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$how Me the Money

There are a lot of things you hear about money: The Love of Money is the root of all evil. Money doesn’t grow on trees. Money can’t buy happiness. Nowadays there is a huge divide between the 1% of the population who holds in their hands the vast majority of the world’s wealth, leaving the 99% trying to pick over the remainders. Money is what makes people worry the most and makes them the happiest and the unhappiest.

The true fact of all money matters remains a secret for the majority of people. In this article, I will unveil the hidden secrets of money. [Hint, the current debt-based-fiat-money system was born in secrecy following a meeting of some of the most influential people of the time gathered on Jekyll Island]. I will also explain what money is and where it is coming from. [Hint: ‘money’ is created out of thin air and is just a piece of paper with no intrinsic value.] And finally, I will take you on an epic journey through history, right from the start where I will tell you the story of the Scotsman who is responsible for all of your money worries. Fasten your seat belt, it is going to be a hell of a ride.

Hidden Secrets of Money

There is a difference between money and currency, most people would not know what is the key factor that distinguishes one from the other. The best person to explain the difference is Mike Maloney, who is the creator of the series Hidden Secrets of Money; he made it his mission in life to see through all the smoke and mirrors that surrounds money matters. As the title of his series suggests, the true facts of all money matters remain a secret for the majority of people.

“Our true wealth is our time and freedom. Money is just a tool for trading your time. It is a container to store your economic energy until you are ready to deploy it. The secrets of money are hidden in plain sights, they are out in the open like the way the monetary system works, but most people can’t really see or understand how it really works; the use of technical jargon makes it very opaque and inaccessible to the uninitiated. The secret remains a secret because of a lack of proficiency for the majority of people. Other secrets are meant to be just that, secrets! But the truth is finally coming out, such as the fact that the Federal Reserve is a private corporation and not part of the US Government.” Mike Maloney

Photo by @freepik via freepik.com

G. Edward Griffin the author of The Creature of Jekyll Island explains in his book the origin of the Federal Reserve. He describes it as a creature.

Most people think that the Federal Reserve is a Government Agency. It is not. It is a corporation. The Federal Reserve was created in 1913 and operates like a banking cartel. It is a cartel of the biggest private banks in America. They are joined together for the purpose of what all cartels do and that is to control their own industry, prevent competition and make sure their profits margins are nice and secure.

G. Edward Griffin

What is money?

But what is money? Money and currency are two different things. Currency is a medium of exchange, a unit of account that it (i) portable, (ii) durable, (iii) divisible and (iv) fungible mutually interchangeable – a dollar in your pocket buys the same amount as a dollar in my pocket. Money is all of the above plus (v) a store of value over a long period of time. The currency in your pocket is a medium of exchange. It is a unit of account because there are numbers on it. It is somewhat durable. It is portable. It is divisible and it is fungible, but it is not a real store of value because governments can print more and more of it, devaluing and diluting the currency supply, continually transferring wealth out of your pocket into the banking system.

Paper currencies have no intrinsic value and are used solely as a means of payment. When you board a plane to go on vacation overseas one of the things you are likely to bring with you is some foreign currency because as soon as you cross the border, the currency of your home country stops being useful. The same principle applies when you return home with left-over foreign currency; unless you change that currency, it will remain in your wallet with no value in the country you live in. Ultimately, currencies are just pieces of paper, with no intrinsic value.The dollar has lost 98% of its value since its creation by the Federal Reserve in 1913. All money created is debt and there are interest payments on it. There is always more debt in the system than there is currency in existence to pay the debt. The whole currency system is a debt-based system.

How money comes into existence?

Money’ is created out of thin air just by the fact that the Treasury and the Federal Reserve are swapping IOUs (“I Owe You”) with the bank as the middleman. This process is repeated over and over again enriching the banks (who systematically take a cut from each transaction) and increasing the national debt (the US National Debt stands at $23.3 trillion at the time of writing). The Treasury deposits the newly created currency into the various branches of government and gives it to politicians to fulfil their promises. The government then does some deficit spending on public works, social programs and war. Government employees, soldiers, contractors deposit their money in banks for safe keeping.

