The Truth About Money: What Banks Don’t Want You To Know
What banks don’t want you to know – any economy is supported by its banks. Even though the Fed is technically a bank, it generates money differently from other banks. What if I told you, however, that every bank had the authority to issue money? Theoretically, you could open a bank and begin producing money, but there is a simpler method. Why spend all that money on a bank when you can launch a cryptocurrency and become a crypto-billionaire in an instant? At least that is what has been taking place recently. You probably don’t know anything about banking if you think cryptocurrencies are a hoax.
Therefore, in this blog article, we’ll look at 5 truths about money that banks don’t want you to know, if everyone knew them, the banking system may collapse. Or, to paraphrase Henry Ford, “If the people of the country understood our banking and monetary system, I believe there would be a revolution by tomorrow morning.”
So if you’re ready, settle down, unwind, and put on your reading glasses because we’re about to get started.
1. Keeping your money in a bank is a scam!
How much interest would you receive if you put your funds in a bank, please? It appears at first look that at least a small percentage is necessary for it to make any sense, correct? But if you examine the data, it’s far from that. The best institutions, like the City Bank, provide a paltry 0.5%. Even if interest rates are currently at their lowest point, some institutions still offer rates that are more than 1 percent.
Consider this. When inflation is 2.5 percent, your money rises by 0.5 percent. Your wealth’s fundamental worth is essentially declining yearly. Spending money right now is preferable to storing it in a bank. Your money’s purchasing power in a few years will be significantly lower than it is today. And asset values, like those of homes and equities, grow tremendously when inflation is exploding, as it is right now, as we have seen over the past year or two. A bank is not a place to earn money; it’s a place to put your money.
2. Every bank has the right to create money out of thin air.
Since the Fed is the only bank that is permitted to generate money, you probably won’t believe me if I say that banks do so. It is the sole organization with the right to that printing press and the source of the dollar. However, the financial system is set up such that any bank in the nation—or, in fact, the whole world—can operate. Dependent on how much money customers have put in that bank, to generate some money.
Let’s assume that you deposit $1,000 at bank A. What do you suppose the bank will do with the funds? The bank loans your money to someone else who wants to purchase a vehicle or a house, for example, and earns interest that is frequently considerably more than the meager 0.5 percent it gives you. If they kept it, they would not even be able to pay you that wretched amount.
The typical interest rate on credit cards is 20%.
The difference between those two amounts and what the bank pays you is enormous. The important thing to remember is that the bank won’t disclose to you whoever it will lend your money to. If your money is still in the bank, where did the bank get the money to lend to someone else? The bank will always show you when you check your account that your money is still there and you may withdraw it whenever you choose. Fractional reserve banking is what that is.
Only 10% of the deposits may be kept by banks; the remainder must be lent. The bank makes another 900 dollars and loans them to someone else for every thousand dollars you deposit, bringing the total to $1900. 900 bucks appeared out of nowhere thanks to the bank. Since all that is on the computer is a series of numbers, it’s not as challenging as you might imagine.
3. You can make money by borrowing from banks and investing elsewhere
Mark Zuckerberg obtained a 30-year mortgage in July 2012 to pay for his $5.95 million Palo Alto residence, which is only 3 miles from Facebook’s corporate offices. He was the 40th richest person in the world at the age of 28, with an estimated net worth of $15.6 billion. Why would you go into debt if you had billions of cash and the means to pay it off easily? He could pay cash for a dozen mansions valued at $6 million without batting an eye if he so desired.
Why therefore obtain a mortgage?
It’s Free Money, that’s the response! I recognize that that sounds absurd. When you are already a millionaire, who would offer you free money? I mean, unless it’s for charity, why would somebody give someone else free money? Interest rates are a prominent theme throughout. Recall how we discussed how banks’ returns are so low that it is not worthwhile to leave your money there since it doesn’t even beat inflation, meaning you are losing money. In this case, though, it’s the opposite.
