How the US money system works: Part 1 - The Intro

Intro 

Most people don't understand how the US monetary systems. Most don't even know what the monetary system is and those who know get parts of it wrong. Only very few people know the truth to the how it all works. It is not as simple as people think it is. It was designed to be confusing. I will explain it you. You should be happy because i bashed my head against the wall trying to figure the system out. I will just put it into simple english. Also most country have a similar system to the US but i will just focus on the US for now. 

Mike Maloney 

There is video made by Mike Maloney Who tries to explain the system but get a few stuff wrong like saying the member banks pay government bonds with dollars and then trade the bonds with the Federal Reserve for iou and then money is created out of thin air. Really! You just pulled that out of your ass didn't you! He only explained on part of system which was the open market operation. That just one of the many tools the Federal Reserve has. Don't worry if you didn't understand what i said because i will explain them. This will be put into series so you get a better understanding.  

What Is the Fed. 

The Federal Reserve is as quoted by the federal Reserve "The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. Today, the Federal Reserve's responsibilities fall into four general areas."  

Explaining financial terms

Inflation is when the general price of goods and service increase. A loan is when you give someone money expecting it to be paid back at a later date usually with interest.  Interest is price for borrowing money. Interest rate is the percentage charged on the loan. Bonds are when a person loans an entity money for a defined period of time at either a fixed or variable interest rate. An IOU is a document saying someone owes money. The central banks is an entity that controls the nations money supply, currency and interest rates. They also regulate the commercial banking system. Credit is when the lender gives something of value to the borrower and the borrower agrees to pay it back usually with interest.  A security is a financial asset. A non-physical economic resource such as stocks, bonds, banks deposit, etc. A repurchase agreement is when party A buy security from party B and at a later date, sells the security to party B which usually sells at an  increased price. A reverse repurchase agreement is just a repurchase agreement from party A's perspective. If the dealer borrows money, it is a repo. If the dealer lends money, it is a reverse repo. Repo is also when the central bank loans money to commercial bank. Reverse repo is when the central bank borrows from the commercial bank. Monetary policy  is when the central banks decides the supply and rate of growth of the money supply. Monetary means relating to a national currency or coinage. Intrinsic value is the actual value of an asset. Face value is the value made by the issue authority. While a 1 dollar note may have a face value of $1, it's intrinsic value is $0.049. Debt is the money owed to someone. Fiat currency is currency that is not backed by a physical commodity.  The gold stranded is when a currency is backed by gold. You can take the country paper money and trade it with the government and receive a agreed amount of gold. That amount of gold is called the par value. Shares are units of of ownership. With a share you normally get a proportion of the entity's profit which is called dividend. That is the  basic of what you need to know. I don't cover everything above so if you ever need to know something, you can always do a google search or use Investopia, Balance or Wikipedia. Also check out the video below to better inform yourself of the economy.  

Conclusion 

If you know how the feds works and pay close attention to it, you will better predict the market which can give you the upper hands. It means you invest in a smarter way. It also means you will be prepared for when the dollar will collapses. It will collapse as it is a fiat currency and history has shown us that fiat currency will collapse.