Episode Seven: The Reality of Money

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Money is fundamental to the human experience. Like so many other aspects of our world that exist only through the shared dream of cultural convention, money is mostly imaginary, even though the necessity of obtaining and spending money is is tied to our physical well being.

Coins and bills are tangible, physical things, but it is our rules and our shared understanding that makes it possible to exchange these things for food and other necessities.

There are so many aspects and levels to money that we need to start with the most basic reality that money is complicated.

Every aspect of money can, itself, be the subject of its own in-depth analysis.

Money is multi-layered, multi-faceted, mysterious, and magical. Money is one of the deepest and most abused targets of truth hackers. There are countless ways that people will try to convince you that, you can afford it, or you're worth it, or we're going out of business and we have a deal for you. People will try to persuade you that you shouldn't gamble with that risky idea, you should invest in my alpaca farm - that's a sure thing! Pyramid schemes, no money down, hidden charges, fine print, and four easy payments with a money back guarantee.

But the truth hacking of money goes even deeper, to the core of what money is. Everybody needs money, because we live in a monetary system. But we don't talk about where money comes from. If money is gold, then money comes out of the ground. With cryptocurrency, money is created through the computational work to validate distributed ledger systems. But when money is just a database at a bank, it is easy for those who control and understand money to dangle easy money on a hook made of interest and fees.

Our entire money system is hidden behind layers of history and complexity, and the internet is full of easy answers about who you should fear, and what you should believe.

At the personal level, we all need to understand basic money management, such as how to spend less than we make, save for those rainy days, and prepare for retirement.

But as citizens, we also need to understand those other, more abstract aspects of money, so that we know who to vote for and what to expect from them.

Learning about money is like running through a house of mirrors. The truth is there, but you have to look past all the noise that comes from people trying make a dollar by hacking your reality, rather than hacking their own, and it's easy to run into dead ends and false turns.

Section 8 of the United States Constitution says that Congress shall have the power to coin money and regulate its value. Section 10 says that no state can allow anything but gold and silver coin in payment of debts.

This seems simple enough, and even though we have written a lot of new laws and regulations about money since those words were written, the United States Mint still creates gold and silver coins today. Silver coins have the words: 1 oz. Fine Silver - One Dollar. Is this money? Or is it just some sort of ceremonial tribute to the history of money in our country?

In 2013 the United States Court of Appeals for the Ninth Circuit reaffirmed the conviction of Robert Kahre and his sister Lori because they paid employees with official United States gold and silver coins and used the face value of those coins in actions related to tax reporting.

The court's ruling states:

Appellants would argue that the employee received only ten dollars in wages. However, if each silver dollar had a fair market value of fifty dollars, the government assessed the wages at 10 x $50 or $500.00. The district court was persuaded that Ninth Circuit precedent, as well as that of other courts including the Tax Court, required taxation of the coins at fair their market value. The district court observed that the tax code and corresponding Treasury regulations treated property, such as gold and silver coins used as compensation for services rendered, as taxable at fair market value.

So is a silver dollar a dollar?

The United States mint also creates dollar coins that are intended to be equivalent to an actual dollar. Those are the ones with Susan B. Anthony, Sacagawea, or one of the presidents. If you paid someone with a silver US dollar, for tax purposes, you have paid the market price of one ounce of silver. However, if you paid someone with a Sacagawea dollar, which also says one dollar, you have paid exactly one dollar. Unless you used a 2000 Philadelphia mint version of the dollar coin that entered circulation through a Cheerios cereal box, in which case you might have paid that person several thousands of dollars.

Maybe that depends on some negotiated reality that your tax attorney and the Ninth Circuit Court of Appeals will accept.

What does it mean if the United States Mint, under authority of the Constitution, creates two coins and sets their value of both as one dollar, but then decides to tax one of them at a completely different value? What it means is that money, like reality, is fluid. If you get to define what money is, you have a great advantage.

In the early 1900s, the Federal Reserve Act effectively transferred the creation and management of the nation's money supply from the federal government to the newly created Federal Reserve bank.

The history that led to this, and the history that follows, are reviewed in the Money Masters documentary, which you can find at themoneymasters.com, or on YouTube, and in the book The Creature from Jekyll Island, by G. Edward Griffin.

The basic revelations of these works explains some of the fundamental realities of our money today, such as the fact that the Federal Reserve bank is not a part of the government, but is a private bank with which the government has a special relationship.

They also explain that bank loans increase the money supply by creating new money from nothing. It's easy to see this when we realize that none of the bank customers will ever see a deduction shown in their account when the bank loans out money. We have the total of everyone's account balance, plus the balance of all of the loans. Banks can actually lend out much more than their total deposits, because they are required to hold in reserve only a fraction of the bank's deposit liabilities.