Any money you borrow that is below the inflation rate ;
Is seen as free money since the inflation rate in the US is between 2.5 and 3 percent. The rate on Zuckerberg’s mortgage was only 1.05 percent. The bank loses since the mortgage rate is less than the inflation rate, according to the calculations. This is what banks don’t want you to know – to perform the arithmetic, you don’t need to be brilliant. Let’s imagine you take out a $1 million loan at a rate of 1.05 percent as an example. Before the epidemic, the average rate of return on a savings account was 2.4 percent.
It may be less than 1 percent at this point, but let’s just continue with 2.4 percent. Meaning that even if you deposit that million dollars in a different bank, you still make $24,000 a year while just having to pay the bank that gave you the money a monthly payment of $10,500 (1.05%). Think about what would happen if you did it with $100,000,000 or $1 Billion! There is no benefit to keeping your own money in reserve when you may spend it for more profitable endeavors. Of course, since the difference is so minor, this may not make sense when discussing smaller sums of money. However, when dealing with significant funds, betting about 1, 2, or 5% might potentially equate to hundreds of thousands of dollars – which is what banks don’t want you to know.
4. The richer you are, the lower the rate you get
Keep in mind that banks are companies, just like any other, whose goal is to maximize profit, not charitable organizations. They are responsible to their shareholders. They will not exist if their business model is not successful, thus they are far more at ease giving money to a rich person than a poor one. If you are a billionaire, for example, the bank can rest easy knowing you won’t default on your loan and that, in the unlikely event you can’t make your mortgage payments, you can easily sell a portion of your business to cover the debt.
This virtually eliminates the risk associated with the bank lending you money. It is how the banking system developed throughout the ages when banks would only do business with nobles, with individuals who had money or assets that continuously generated revenue, like land. In contrast, the typical employee may become ill, become unable to work, or even lose his job. Lending your money is quite dangerous if you are barely getting by. I’m aware that it’s simple to attack banks for that, but give it some thought.
How comfortable would you feel?
If your buddy hardly makes any money or if your friend has a business, would you feel comfortable lending them money? No matter how harsh it seems, the latter is probably the case. Therefore, improving your financial situation is a prerequisite if you want to obtain a lower mortgage rate, a lower credit card rate, or just better conditions when borrowing money.
Banks also provide such a low mortgage rate to build trusting ties with wealthy individuals so that they would turn to them for a larger loan in the future. It benefits both parties. Blockchain and cryptocurrency technologies, for example, promise to change this and democratize banking, and they probably will to some extent. Banking has become so democratic that everyone may use financial services. Compared to a century ago, that is amazing!
5. Credit Cards are banks’ nuclear weapons
Seventy percent of Americans who have credit card debt acknowledge they will not be able to pay it off this year. Consider for a second what that implies! This is what banks don’t want you to know – the debt on your credit cards is not the same as the mortgage. It doesn’t grow at 3.5 percent annually. It’s probably over 20%! What gives you the confidence that you will be able to pay off your credit card debt in a few months when it has significantly increased if you are unable to do so now? In other words, 70% of Americans are on the verge of getting themselves into financial trouble, which is what banks don’t want you to know.
Fifty-six percent of people polled claim to have credit card debt that has been present for at least a year. And the majority will bear it for many more years. Almost 20% of respondents believe it will take them longer than three years to pay off their debt, and 8% don’t know when they’ll be able to do so. Since most individuals spend money mindlessly, this is how banks often make a fortune, which is what they don’t want you to know.
Regarding the repayment plan, they are prepared to maintain their current quality of living, even if they are unable to pay for it. Banks keep contacting you to sell you brand-new credit cards because of this, banks don’t want you to know this secret. Without a doubt, using credit cards properly helps to raise your credit score, but if you are not financially responsible, you should avoid falling into the debt trap, a trap that banks would not like you to know.
