Some money tips

Money is important. It makes the world go round. It fluidifies the exchange of value, in whatever form that value takes; be it in service, a good, or promise of the delivery of that service or good in the future.

I remember reading once on a five-pound note these words;

“I promise to pay the bearer the sum of five pounds…”

This confused the hell out of me. It still does a bit if I am honest. Wtf does that mean? No one owes anyone anything cuz I have the five pounds?

If this confuses you a bit too then I would like to introduce you to the concept of credit.

This is a different context to my five-pound conundrum. But credit, lending and borrowing are some of the nuts and bolts of the economic machine.

In the US economy, approximately 95% of the money exists in credit. That’s things like credit cards, loans, mortgages, which totals about 50 trillion. Only 3 trillion is made up of ‘hard cash’ like physical money and what’s on our current account statement.

The relationship between lending and borrowing is temporal. When we pay for something on a credit card say, the credit turns into a debt that has to be paid back in the future, with interest of course.

Lending and borrowing are great when it redistributes resources sensibly. For example, if someone buys a car with a bank loan in order to commute to a better paying job. But if people spend too frivolously, this can create problems later on.