Understanding how money works

September 7, 2011 by
Filed under: Bank's Profits, Debt Management 

There really are two kinds of money. There is the concrete actual hard-coin-in-hand money that has been acquired when an individual trades their time and sweat for a paycheque; then, there is the abstract ethereal cash-as-concept money that is ideologically held by banks, investors and governments, those who “invent” money.

That you understand the difference is critical. Money borrowed from friends and family is of the former; money borrowed from a credit card is an advance of money that doesn’t even exist yet. However, the interest that you will be paying on it is very, very, real.

Here’s a video showing John Bird and John Fortune explaining, by way of example, how light, airy and tenuous the second form of money can be.

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