Money Is Debt
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 29 January 2020
⏱️ 28 minutes
🧾️ Download transcript
Summary
How most money, such as currency, bank deposits, money market mutual funds, and repurchase agreements, is really short-term debt, often backed by other debt. As a result, money is subject to runs when investors lose confidence and don't want to own it. That can lead to financial crises.
Topics covered in this episode include:
- How counterfeiting currency works.
- Why most money is debt backed by debt.
- How a loss of confidence in money leads to bank runs and other financial crises.
- How demand for U.S. Treasuries as collateral is keeping interest rates low even though the U.S. federal budget deficit is growing.
- Why the Federal Reserve is considering capping interest rate yields on U.S. Treasuries and what are the risks of doing so.
- What can individuals do to protect themselves against financial crisis caused by runs on banks and financial securities.
Thanks to Vistaprint for sponsoring the episode. Use promo code: "david" to get free shipping. Also thank you to The Bouqs Company for sponsoring the show. Use promo code: "david" to get 25% off.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on Money, How It Works, |
| 0:07.7 | How to Invest It and how to Live Without Worrying About It. |
| 0:11.1 | I'm your host David Stein today is episode 285. It's titled |
| 0:15.5 | Money Is Debt. Last month when Laperone and I were in Mexico City, we decided to order a wood-fired pizza. |
| 0:28.1 | Carryout. |
| 0:29.3 | When I went to pay for the pizza, I handed the server a 500 peso note. He looked at it briefly and said I can't take this |
| 0:39.2 | note it's counterfeit. I got this 500 peso note from an ATM machine, from the bank, and yet it was counterfeit. |
| 0:50.0 | The best counterfeit notes in the world come from Peru. |
| 0:55.0 | In 2016, Peter Holly of the Washington Post interviewed Jose. |
| 1:00.0 | He's a US Secret Service agent who leaves the crackdown on counterfeiters in Peru. |
| 1:06.9 | Jose said, a lot of these organizations are family run. |
| 1:11.4 | Making a counterfeit note is a skill that's been passed down. It's an art and this skill isn't easily transferable. |
| 1:19.0 | He mentioned that it takes 10 to 12 people to create a note, financiers, designers, printers, cutters, and the |
| 1:28.1 | artists who recreate watermarks and raise textures so that the notes appear quite real. He said they're very good at |
| 1:36.0 | creating texture on the note which makes it passable not just in the U.S. |
| 1:40.2 | economy but also in South America and abroad. A $100 note can be sold for $20. |
| 1:48.2 | Cost for materials and labors is $3 to $5. and most of these notes are smuggled into the US from |
| 1:56.2 | Mexico and then they might be spent at a big box retailer. Jose said most big retail |
| 2:04.8 | have relaxed return policies and the individual will return their |
| 2:08.9 | items and get cash back making a 90% profit. |
| 2:14.1 | And these counterfeiters, once they get the notes, |
| 2:16.1 | they might hit 14 stores across seven states in one day. |
... |
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