Banks are the backbone of any economy. Even
the fed is actually a bank, but unlike any other bank, it creates money.
But what if I told you that every bank has the right to create money?
Theoretically, you can start a bank and start creating money, but there is an easier way.
Why waste so much money first starting a bank when you can start a cryptocurrency and become
a crypto-billionaire overnight. At least that's what has been happening lately.
If cryptocurrencies seem to you like a scam, then you probably don't know much about the
banks. So, here in this video, we are going to take a look at 5 truths about money that
banks don't want you to know because if everyone would know that, that might be the end of
the banking system. Or as Henry ford said: It is well enough that people of the nation
do not understand our banking and monetary system, for if they did, I believe there would
be a revolution before tomorrow morning. So if you are ready, give this video a thumbs
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Keeping your money in a bank is a scam! Let me ask you a question, how much interest
would you earn if you deposit your savings in a bank. At first glance, it seems like
at least a few percent for it to make any sense, right?
However, if you look at the numbers, it's far from that.
The top banks, such as the City bank, offer literally less than 0.5 percent. There are
banks that offer a higher rate, but they are still than 1 percent, especially since interest
rates are at the bottom now. Think about it. Your money grows by 0.5 percent
while inflation is 2.5 percent. The intrinsic value of your wealth is literally decreasing
every single year. You are far better off spending that money today than keep it in
a bank. The purchasing power of your money in a few years is going to be far less than
it's now. And when inflation is skyrocketing as it's now, for example, asset prices such
as homes, stocks rise exponentially, as we have seen happening in the last year or so.
A bank is a place to park your money and not to make money.
Every bank has the right to create money out
of thin air. If i would tell you that banks do create money,
you probably won't believe me because the only bank that's allowed to create money is
the fed. It’s the source of the dollar and the only institution that has the right to
that printing machine. However, the banking system works in such a way that every bank
in the country or, in fact, the world is allowed to create money to a certain degree based
on how much money people have deposited in that bank. Let's say you deposit a thousand dollars in
bank - A. what do you think that bank is going to do that with money. There is no point in
keeping it, they wouldn't even be able to pay you your miserable 0.5 percent, so the
bank lends your money to someone else who wants to buy a car, for example, or a house
and collects interest which is often much higher than 0.5 percent that it pays you.
An average credit card interest is 20 percent. That's literally dozens of times higher than
what the bank pays you. The point is that the bank isn't going to tell you to whom it
will lend your money. Whenever you check your account, the bank is going to show you that
your money is still there and you can withdraw it whenever you want, so if your money is
still there in the bank, where did the bank take the money to lend to someone else?
That's known as fractional reserve banking. Banks are allowed to keep just 10 percent
of the deposits and lend the rest. For every one thousand dollars you despot in the bank,
the bank creates another 900 dollars and lends it to someone else, which brings the total
amount to $1900. The bank created 900 dollars out of thin air. It's not as difficult as
you might think since there are just digits in the computer.
3. You can make money by borrowing from banks
and investing elsewhere
In July 2012, Mark Zuckerberg financed his
5.95 million dollars Palo Alto home, that's 3 miles away from facebook’s headquarters
with a 30-year Mortgage. At that time, he was 28 years old and the
world's 40th -wealthiest person, worth an estimated $15.6 billion.
The question is, why would you get into debt when you have billions of dollars and can
easily afford it? If he wanted, he could easily buy a dozen $6 million homes, in cash, without
batting an eye. So why get a mortgage? The answer is - it's Free Money!
Sounds unreal, I understand. Who would give you free money when you are already a billionaire?
I mean, why would anyone give anyone else free money unless it's charity?
It all has to do with interest rates. Remember when we talked about banks giving such a low
ROI that it doesn’t worth keeping your money there since it doesn’t even beat inflation,
so you are losing money? Well, in this scenario, it's the other way around. The inflation rate in the US is 2.5 to 3 percent,
so any money you borrow that is below the inflation rate is considered free money.
Zuckerburger's mortgage rate was just a little over 1.05 percent.
If you do the math, the bank is the loser since the mortgage rate is below the inflation.
You don't have to be the genius to do the math. For the sake of example, let's say you
borrow 1 million dollars at the rate of 1.05 percent. The average rate of return on a savings
account is 2.4 percent before the pandemic and now less than 1 percent but lets just
stick to 2.4 percent. Meaning that Even if you deposit that million-dollar in another
bank, you end up making 24 000 dollars a year while you only have to make a monthly payment
of 10500 (1.05%) to the bank that lent you that money.
Imagine if you do that with a hundred million dollars, or how about a billion dollars! When you can borrow for free, there's no point
in tying up your own money when you can use that money for more profitable things.
Of course, when we are talking about small amounts of money, this might not make sense
because the difference isn't that big. However, when it comes to large sums, playing around
1, 2, or half a percent could potentially mean dozens of thousands of dollars if not
hundreds.
4. The richer you are, the lower the rate you get Remember that banks are not charity organisations
but are businesses like any other who's job is to maximise profit. They have shareholders
to whom they are accountable. And if their business model isn't profitable, they are
not going to survive—Thats why they are much more comfortable lending money to a rich
guy than a poor guy. When you are a billionaire, for example, the
bank can sleep peacefully because no one is worried that you might default on your loan,
and in case if something happens, in case you can't make your monthly payments, you
can easily sell part of your business to pay back your mortgage, that makes loaning money
to you almost risk-free. In fact, that's how the banking system evolved
over the centuries, where banks would only work with nobility, with people who had money
or assets that constantly generate income such as land.
Compare that to an average employee who could get sick or might not be able to work or just
lose his job. If you are barely making ends meet, loaning money to you is extremely risky.
I know that it's easy to criticize banks for that but think about it.
Would you feel comfortable loaning money to a friend who barely makes any money or a friend
who has a business? Probably the latter, no matter how harsh does it sounds. So if you want to get a lower mortgage rate,
a lower credit card rate, just better terms when borrowing money, you have to do better
financially first. Banks also offer such a low mortgage rate
to establish strong relationships with rich people s o that when they would need a bigger
loan, they would come to them. It's a win-win situation.
Technologies such as blockchain or cryptocurrencies are promising to change that and democratise
banking, and they will probably to a certain extend. In fact, banking has been democratised
to the point where everyone has access to financial services. Compare that to a hundred
years ago! 5. Credit Cards are bank’s nuclear weapons 70% of Americans with credit card debt admit
they can't pay it off this year. Think for a moment about what does that means!
Your credit card debt isn't like your mortgage. It isn't like 3.5 percent a year. It's probably
like 20 percent! If you can't pay your credit card debt on
time now, what makes you think that you can pay it a few months later when that debt has
grown much bigger. In other words, 70 percent of Americans are about to fall into the debt
trap. Over half of those surveyed, 56 percent, say
they've had credit card debt for at least a year. And most will continue to carry it
for years to come. Almost 20 percent estimate it will take them more than three years to
pay off their debt, while roughly 8 percent say they don't know when they'll be able to
pay it down. And that's how banks usually make fortunes
because most people spend without thinking about how they will pay it back. They are
used to a certain standard of living, and they are ready to keep it even if they can't
afford it. That's why banks keep calling you to sell you a brand new credit card.
Don't get me wrong, using credit cards responsibly is great to build your credit score, but if
you are not financially responsible, then you shouldn't get yourself into that debt
trap.
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