Where does money come from?

Before you invest or even begin to work for money, I recommend considering this.

Simple and controversial, money doesn’t really exist. Money is a format of debt. One is always negative related to each other. So:

Money = -Debt

Because:

Money + Debt = 0

Then what is debt?

Debt is something an entity or human would take to establish products or services in capitalism. Debt is there to reward the general society in a measured form about the positiveness (value) of the product or service established. It shows how much value something has by a number. Money is created only by people or entities taking debt. The money must be accepted and defined by law for this use.

Example: You want to build a house.

What do you need?

Money.

Why?

The builder needs it to come up for his cost and in exchange he wants money. You need to pay him, workers, raw material, etc. The builder accepts your money as a payment for his costs.

If you don’t have that money you could get it from a bank. The bad thing is, you must pay it back after a while. At the time you get the “debt-money” from your bank into your account, the house doesn’t exist, yet. Later it will probably exist. The house is a product, it’s future or existing value.

That “debt-money” that you must pay back to the bank is the total cost of the house. And the amount of that payment is equal to the value of your own work, because you have to collect that money elsewhere. Otherwise how will you pay it back? The money was already paid to the builder to build the house.

The house is your entity, establishing a service for yourself (free living) or others (collect rent – money flows to you). After you have paid back that borrowed money to the bank, that money will disappear. The bank cannot keep it. It does not exist anymore. It is a negative number (debt) filled up with a positive number (money). In the end it’s zero.

Any additional value that you can figure out later (you set a higher price tag of your house to sell it on the market) will be equal to the value created by others.

Who creates debt?

You.

An entity (company).

The government.

NOT the bank.

If you take out money from the bank leaving a negative account or use your credit card, debt is created and therefore money is created.

It means that you create money by yourself. Not the bank. Not someone else. The bank just writes down how much money you created (to give you positive money/cash – that is a negative in your bank account), to pay something with a value. The bank wants it to be paid back later to bring accounts to zero, because that is the system, capitalism. The system needs to fill it up with other money and the banks are the guards of the system. But where does that other money come from? I think you got it.

It also means that all the money together out there is equal to the sum of all the values that were created with debt at any given timestamp, plus prospected future value.

All the (negative) debt = All the money = All the real values + future values

Taking an investment is betting that the prospected future value is becoming real value by taking debt.

Making an investment is betting that the party, which takes the investment will be successful by creating real value. Initially, that is a service by the bank.

Interest

Let’s assume that you have taken money from the bank and now you have trouble paying it back. You cannot come up with enough money, whatever work you do. Then the bank will need to take other things of value from you, because you owe not only them. You owe the system. The account won’t go to zero, it’s negative, red. You are highly “in debt”.

Simple solution: the bank takes your house (Asset), finished or not, it has at least some value and tries to sell it to someone else. This might give them enough money back to fill up your account until it’s zero. But it’s annoying, it’s work. The bank wants to be paid for their cost of “work”, their “service”. Therefore, they do a simple trick, they take a percentage fee of the amount that you have taken out additionally. Then they are paid already in advance for the trouble they might have with you, e.g. if you cannot come up with the payment in the future. It’s their service. The less they think that you can come up with payments, the higher the interest rate is. It is recommended that you fully understand this, before you sign any sort of personal debt contract.

Why does the bank act like that?

Let’s see what happens if you take out the “debt-money” and just run away. Then the bank as an entity owes the system. The bank has to come up with their money collection to fill up the negative account for you. If too many people run away, too many accounts are negative and the bank itself is unable to act. The bank is seen as a person of no trust as well. It has failed the system and must be deleted as an entity. Bankrupt!

If many banks are in this bad condition and must be terminated, it’s a financial crisis. All the “debt-money” won’t be collected directly and the values change rapidly. Banks disappear and cannot or don’t want to write down new debt. That has happened in the year 1929 and 2008. Did that destroy the system? Almost, but No. Did that give trouble for some lives? Certainly.

But where has all the “debt-money” gone?

It is still in the system until it is payed back to another bank.

Where in the system is it?

In the hands of clever investors. That is Scrooge McDuck, John Davison Rockerduck and Flintheart Glomgold.

Additional thought

If the debt contract is with an entity (company, government, …) it’s another story and it is important for investing, because you can be the one giving that debt to them and it won’t be created in a bank. You can be the creditor and the collector of the interest money. In this case new money is not made, because you need to have it first.

We can think about what it means to be “rich” or “poor”. Is it really relative to an certain amount of money?

We can think of the difference between a product and a service.

We can think about if bitcoin is money. What is bitcoin?

Further, one could think about other forms of economical systems and what’s exactly the difference and if that can really exist. (Socialism / Communism etc.)