This is where the money creation process starts cranking up through a system known as Fractional Reserve Banking, which is a banking system in which only a fraction of bank deposits (i.e., 10%) are backed by actual cash on hand or money available for withdrawal. Banks are free to loan the greater part of their deposits (i.e., 90%) to customers seeking loans or debts. For example, if you deposit $100,000 in the bank and the bank has a reserve requirement of 10%, the bank must keep $10,000 of your money on reserve and can lend $90,000 to other customers. In essence, the bank has taken $100,000 and has turned it into $190,000 by giving you $100,000 credit on your deposits and by lending an additional $90,000 to someone else. This process continues to repeat itself over and over again with the next customer. This is where the vast majority of our currency supply comes from.

In essence, the commercial banks are creating money out of nothing then lending it to the people and charging interest on it. If individual persons decide to manufacture money in their own home, this is called counterfeiting. If an accountant creates money out of nothing in the company accounts, it is called accounting fraud or cooking the books, but if a bank does it, it is perfectly legal. It is absurd. But that it was it is.

Money and Currency. Photo by @freepik via freepik.com

The Founding Fathers of the Unites States knew the danger of central banking and a Debt Based Monetary System and this is why they wrote very clearly in the Constitution that only gold and silver can be money; but we have seen throughout history that what’s written on paper and what’s happening in real life is two different things. The American Revolutionary war itself started out as a tax revolt and to protect future generations from institutional theft and an out-of-control government the United States Constitution stated:

No state shall make anything but gold and silver a tender in payment of debts”.

US Constitution

Only gold and silver can be money for the simple fact that you can’t print them into oblivion.

The current system in the US is not only unconstitutional but it robs every American of the Liberty and Prosperity that the Founding Fathers fought and died for. By this means, Government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.”

John Maynard Keynes

This sentiment was reiterated by Sir Josiah Stamp, Former Director of the Bank of England when he said

The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleigh of hand that was ever invented. Banking was conceived in iniquity and born in sin. Bankers own the earth. Take it away from them but leave then the power to create money and control credit, and with a flick of a pen, they will create enough money to buy it back again… but if you want to continue as slaves to the bankers and pay the cost of your own slavery, let them continue to create money and to control credit”.

Sir Josiah Stamp

To understand more about money, look back at history

In 1944, near the end of the Second World War, world leaders and economists met in Bretton Woods, New Hampshire USA, to form a new world monetary system for the post war era, ‘The Bretton Woods System’. Within the Bretton Woods Agreement the US dollar became the reserve currency of the world, promising nations that they could redeem any dollars they had for gold. The dollar’s value at the time was fixed to a gold standard, other countries currency valuations were fixed to the dollar. This system favored the United States because the US could settle its foreign payments in paper dollars, allowing the US to simply print dollars to send overseas, whereas other nations had to settle their foreign payments in gold.

President Charles de Gaulle of France called this payment system America’s exorbitant privilege. The closing of the gold window by Nixon was triggered by the decision of De Gaulle to send a warship to New York harbor with instructions to bring back all of France’s gold from the New York Federal Reserve Bank. On 15 August 1971, President Nixon repriced the dollar/gold relationship to $35 per ounce and no longer allowed the Federal Reserve to redeem dollars with gold, making the gold standard meaningless. This date is a very significant date in the history of global finance as it marked the beginning of the era of fiat money.Fiat Money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. Fiat currency is created out of thin air and is based on faith and credit in the economy backed solely by public confidence.

If you want an Empire, first create paper money

The sun never sets on the British Empire. Photo by @freepik via freepik.com

The story as to how modern-day banking was created is fascinating in its Machiavellian brilliance. As Robert Darryl Schoon explains in his video series Dollar and Sense, banking started in England in 1694 and the key character in this Shakespearean tragedy was a Scotsman by the name of William Patterson. Patterson approached the King of England, King William III, with a proposition: “If you let me issue paper money from my new bank (The Bank of England) alongside the Gold and Silver coins that are used as money; I will pay off all your war debts and loan you as much money as you need so that you can go to war again”.