The history of banking in the Untied States is the history of the struggles over who will define and control money. It started in the mid seventeen hundreds. The colonies issued Colonial Scrip and Bills of credit, a practice that was interrupted by the Currency act of 1764, which, along with excessive taxation and other grievances mentioned in the Declaration of independence, led to the American Revolution.

Alexander Hamilton wrote about taxation and borrowing to satisfy a government's needs in Federalist 30, Concerning the General Power of Taxation, in which he recognized:

In the usual progress of things, the necessities of a nation, in every stage of its existence, will be found at least equal to its resources.

As George Washington's secretary of the treasury, to help manage the debts from the war of independence, Hamilton helped form the First National Bank, which was opposed by Thomas Jefferson and James Madison because that power was not expressly granted to Congress by the Constitution.

After the first bank's charter expired, and the Second National bank was established, Jefferson wrote in his letter to John Taylor that he felt that banking establishments are more dangerous than standing armies, because, as he wrote:

the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

Andrew Jackson agreed with that, and vetoed the bill to extend the charter of the Second National bank in what became know as the Bank wars.

Abraham Lincoln, in the 1860s, also dealing with war expenses, issued Greenback currency, rather than borrow money from the banks, which demanded very high interest rates. This was followed by the National Banking Act, that created a system of national banks, which sometimes had to borrow from other banks or recall loans, and endure bank runs.

It was in this era that Nelson Aldrich, who was the Senate Chairman of the National Monetary Commission, along with a collection of the most powerful men in banking, met secretly in November of 1910 on Jekyll Island, Georgia, and drafted the plan for the Federal Reserve System, which was signed into law by President Woodrow Wilson on December 23, 1913.

The federal reserve system was created to establish economic stability and to prevent panics and bank runs, such as the Panic of 1907, in which J.P. Morgan pledged large sums of his own money to shore up the banking system. But ever since its creation, the institution has been surround by mystery, misdirection, suspicion, and mistrust.

In 1934, Pennsylvania Congressman Louis T. McFadden said:

We have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.

The process by which our money supply is create is described by what G. Edward Griffin calls the Mandrake Mechanism, named for a cartoon magician who could conjure anything. The government issues treasury bonds, and those that are not purchased by the public are purchased by the Fed with a bookkeeping entry that creates money for the federal government to spend. The treasury bonds become reserves, which the fed uses as the basis for lending money to other banks according to the federal funds rate, set by the Federal Open Market Committee. As this money goes into circulation, and comes back into bank accounts, banks can use that money to create and lend out even more.

It is reasonable to ask: Why do we leave monetary policy in the hands of a private, non-governmental agency? Is this the only or the best way to maintain economic security for our nation?

If money can be crated out of nothing, why do we print treasury bonds, which are purchased with newly created money, but must be repaid with interest? Can't we just increase the money supply with a different bookkeeping entry as necessary to satisfy the needs of commerce? Perhaps it comes down to who we want to trust: Politicians who might use the money to buy votes, or a banking system that might use the money to buy the government?

Perhaps we could create a different mechanism for the creation and management of the world's money supply, but in the same way that a base twelve number system, or a thirteen month year, or the metric system might be an improvement if we could all agree, the Federal Reserve and how banking is done today, is the reality of our money.

There are rules to the game of money. We can rail against them and wish they were different, or we can learn the rules and play the game.

Everyone wants to know the trick, because everyone thinks that there is a trick, some sleight of hand that money magicians have learned. But when you read books about money like Think and Grow Rich , by Napoleon Hill, or Secrets of the Millionaire Mind by T. Harv Eker, we learn that the secret of money is not an algorithm. Accumulating wealth is not a series of procedures or techniques, although there are countless procedures and techniques that you might find useful once you learn them. Wealth begins by changing our own personal reality of money.

If you think rich people are greedy, bad people, how will this affect your money success? Will you be a bad person if you get money? You don't have to be. You get to decide that reality.

When you see something, do you say, that's nice, but I can't afford it. Or do you say, that's nice. I'm going to find a way to afford that.

We are creatures of powerful magic. We live both in the physical world, and in the complicated, cultural world of ideas. As with everything else, wealth begins with an idea, or an intention, but if you want money, you will actually have to do things in the physical world. You will have to interact with people, learn new strategies and techniques, take risks, and stretch your comfort zone.

But how, or even if, you do those things starts by eliminating whatever thoughts, fears, or prejudice that you might have about money that keep you from learning what you need to learn and doing what you need to do. Should you refinance your home? If you expect to be turned down, and so you never call the bank to ask about opportunities, then you'll never know.

The reason that money self-help books don't give you the secret technique for how to make money is that are so many of them that they would never fit into any one book, and there is no way for the author to decide which one of them is best for you. What they can do is help you think differently about your decisions and desires, so that you can discover and begin to learn some of those specific techniques for yourself.

