I'm writing this post after a conversation I had with @crypto.piotr because these are some extremely important information about the global economy that nobody seems to know. Not knowing the facts I mention here is the equivalent of not knowing that the planet is a globe. If you want to be a monk, you don't have to know these things. If you ant to live like a 21st century equivalent of a serf, you can skip this knowledge. If not yo need o know these stuff or you can easily end up making some terrible economic decisions. I'll start with something light.
The reserve requirement (or cash reserve ratio) is a central bank regulation employed by most, but not all, of the world's central banks, that sets the minimum amount of reserves that must be held by a commercial bank. The minimum reserve is generally determined by the central bank to be no less than a specified percentage of the amount of deposit liabilities the commercial bank owes to its customers. The commercial bank's reserves normally consist of cash owned by the bank and stored physically in the bank vault (vault cash), plus the amount of the commercial bank's balance in that bank's account with the central bank.
The required reserve ratio is sometimes used as a tool in monetary policy, influencing the country's borrowing and interest rates by changing the amount of funds available for banks to make loans with. Western central banks rarely increase the reserve requirements because it would cause immediate liquidity problems for banks with low excess reserves; they generally prefer to use open market operations (buying and selling government-issued bonds) to implement their monetary policy. The People's Bank of China uses changes in reserve requirements as an inflation-fighting tool, and raised the reserve requirement ten times in 2007 and eleven times since the beginning of 2010.
What this basically boils down to is banks loaning out money that doesn't exist. While the economy is booming, this is actually a great thing. Let's take some random numbers. Banks loan money at 5% interest and pay 4% interest for deposits. If a bank had 100 million USD in deposits they make 1 million USD for themselves from loans. Eurozone has a reserve requirement of 1% which means the bank can lend out 10 Billion USD on 100 million worth deposits and collect 500 million USD in interest and just pay 4 million USD to those who deposit the money resulting in 49,600% revenue for the bank.
This is hypothetical scenario and reality has more moving parts. But anything close to 49,600% revenue is a something huge.
Now Something Serious: Federal Reserve
- The Federal Reserve is a private institution. It is owned by the 12 regional Federal Reserve banks, which are each in turn owned by a combination of regional banks, commercial banks, foreign banks, and miscellaneous individuals who have inherited pieces passed down through generations. (Rockefellers, Rothschilds, etc.)
- The Federal Reserve holds a monopoly on the issuance of currency in the USA. In essence, this is the power to borrow an infinite amount of money at 0%. The dollar bill in your pocket is a 0% loan to the Federal Reserve. The Federal Reserve then uses these 0% loans to purchase income-producing assets. Before 2008, the assets purchased were primarily Treasury debt, which is backed by the taxation power of the US Government. In other words, we are exchanging the property rights to our valuable assets (land, labor, entrepreneurship) for little slips of green paper to buy trinkets with. The government can then tax these valuable assets to pay for our excess. The more we spend, the more the Fed owns.
- If all money created is debt and counts as principal, where does the money come from to pay interest on this debt? It comes from the money that gets printed in the future. This is why inflation is a natural result of our current monetary system.
- Much of the Fed's activity is not made public because of the use of off-balance sheet vehicles.
U.S. government has the power under the U.S. Constitution to issue debt-free money and JFK issued such money and some of it is still in circulation. The founding fathers were against the central banks and never wished to see and abomination like FED which has massively eroded the value of USD which was supposed to be pegged to 1/20th of an ounce of gold. If an ounce of gold is over $20 you have paid an invisible tax with the erosion of the value of your funds.
I'll just quote some of the interesting reason which you probably didn't see coming. Click on the link for a full set of reasons.)
- __According to an official government report, the Federal Reserve made 16.1 trillion dollars in secret loans to the big banks during the last financial crisis. The Federal Reserve also paid those big banks $659.4 million in “fees” to help “administer” those secret loans.
#27 Within 20 years of the creation of the Federal Reserve, the U.S. economy was plunged into the Great Depression. The Federal Reserve created the conditions that caused the stock market crash of 1929, and even Ben Bernanke admits that the response by the Fed to that crisis made the Great Depression even worse than it should have been.
During the quantitative easing era, the value of the financial securities that the Fed has accumulated is greater than the total amount of publicly held debt that the U.S. government accumulated from the presidency of George Washington through the end of the presidency of Bill Clinton.
The Federal Reserve is supposed to look out for the health of all U.S. banks, but the truth is that they only seem to be concerned about the big ones. In 1985, there were more than 18,000 banks in the United States. Today, there are only 6,891 left. #53 The five largest banks now account for 42 percent of all loans in the United States.
When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars. Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve. The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.
Here are few more infographs to expand your understanding regarding the global economic situation. I hope I'm not overloading you with information. Even if I am, just take you time to gothrough all the links. If you want to deal with the economy, you need to know what it is.
Few Statistics on Wealth
I won't give much credit to some YouTuber talking about finance because most of them are wannabe idiots or scammers. But Alex Becker is someone with a real business who has gone through the real process of being n entrepreneur. He is also and introvert (INTP to be exact) and despite having some aggressive language he is simply the most authentic and straight YouTuber talking about finances I've seen upto this day. So Check out his video: