Banks are the backbone of any economy. Even the fed is actually a bank, but unlike any
other bank, it creates money. But what if I told you that every bank has
the right to create money? Theoretically, you can start a bank and start
creating money, but there is an easier way. Why waste so much money first starting a bank
when you can start a cryptocurrency and become a crypto-billionaire overnight.
At least that's what has been happening lately. If cryptocurrencies seem to you like a scam,
then you probably don't know much about the banks. So, here in this video, we are going
to take a look at 5 truths about money that banks don't want you to know because if everyone
would know that, that might be the end of the banking system. Or as Henry ford said:
It is well enough that people of the nation do not understand our banking and monetary
system, for if they did, I believe there would be a revolution before tomorrow morning.
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to the video.
Keeping your money in a bank is a scam!
Let me ask you a question, how much interest would you earn if you deposit your savings
in a bank. At first glance, it seems like at least a few percent for it to make any
sense, right? However, if you look at the numbers, it's
far from that. The top banks, such as the City bank, offer
literally less than 0.5 percent. There are banks that offer a higher rate, but they are
still than 1 percent, especially since interest rates are at the bottom now.
Think about it. Your money grows by 0.5 percent while inflation is 2.5 percent. The intrinsic
value of your wealth is literally decreasing every single year. You are far better off
spending that money today than keep it in a bank. The purchasing power of your money
in a few years is going to be far less than it's now. And when inflation is skyrocketing
as it's now, for example, asset prices such as homes, stocks rise exponentially, as we
have seen happening in the last year or so. A bank is a place to park your money and not
to make money.
Every bank has the right to create money out of thin air.
If i would tell you that banks do create money, you probably won't believe me because the
only bank that's allowed to create money is the fed. It’s the source of the dollar and
the only institution that has the right to that printing machine. However, the banking
system works in such a way that every bank in the country or, in fact, the world is allowed
to create money to a certain degree based on how much money people have deposited in
that bank.
Let's say you deposit a thousand dollars in bank - A. what do you think that bank is going
to do that with money. There is no point in keeping it, they wouldn't even be able to
pay you your miserable 0.5 percent, so the bank lends your money to someone else who
wants to buy a car, for example, or a house and collects interest which is often much
higher than 0.5 percent that it pays you. An average credit card interest is 20 percent.
That's literally dozens of times higher than what the bank pays you. The point is that
the bank isn't going to tell you to whom it will lend your money. Whenever you check your
account, the bank is going to show you that your money is still there and you can withdraw
it whenever you want, so if your money is still there in the bank, where did the bank
take the money to lend to someone else? That's known as fractional reserve banking.
Banks are allowed to keep just 10 percent of the deposits and lend the rest. For every
one thousand dollars you despot in the bank, the bank creates another 900 dollars and lends
it to someone else, which brings the total amount to $1900. The bank created 900 dollars
out of thin air. It's not as difficult as you might think since there are just digits
in the computer.
3. You can make money by borrowing from banks and investing elsewhere
In July 2012, Mark Zuckerberg financed his 5.95 million dollars Palo Alto home, that's
3 miles away from facebook’s headquarters with a 30-year Mortgage.
At that time, he was 28 years old and the world's 40th -wealthiest person, worth an
estimated $15.6 billion. The question is, why would you get into debt
when you have billions of dollars and can easily afford it? If he wanted, he could easily
buy a dozen $6 million homes, in cash, without batting an eye. So why get a mortgage?
The answer is - it's Free Money! Sounds unreal, I understand. Who would give
you free money when you are already a billionaire? I mean, why would anyone give anyone else
free money unless it's charity? It all has to do with interest rates. Remember
when we talked about banks giving such a low ROI that it doesn’t worth keeping your money
there since it doesn’t even beat inflation, so you are losing money? Well, in this scenario,
it's the other way around.
The inflation rate in the US is 2.5 to 3 percent, so any money you borrow that is below the
inflation rate is considered free money. Zuckerburger's mortgage rate was just a little
over 1.05 percent. If you do the math, the bank is the loser
since the mortgage rate is below the inflation. You don't have to be the genius to do the
math. For the sake of example, let's say you borrow 1 million dollars at the rate of 1.05
percent. The average rate of return on a savings account is 2.4 percent before the pandemic
and now less than 1 percent but lets just stick to 2.4 percent. Meaning that Even if
you deposit that million-dollar in another bank, you end up making 24 000 dollars a year
while you only have to make a monthly payment of 10500 (1.05%) to the bank that lent you
that money. Imagine if you do that with a hundred million
dollars, or how about a billion dollars!
When you can borrow for free, there's no point in tying up your own money when you can use
that money for more profitable things. Of course, when we are talking about small
amounts of money, this might not make sense because the difference isn't that big. However,
when it comes to large sums, playing around 1, 2, or half a percent could potentially
mean dozens of thousands of dollars if not hundreds.
4. The richer you are, the lower the rate
you get
Remember that banks are not charity organisations but are businesses like any other who's job
is to maximise profit. They have shareholders to whom they are accountable. And if their
business model isn't profitable, they are not going to survive—Thats why they are
much more comfortable lending money to a rich guy than a poor guy.
When you are a billionaire, for example, the bank can sleep peacefully because no one is
worried that you might default on your loan, and in case if something happens, in case
you can't make your monthly payments, you can easily sell part of your business to pay
back your mortgage, that makes loaning money to you almost risk-free.
In fact, that's how the banking system evolved over the centuries, where banks would only
work with nobility, with people who had money or assets that constantly generate income
such as land. Compare that to an average employee who could
get sick or might not be able to work or just lose his job. If you are barely making ends
meet, loaning money to you is extremely risky. I know that it's easy to criticize banks for
that but think about it. Would you feel comfortable loaning money to
a friend who barely makes any money or a friend who has a business? Probably the latter, no
matter how harsh does it sounds.
So if you want to get a lower mortgage rate, a lower credit card rate, just better terms
when borrowing money, you have to do better financially first.
Banks also offer such a low mortgage rate to establish strong relationships with rich
people s o that when they would need a bigger loan, they would come to them. It's a win-win
situation. Technologies such as blockchain or cryptocurrencies
are promising to change that and democratise banking, and they will probably to a certain
extend. In fact, banking has been democratised to the point where everyone has access to
financial services. Compare that to a hundred years ago!
5. Credit Cards are bank’s nuclear weapons
70% of Americans with credit card debt admit they can't pay it off this year. Think for
a moment about what does that means! Your credit card debt isn't like your mortgage.
It isn't like 3.5 percent a year. It's probably like 20 percent!
If you can't pay your credit card debt on time now, what makes you think that you can
pay it a few months later when that debt has grown much bigger. In other words, 70 percent
of Americans are about to fall into the debt trap.
Over half of those surveyed, 56 percent, say they've had credit card debt for at least
a year. And most will continue to carry it for years to come. Almost 20 percent estimate
it will take them more than three years to pay off their debt, while roughly 8 percent
say they don't know when they'll be able to pay it down.
And that's how banks usually make fortunes because most people spend without thinking
about how they will pay it back. They are used to a certain standard of living, and
they are ready to keep it even if they can't afford it. That's why banks keep calling you
to sell you a brand new credit card. Don't get me wrong, using credit cards responsibly
is great to build your credit score, but if you are not financially responsible, then
you shouldn't get yourself into that debt trap.
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