Help your kids get a decent shot at it
These days I escape our musty chamber of white noise only long enough to haul loads of diapers or exchange two-ounce bags of breast milk. Stumbling out with a plump sack of brown ones, I ran into my seven-year-old for what seemed like the first time in weeks.
I prod about how things are going for him and his sister Mia, now that his mom and I have been consumed with trying to keep his baby brothers fat and happy.
Hey bud…how’s it going?
Great. See you tomorrow then?
Ryder: Daddy, where does money come from?
Well son, our money is deposited to our bank account by my employer for the work I do.
Then it pays for baby shit, like the $1,500 your mom just spent on matching Snoos sleepers.
Ryder: But where does that money come from?
That money comes from customers, who buy products that my employer makes.
Ryder: Where does their money come from?
This went on to the issuance of new money, so I turned off the baby monitor and poured one bourbon, one scotch, one beer, plus a chocolate-almond-milk (he’s off dairy, and I’m self-medicating). We climbed under the table to talk, lucking into a few dirty Cheetos.
Where money comes from
Here’s the thing, son. New money is issued by an agent of the government called the Federal Reserve Bank, created by Congress a hundred years ago, then lent back to the government through banks who were given ownership of the Federal Reserve.
The government then spends the money, funnelling it to staff and preferred contractors. All of the new money is loaned into existence by the government to the government through the banks, and they even split up the interest with each other.
Ryder: I don’t get it.
Exactly! It’s like a giant game of circle jerk.
Ryder: What’s circle jerk?
Oh shit, umm… Let’s call it Ring Around the Rosie, but only some people are invited.
Ryder: What happens next?
Once the new money gets out in the world, we compete for it with neighbors and friends. This part sounds bad, but it’s not. We don’t fight each other, but collaborate in voluntary exchanges, building things, solving problems, and servicing each other to earn it. The more we do for each other, the better we all live.
This role for money is called a “medium of exchange”, and almost any amount is enough, because prices adjust. The more money that’s created, the more everything costs.
This buying and selling is called a “market”, and has “an invisible hand”, using millions of decisions by all of the people to find the best use for our resources (time, energy, and savings) to create the most prosperity, including nice places to live and work, cool gadgets and toys, plus an adequate supply of delicious food.
But the people who create the new money – the Federal Reserve – build nothing, sell nothing, do nothing, nor exchange anything for it. They don’t work for the new money. They just push a button on a computer, and the money is credited to their bank account.
This new money doesn’t change the amount of food or toys in the world, but can be used to buy stuff just like the old money. No one can tell the difference between the two. Can you figure out where that value (or “purchasing power”) comes from?
Not exactly. That buying power is skimmed off all the old money held by everyone, including ours, Grandma’s money, and your teacher’s money, from the work we all did for each other. The amount of stuff in the world didn’t change, but the value of that stuff must be evenly distributed across all the money used to measure it.
It’s like if we had 15 tacos rolled and spread across three plates on the kitchen table. Each plate has five tacos on it. But if two more plates are introduced to the area, now each has an allocation of only three tacos. The amount of wealth (tacos) in the world didn’t change, but those tacos must be distributed across more plates.
Ryder: It sounds like mooching.
Son, it’s a sham, there are no two ways about it.
Most people don’t have any clue how it works. By the time you graduate high school, your teachers will have taught you nothing about it. If you go to college and study money (ECON, like me), instead of nothing, they’ll teach you a bunch of gobbledygook.
They prefer no one thinks about this process, but if you do, they introduce complicated models to confuse and justify how it’s done. People in power prefer we talk about other things, like skin color, immigration, Russia, and abortion.
Ryder: What’s abortion?
Shit. Back to topic, son.
It wasn’t always this way. In ancient and recent history money has been tangible, like seashells, cows, grains, and metals, mostly gold and silver, that cannot be created by pushing a button. But the people who have this power, banks and government, like it, because they get to play Ring Around the Rosie picking pockets full of posies.
This is also the reason for frequent and ever larger booms and busts, because instead of solving problems and serving each other, people often just try to get in on the game. New money is directed into projects closest to the game, and businesses form around them.
These are the booms, which are followed by busts when the new money pauses, slows or changes direction on the whims of the Federal Reserve and Congress.
If you want to be successful and secure in life, you should learn to recognize this. When you see it happening around you, you can find opportunities to take advantage of early, and avoid following the herd into poor decisions later. If you get the “what” and the “why”, you can begin to connect the dots that others don’t see.
Ryder: Daddy, you should write a story about this gobble gook, with pictures. Pictures make it fun and easier to understand.
Great idea, buddy. Every night we read stories about nothing. They’re cute, and it’s more enjoyable than burping your helpless brothers, but we could use that time to learn more about the world, especially important concepts they don’t teach kids in school.
Son, I’ll do it.
And to give me insights that will help me set price and quantity, we’ll give some away for free. The rate that people sign up will send me a signal about the “demand” for high quality, full color children’s books that uncover important messages about money and the world (while keeping dads, moms, stepdads, stepmoms, girlfriends, and strippers from Boston engaged, entertained, and enlightened).
Ryder: Hooray! You’re the best daddy ever. Sorry I call you Bad Daddy.
That’s right, son. I am the best dad ever, aren’t I? (Pausing, self-importantly). Now wash your hands, you filthy animal.
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Like this one? Try We’re Headed Back to a Gold Standard next!