The world is full of money levers that you can learn to pull. There are books about investing in the stock market, owning rental real estate, forming a small corporation. You can watch YouTube videos about how to make YouTube videos. You can read books, watch films, and visit web sites to learn virtually anything that you want to learn, or what type of specialist to hire to help you on your money journey.

But where to begin? What is the first step?

Luckily, there is an easy answer for that. The first step to making money work for you, is to just look at your money. What is your income? What are your expenses? This should be specific and exact, in a spreadsheet or just on a piece of paper. Watch your money. See every penny in and every penny out. Just doing that simple step, but doing it well, will lead you to begin thinking about what you want, or maybe need, to do differently.

You can reduce expenses or you can increase your income, but there are different types of income.

Some income is tied to your time, like a job, or consulting, where you have to work more hours or increase your hourly rate to make more money. Other income is not related to your time, like royalties or income from managed rental properties.

The trick, more or less, is to start with time-dependent money, so that you can get acquire time-independent money.

It's the difference between cutting lawns, and starting a lawn cutting company where you pay other people to cut lawns for you, collect the money, pay the employees, and keep the difference. Now your income is limited by the number of people you hire and the number of lawns that they cut, not by the number of hours in a day.

If you want to buy a small house to rent out, you need to first practice money management skills as an employee so that you can save enough for the down payment on the loan. After you deduct the mortgage payment and property management fees from your rental income, the rest is time-independent monty, passive cash flow that can go into an account to help save for the down payment on your next house.

That might sound impossible, out of reach. But if you are already paying a mortgage on a house you might be able to move out and rent that house to someone else for more than your mortgage payment. If you downsize to an apartment, now instead of paying a mortgage, you're paying less per month in rent, your mortgage is covered, and you are saving extra money every month.

But you can't do that if you don't know that it's possible, or if you think that it's a silly thing to do. As Marshall Brodien says on his TV commercial:

Most magic tricks are easy, once you know the secret.

But the knowledge that anyone needs to do money magic is not a secret. It's lying at your feet, like a pathway of golden pebbles. Books, videos, websites, and other people with the knowledge you need are everywhere.

But follow the advice of Boss in Cool Hand Luke.

You need to get your mind right.

You need to learn, not just copy. There are no simple and guaranteed short cuts. You have to do the work, and do it well. Unfortunately, there is no book that will teach you how to inherit vast wealth from your family fortune. If making money, or managing your money better is something that you want to learn, you will. If you want more money, make money your hobby.

For most people today, money still serves as motivation to do our part to add value in some way to our communities. For others, money is not a motivation for survival or improvement, but is a machine used to make more money.

If someone makes a hundred times more than I do, that person doesn't buy a hundred sofas, or a hundred cars, or a hundred times the groceries and clothing that I buy. That money is taken out of general circulation, and is used to buy more shares of stock, to make more money to buy more investments, to make more cash flow to buy more real estate and so on. Money doesn't trickle down, it blasts up like a geyser, faster and faster, and this is the reason that 1% of Americans hold 30% of the wealth.

The reason that this is the reality of money is because this is all we have ever known. We can change the form and representation of our money, from Colonial Scrip, to Gold, to Greenbacks, to Federal Reserve notes, to bitcoin, and then to whatever comes next.

The fundamental essence of money is that, whatever form it takes, it is always artificial, and therefore can always be magnified artificially until it becomes detached from how hard you work or what value you actually provide.

We live in a world of great abundance. We have technology to produce enough food and shelter to care for every human on our tiny blue marble.

This is something Jacque Fresco recognized when he wrote "The Venus Project: The Redesign of Culture" in 1995. Jacque suggested meeting the needs of a civilization differently than we do today. He writes:

The same energies that went into the Manhattan Project could be channeled to improve and update our way of life, and to achieve and maintain the optimal symbiotic relationship between nature and humankind. With our present state of technology we can direct our energies toward creating such an environment if we as a people choose to do so. All of the limitations imposed upon us by our present-day monetary system can be surpassed by adopting a resource-based economy, which would provide us with a limitless supply of material goods and services without any taxation whatsoever.

And maybe even without money.

Money is part of our shared dream, and masters of money, those who have recognized the fundamental nature of money and its multiplication, have shaped and defined the limits and capabilities of what we are able to imagine. None of us individually can challenge or change the fundamental premise of our age, and so for now, we have to learn to pull the money levers that are available today. We have to defend the swarms of monetary truth hacking, and become masters of our own money reality.

And someday, perhaps, new realities about money will emerge from the fog of what is possible. When we remember that we are creatures of great magic, and that our cultural realities are a shared dream that can be shaped be those willing to forge new paths and new perspectives, we might discover new worlds beyond the world of money and the many Mandrakes that make it.