Most people spend most of their waking hours working. Why?

The carrot that drives most people to get up and go to work everyday is money. Money is great, you can use it to buy things to eat or use or experiences. What is money really?

Money essentially is a system of agreement for barter. It’s very difficult to function under a system of solely trade as the perceived value of the items you are trading are often wildly different. The value of an item can also change wildly from one person to the next. With money we have a system of agreement and everyone agrees that $1 has more or less the same value from one person to the next.

The gold standard was abandoned in 1933 and from that point forward the US dollar’s value was based on little more than trust. People trust that the government will only create as much money as the financial system needs to combat high interest rates. The more money they print, the less your money is worth, this is called inflation.

The thing that people seem to not know about or understand is that the US government isn’t the only one creating money, banks do it too. When you borrow money from a bank they only need to have 10% of the value loaned to you in reserve. If you want to buy a $100,000 home and you go to a bank to get a mortgage they only need to hold $10,000 in deposits to give you $100,000 to buy your home.

Once you receive that $100,000 you end up depositing it in some bank account somewhere and it ends up at another bank as ‘deposits’ which then allows them to loan out another $1,000,000 of loans from that $100,000 that was created from the original  $10,000 in deposits. The chain goes on and on. The more money the banks create the more inflation there is which make the money that is already in the system worth less and less.

Looking at this system from an objective observer it borders on insane. The entire US financial system is set up and run on debt, the more you borrow, the more the engine keeps running. Suddenly the social pressures to consume beyond your means start making more and more sense. For every $1 banks loan out in principal they get $3 back in interest and penalties. To take a look at some credit card debt statistics for US households look here.

I encourage everyone to really spend some time thinking before they borrow money to buy anything. We buy things because of how we think they will make us feel, but often times they don’t make us happy and end up being just more stuff in our lives.

Karl