Where Does Money Come From
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Where Does Money Come From?
Money is a fundamental part of daily life, facilitating countless transactions every day. But have you ever wondered where it originates? Why do we need it, and how does it get into circulation?
The Necessity of Money
In a world where bartering is cumbersome?"imagine a potato farmer trying to pay a contractor in potatoes?"money becomes essential. It serves as a medium to represent and transfer the value of goods and services, such as houses and potatoes. However, it's crucial to note that money itself is not a resource; it simply represents the resources we possess.
From Goldsmiths to Modern Banking
Centuries ago, gold and silver served as money. People carried these valuables around, vulnerable to theft. This situation gave rise to goldsmiths, the precursors to modern bankers, who offered secure storage in exchange for receipts. These receipts eventually became what we now know as banknotes.
Goldsmiths soon realized they could lend out more receipts than the actual gold they held, since depositors rarely reclaimed their gold. Thus, they began lending out receipts at interest, leading to more money in circulation than there was actual gold backing it.
The Modern Money System
Today’s banking system works similarly. When you deposit money, banks lend out multiples of that amount. Money is essentially created by banks out of thin air. Most of it exists only as numbers on a computer screen. With less than 5% of this money converted into physical notes and coins, the majority is digital.
This system is inherently unstable. It's designed to collapse periodically, as evidenced by economic depressions occurring roughly once each century. The system’s downfall is not a question of "if," but "when."
The Debt Cycle
Consider borrowing $100,000. You’ll need to repay $110,000 with interest. But where does the extra $10,000 come from? It must be borrowed, creating a cycle of debt that’s almost impossible to escape. This cycle means that not everyone can pay back their debts, leading to bankruptcies. As banks charge interest, money is withdrawn from the system, reducing supply and necessitating further borrowing.
Protecting Yourself
Understanding this cycle is crucial. Debt grows exponentially, creating economic bubbles that eventually burst. While the system’s collapse is inevitable, being informed can help you navigate and protect yourself during economic turmoil.
Explore more about these concepts and how to safeguard your assets in uncertain economic times.
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