King William III as the reigning monarch of the time had absolute power over the land and over its subjects but was running short of money. Why? Because like most kings he was constantly waging war. So, when William Patterson approached the King with this deal at a time when the king was heavily indebted, he could not and did not refuse. Unknown to the king, his acceptance of that deal would change the world forever.The role that paper-money has played in the shaping of history cannot be underestimated.

At the end of the 19th century, Britain’s position as the world’s greatest imperialistic power was uncontested; the expression the sun never sets on the British Empire means literally that there was always some part of the Empire on which the sun was shining.Have you ever wondered how and why England, a relatively small island in the English Channel managed to propel herself to be one of the greatest Empires of all time? The key ingredient for this phenomenal success was paper money. England was the first country to develop a modern financial and banking system. Bankers loaned fiat-money to traders, ship owners, and government officials. The formation of the Bank of England was the determining factor that allowed the British to borrow ‘money’ to build a huge navy, overtaking countries such as Spain and Portugal who had exercised maritime dominance from the 15th century onwards.

The availability of finance allowed England’s navy capability and military resources to be built up enabling the English explorers and traders to explore, trade, and establish commercial trading posts all over the world. The British Navy owned the seas. These days fiat money is used to indebt and enslave the population. Bankers first made a deal with King William III, then they made a deal with the United States (which coincided with the creation of the Federal Reserve) and later with every government on the face of the earth (except for Cuba, North Korea, and Iran, the only countries in the world without a Central Bank.)

The whole world has become indebted because governments gave the power to the bankers to do just that. How are these debts paid off? Through income tax. The American Congress passed an act to legalize federal income tax imposing a flat rate to be imposed on each individual; this new law was enacted in 1913, the same year the Federal Reserve was created. Do you think this was a coincidence?

Quick stop-over in China

Photo taken in Suzhou China – March 2019

It is worth noting that the Chinese were the first to create paper money around the year 1000 AD. During that time money was in the form of gold and silver coins, but most cash coins were made from copper or bronze alloys. In the province of Sichuan, there was a shortage of copper, so, some inventive men came up with the idea of minting iron coins instead of copper. Iron was worth less than copper, but the idea was to mint more of it to make up the difference. The problem with this solution was that a large amount of iron coinage was required to purchase items that were both very heavy and hugely inconvenient to carry around.

To resolve this problem people started to leave their coins on deposit at money shops; money shops kept coins safe in their store and issued the owner with a receipt, which was then used to purchase food or other items. That receipt, or piece of paper, represented the exact amount of iron that a person had on deposit at the money shop. This system worked well; until the people at the money shop realized that their receipt was as good as money. The money shops started printing more of these receipts than they had coins in deposit and fairly soon, prices started going up, things got out of control and economic chaos followed putting the local government in a state of crisis.

In 1022, the Sichuan Provincial Government had to be rescued, or bailed-out, by the Central Chinese Government.Central Government officials came to Sichuan Province to assess the situation and report back; the officials shut everything down but realized that this paper money system was a very clever idea. Two years after the incident in Sichuan the Chinese Government themselves adopted a paper money system but declared that only the Central Government could issue these bank notes. The Chinese Government propaganda machine worked to convince people that the paper money was intrinsically as good as the copper deposited, but the truth of the matter was that the Government issued a significantly higher value of paper money than there was copper stored.

What is freedom? Freedom is about having choices. The more choices you have the more freedom you have and vice versa. In our society money is a conduit that facilitates choices. The 1% control the 99% of the population by keeping a firm grip on money creation and money distribution.

For the 1%, money is power. For the 99% knowledge is power. Know how the system works and you will become powerful.

For a more detailed analysis of this fascinating subject please refer to Chapters 8 & 9 of my book “This Is Your Quest’.

