Money

Origin of Money

We will not talk about history of money, but we will talk about how money works in our lives. From Barter system to Gold coins, to Bretton Woods, to Fiat currency, to Digital currency(Bitcoin, Ethereum, etc.). With each phase, the circulation of money and access to it has only increased.

Fiat Currency and its impact

• Fiat currency is a currency that is not backed by a physical commodity like gold or silver, but rather by the full faith and credit of the issuing government. Unlike any other form of money which is limited by design, fiat currency can be created at any time by the issuing government.

• Money is also called debt because the majority of the currency that we use today is created by the Banking system(95%) against assets like a house, car, buildings, or land.

• What would happen if we run out of all the assets to use as collateral?

  • For that, we have created a new term called Financial Engineering, where we do complex engineering to create new assets to use as collateral like Treasury bonds, Municipal bonds, Mortgage-backed securities, Commercial paper, personal loans, credit cards, CDOs, CDSs, etc.
  • So do not worry about its creation. In fact, we can create money out of an individual's Energy Consumption & Expenditure since it is also an asset for someone.

Interest Rates and Inflation

Government's Perspective

Bank's Perspective

Company's Perspective

Lobbying

Investors Perspective

Individual's Perspective

Sticky Prices

Expectations

Quantative Easing