in up
only mode may make it seem like it's all
okay
but it isn't
it's all denominated in the same
currency that is slowly dying each and
every day
for example if you were to denominate
the dow jones which is just a
performance measurement of 30 large
united states companies in terms of gold
instead of usd you'll see that we're
basically at the same place we were in
1997
smoke and mirrors
but what's the end goal of all of this
with fiat and an unlimited supply of
money will the value of each currency
just continue to decrease until the end
of time
will the gap between the rich and poor
just continue to grow wider and wider
or are we finally going to fix a problem
as old as man itself and stop placing
our financial success in the hands of
those who are destroying it day by day
only time will tell
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[Music]
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