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The Reddit, Robinhood, Citadel Saga. The Name of the Game is Short Selling

The Reddit, Robinhood, and Citadel saga is front page news; the name of the game is short selling. All those players are currently engaged in a modern-day version of the David and Goliath battle where the small guy is beating up the big guy at their own game.

This whole Reddit, Robinhood, Citadel saga gave me a good excuse to have a movie night at home with my youngest daughter to watch the 2010 Robin Hood movie directed by Sir Ridley Scott with Russell Crowe and Cate Blanchett in the lead roles. We enjoyed it, great cinematography, great cast, and a really good storyline. The movie tells the background story of Robin Hood and how he came to be an outlaw. In this article, I am taking you on an epic adventure traveling back in time with Robin Hood as our traveling companion and hero. At the end of this journey, we will circle back to the modern-day Reddit, Robinhood, and Citadel saga, where the name of the game is short selling.

Robin Hood. Rise and Rise Again Until the Lambs Become Lions

Robin Hood – Rise and Rise Again Until the Lambs Become Lions. Photo by @freepik via freepik.com

The movie starts with an epic battle taking place in France between the army of Richard the Lionheart who is on a full siege and assault mode on the Challus castle; the idea was to break through the castle’s fortress and ransack the place to finance the final leg of the journey home to England. Robin Longstride serves as a common archer in the army of King Richard the Lionheart, at this point in time he was quite disillusioned and war-weary. He got himself and his comrades into trouble after sharing his frank and unflattering appraisal of the King’s conduct when the king asked for his opinion. This led Robin and his comrades to be tied-up for insubordination, waiting to hear about their fate whilst the rest of the army mounts their final assault on the castle.

The King is killed during the attack; this gave Robin and his comrades the opportunity to escape, they became deserters and persona non-grata but they were alive and free. From that point in time, their quest was to make it safely back home to England. They came across an ambush of the English by Godfrey the traitor, an English Knight who was conspiring with King Philip of France to assassinate King Richard. After chasing Godfrey away, Robin decides to take advantage of the situation by having his men impersonate the dead English knights in order to return to England as wealthy noblemen instead of penniless deserters. Before they depart to sail across the Channel, Robin promised to fulfill one of the dying knights, Sir Robert Loxley’s last wish, of returning his sword to his father in Nottingham.

Robin was fascinated with the words engraved on the sword’s blade

“Rise and rise again, until the lambs become lions.”

The Legend of Robin Hood and the Charter of Rights also known as the Magna Carta

Upon his arrival in the Thames estuary, Robin continued to assume the identity of Sir Loxley as it fell upon him to inform the royal family of King Richard’s death. He witnessed the coronation of King John who was as ambitious as he was clueless, and who lost no time making himself extremely unpopular by raising taxes on the poor and by dismissing the loyal and experienced chancellor from his function to replace him with his friend Godfrey, who turned out to be a ruthless traitor who was plotting with the French King to invade England.

Robin and his companions traveled to Nottingham to hand over Loxley’s sword to his elderly and blind father. Sir Walter asked Robin to continue impersonating his son to prevent the Crown from seizing the Loxley family lands. Loxley’s widow, Lady Marian, is initially cold toward Robin but eventually warms up to his charisma, quiet assertive strength, courage, and devotion towards the people and the land.

The plot by Godfrey to help the French invade England is discovered and triggered the northern barons to assemble in the presence of King John to discuss a strategy to fight the invaders. Attending and speaking on behalf of Sir Walter, Robin declared that he would not fight under King John’s command unless the King agrees to the Charter of Rights granting more rights and protection to the barons such as the protection of church rights, protection for the barons from illegal imprisonment, access to swift justice, and limitations on feudal payments to the Crown. In those days, kings believed they were divinely appointed, and this gave them a license to use and abuse anyone and anything that suited their wants or needs. Being under the threat of civil war on the domestic front and having to deal with an imminent foreign invasion on its shores King John reluctantly agreed and signed (on 12 June 1215) the Charter of Rights also known as the Magna Carta.

The battle between the now united English troops and the French took place on a beach below the cliffs of Dover. Robin led his troops to victory and distinguished himself during the battle saving in the process Lady Marian’s life from Godfrey’s evil intent and stopping Godfrey dead in its track when he was shamefully fleeing the battle scene. King Philip soon realized that his ‘surprise’ attack failed and sailed back to France feeling utterly defeated. The English troops rejoiced in their victory over the French and celebrated Robin Hood for his courage and leadership during the battle. King John was offended by the lack of recognition and validation he received from his troops and became resentful of the genuine and loving attention ‘his’ people gave to Robin Hood, something he never experienced first hand. He decided from that point on to compensate for his flagrant lack of authority and popularity by abusing his ‘flaky-God-given-power’.

Back in London, King John decides to renegade on his promise to implement the Charter of Rights deciding instead to reassert the fact that he was divinely appointed and would not on this basis agree to have his power curtailed. He declares Robin an outlaw to be hunted throughout the kingdom. Robin and his men flee to Sherwood Forest with the orphans of Nottingham.

And so, begins the legend of Robin Hood the one that steals from the rich to give to the poor

The Reddit, Robinhood, and Citadel Saga. The Name of the Game is Short Selling

The Reddit, Robinhood Citadel saga. The name of the game is short selling. Photo by @freepik via freepik.com

Fast forward to today and the news about GameStop, Robinhood App, and the Citadel Hedge fund. It all started with a Reddit Chat Group called Wall Street Bets who has more than 2 million subscribers. This group noticed that a lot of the big hedge funds had very heavy short positions on GameStop, as a matter of fact, 140% of the stocks were short! [Feel free to be shocked]

Disclaimer. Before I continue with this article please note that I am not a financial advisor, banker, or any kind of financially qualified person; the rest of this article should not be taken as financial advice.

Question: Can you sell something that you don’t own? Answer: in the real world the answer is no, but in the world of finance the answer is yes you can. That is what short selling is; it is the ability to borrow a stock that you don’t own in order to sell it back at a profit later on hoping in the meantime that the stock price has tanked, allowing you to buy it back at a price that is lower than the price you paid to borrow the stock. Once you have pocketed your profit you return the stock to the owner. Sounds fishy?! Absolutely, except that in the financial world you are allowed to do that.

When you have a short position, you are betting on the company to fail. The big wall street players have been playing this game very successfully for years until a few weeks ago when they got a taste of their own medicine. That medicine was administered by a bunch of amateur investors who got together on the Reddit chat group where they agreed to buy en masse shares of GameStop forcing the price to go up. The increase in prices forced the big guys to buy back their short positions at a much higher price than they paid which cost them billions of dollars in losses. The price of GameStop skyrocketed to the moon, making millions of dollars of profit to the small guys! At its lowest GameStop’s share price was $2.50 and at its highest, it went over $350.

The big guys on wall street were stunt, they had no idea that a bunch of ordinary people could get together, get into the stock market arena, call them out on their short positions, and play quite successfully the same game that was reserved till now to the big guys!

When the going gets tough change the rules of the game!

The Reddit, Robinhood, Citadel saga. The name of the game is short selling. When the going gets tough, change the rules. Photo by @freepik via freepik.com

The story should have ended there with winners on one side (the small guy for once) and losers (the big guys) on the other side licking their wounds. Except that when the going gets tough for the big guys they change the rules!

The plan worked extremely well for the little guy until the big guys started to freak out. One Hedge fund company called Melvin Capital lost 30% of its money and was on the verge of bankruptcy; this triggered two players Citadel and Robinhood App to come into the arena to ‘rebalance’ the game.

Citadel is another hedge fund company, they came to the rescue and bailed out Melvin Capital from Bankruptcy. Robinhood is an App where you can trade stocks for free, [attention, attention, alarm bells ringing, there is no free lunch anywhere. Right?! So, how does Robinhood LLC make their money if all their customers can trade for free?! There must be a catch somewhere]. To everyone surprise and shock, Robinhood stopped trading stocks of GameStop to try to stem the bleeding and protect the big hedge funds from incurring further losses. Robinhood market themselves as being an App for the people, they push forward the message that through their App ordinary people can get on their phones, participate in the stock market and make money. Shutting down trading because they didn’t like what was happening to these Hedge funds with short positions seemed like the exact opposite of what those Apps were supposed to be doing, taking from the poor and giving to the rich. It is interesting to note that a ‘citadel’ is defined as a fortress where people could shelter for safety. It looks to me that Citadel is acting as a fortress to protect its own i.e., the big guy.

What is interesting about Robinhood is that they make their money through Citadel by selling them user data. Citadel pays Robinhood money for real-time information on what Robinhood’s users are buying and selling. Remember my point earlier about there is no free lunch, there must be a catch somewhere. [Feel free to feel shocked and outraged]

People should not underestimate the importance of this event, because it is without the shadow of a doubt a populist revolution aimed at the financial industry. The little guy is saying, “The system is rigged. We can play that game too. We want a piece of the pie.” This event has caused an onslaught of reaction, on one side you have those cheering and applauding the small guy and on the other side, you have the big guys going on TV and crying foul! The double standard is quite outrageous. It is classy to game the stock market if you are wealthy but if you are a regular Joe and you game the stock market you are trashy.

After enduring a beating across social media, Robinhood took to its own blog on 28 January, and CEO’s Twitter account to explain why it had halted trading of some of the stocks.

“Amid this week’s extraordinary circumstances in the market, we made a tough decision today to temporarily limit buying for certain securities. As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.” Robinhood CEO

SEC net capital obligations and clearinghouse deposits are rules about how much money brokerage have to have on hand to ensure that they are essentially good for the transactions their consumers want to make. In order to be in compliance, a brokerage must have sufficient net capital at all times prior to, during, and after purchasing or selling property securities to protect its customers and fulfill its obligations; it must have cash flow.

Robinhood’s explanation for suspending trading and putting a limit buying of some of their stocks is that it was to comply with their regulatory obligations; in other words, it was a risk management issue. My question is: how often does a brokerage house have to suspend trading in order to comply with its basic regulatory obligations? Can we reasonably infer that it was the broker’s own conduct and operation that made their exposure so risky that they put their customers and their own operation at risk, so much so that they had to halt trading?

The Reddit, Robinhood, and Citadel Saga. Class Action v Robinhood, the battle is now happening in Courts

A class-action lawsuit was filed in the Southern District of New York by Brendon Nelson, Plaintiff Class Action against Robinhood Financial LLC, Robinhood Securities LLC, Robinhood Market Inc. Plaintiff demands trial by jury.[Feel free to clap and cheer, if you so wish].

Nature of the legal action:

1. Breach of contract. Robinhood an online brokerage firm purposefully, willfully, and knowingly removed the stock GameStop from its trading platform in the midst of an unprecedented stock price, thereby depriving retail investors of the ability to invest in the open market. Robinhood breached its customer agreement by among other things failing to disclose that its platform was going to randomly pull a profitable stock from its platform. Robinhood failed to provide adequate explanations to their customers and knowingly put them at a disadvantage compared to customers who used other trading platforms.

2. Breach of the implied covenant of good faith and fair dealing. Robinhood failed to exercise trades and actions requested by their customers and was therefore in breach of the implied covenant of good faith and fair dealing. Robinhood unfairly interfered with the rights of plaintiffs and members of the class to receive the benefits of the customer agreement.

3. Negligence. Robinhood was grossly negligent and wrongfully breached his fiduciary duty to the plaintiff and the members of the class causing losses and damages that would not have occurred but for Robinhood’s gross breach of duty of care.

And so, begins the legend of Reddit and the small investor.

To be continued …

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For more on this subject you can purchase my book This is Your Quest online at BookLocker, from Amazon or from Barnes & Noble.  The Ebook version is available on Amazon (Kindle), Barnes & Noble (Nook), Apple (iBooks) & Kobo. Check out my Amazon Author Page here or my listing on Booksradar.com.

The audio version of my book “This Is your Quest ” is available. Feel free to check it out and use this special Promotion code