US National Debt Explained: Who Really Owns America's $37 Trillion Debt
Discover how government debt connects to money creation and why the national debt matters for your financial future.
The Truth About Money: Why It's All an Illusion (And Why That Actually Matters)
Table of Contents
- What is Money, Really?
- The 3 Things That Make Something "Money" (Most Fail #2)
- From Seashells to Digital Numbers: Money's Strange Evolution
- How Banks Create Money From Nothing
- The Fiat Money Illusion: Why Trust is Breaking Down
- Bitcoin: A New Form of Money?
- When Belief Fades, Currencies Die: Germany's Warning
- What This Means for Your Financial Future
- FAQ
- Quiz
- Conclusion
Key Takeaways
-
Money is not physically real - it's a shared belief or story that only has value because we collectively agree it does.
-
For something to function as money, it needs three qualities: medium of exchange, store of value (ideally), and unit of account.
-
97% of money today is digital, and banks create new money when lending - they don't just lend existing deposits.
-
The US dollar has lost approximately 99% of its value over the last century, making fiat currencies poor stores of value.
-
Bitcoin represents a new form of money based on belief in math and code rather than institutions, with a fixed supply cap of 21 million coins.
Money is not real. There, I said it. But before you think I'm crazy and click away, give me just a few minutes to prove why this is an illusion and why it controls your life.
This revelation might sound shocking, but understanding the true nature of money can fundamentally change how you think about wealth, investing, and your financial future. In this comprehensive guide, we'll explore what money really is, why it's essentially a shared fiction, and how this knowledge can help you make better financial decisions.
What is Money, Really?
What is Money? (really)
When we look deeply into what money is, we realize that money is not real itself. Money is not something that actually exists in the physical world because the only thing that money is actually a shared belief or a story that we all agree on.
You might say, "Yes, that's true with our current digital money because it only exists in the cloud on the internet. But what about things like gold? That is definitely a thing that exists in the real world. Gold is just not a story."
Well, you are correct that gold exists. But the only reason that gold acted as money in the past is because we all agreed on gold being money. If, for example, during the Roman Empire where they used gold, someone cast a spell that made everyone forget that gold is money - let's say when everyone was asleep, they woke up and forgot it - then gold would simply not be money anymore.
The Power of Collective Belief
Gold only exists as money through a shared story, something that is shared between humans in our minds. And that is a fascinating thing about money - the more you think about it, the more fascinating it becomes.
Historian Yuval Noah Harari calls money a shared fiction that only works because we trust in it. I think that's a very solid explanation. Harari has written many books, including the super famous "Sapiens" and more recently "Nexus," which explores how humans have used information in the past and how AI will completely change the game in the future.
Without the collective belief, money loses all value. It's just paper, numbers, or code.
The 3 Things That Make Something "Money"
The 3 Essential Functions of Money
$
US Dollar
🥇
Gold
₿
Bitcoin
1. Medium of Exchange
Trade without bartering
2. Store of Value
Maintains worth over time
3. Unit of Account
Standard for pricing
Did you know? The US Dollar has lost ~99% of its value in the last century!
Track Money Supply Changes in Real-Time
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Start Free Trial Get TradingView Premium + $15 bonusNow let's examine the three core functions of money. What do we need in order for something to be good money?
1. Medium of Exchange
This is something used to buy and sell without bartering. Bartering is basically when you trade one item for another, and this is super ineffective because for a trade to happen, you have to want exactly what I have, and I have to want exactly what you have. That is super unlikely.
That is where money comes in and what makes money so useful. Money is something that, as I said, is a shared belief. We all believe that if we get money, we can use it to buy something else, and that is what makes it work.
2. Store of Value (Ideally)
Money should be able to keep its value over time. The reason I wrote "ideally" here is because pretty much all types of money we have today - fiat currencies like the US dollar, the euro, and so on - are losing value very fast. They lose value every single day and are not good stores of value.
I think the US dollar has lost like 99% of its value in the last century. So it definitely cannot hold value well. A much better store of value is gold. And a new type of money we'll talk about soon is Bitcoin, which has not only stored value but has been increasing in value a lot recently.
3. Unit of Account
Money should ideally be used as a standard for pricing goods and services. Both the euro and US dollar are currently units of account, but Bitcoin is not that - at least not yet.
From Seashells to Digital Numbers: Money's Strange Evolution
Let's take a brief look at the history of money to understand how we got here.
The Barter System
Trade started as barter - trading an item for an item with no money involved.
Commodity Money
Then it evolved into commodity money, when we used things like:
Gold and silver
Seashells
Beads
Different kinds of stones
We have used many different types as money. What holds money together is the shared story that we all agree on - that this is money. For example, in prisons, they sometimes use cigarettes as money. Money can have a physical form, but what makes it money is not the physical form.
Fiat Money Era
In more recent days, it has shifted to fiat money. These are currencies like the US dollar which have no backing. The reason we use it is because we trust our government and we trust our central banks.
How Banks Create Money From Nothing
How Banks Create Money From Nothing
97%
Digital Money
3%
Physical Cash
The Money Creation Process
1
You deposit $1,000
Bank receives your money
↓
2
Bank keeps fraction
May keep only $100 (10%)
↓
3
Lends out $900+
Creates NEW digital money!
↓
Result: $1,000 deposit becomes $1,900+ in total money supply
❌ MYTH:
Banks lend out existing deposits
✅ REALITY:
Banks create NEW money when lending
Monitor Real Money Supply Data
Track M1, M2 money supply and central bank policies affecting your wealth
Get TradingView Access economic data + $15 bonusThis is a very important question to ask yourself: How is money created today?
Most modern money is not printed, even though "money printing" is a word I use a lot because it's a simple mental image. Most money is actually created digitally. It's basically just printed by typing in a number on your computer, and just like that, we have created new money.
Fractional Reserve Banking
Through what's known as fractional reserve banking:
Banks only keep a fraction of deposits and lend out the rest
Many banks have no limit on the amount of money they can lend out
When they lend out, what many people think is that they lend out money that is already in the bank
But that's not really true because banks, when they are lending, are often actually creating completely new money. That is another crazy thing that most people don't know.
Here's an interesting fact: 97% of money today is digital - purely existing as numbers on screens and not physical cash. And this number is only increasing.
The Fiat Money Illusion: Why Trust is Breaking Down
Let's dive deeper into the illusion of fiat money and what this means.
Fiat money is just the belief in paper and trusting the banks that they are not eroding our trust too much. At the same time, fiat currencies can be created endlessly. There is no stop to how much money central banks and even normal banks can create through things like quantitative easing.
The 2020 Money Printing Spree
Just as an example, the US created $3.3 trillion in new money in 2020 alone. To put this in perspective, I think Apple has a market cap of like $3.3 trillion or even less. So the US created basically an Apple in money supply in just one year. That's insane in my opinion.
The Consequences
Excessive money printing can erode trust, and we are already seeing this:
Remember the inflation in 2020-2021
Money becomes worth less and less
This loss in trust is the reason behind the rise of Bitcoin
Gold is trading at an all-time high
People are losing trust in fiat currencies
Bitcoin: A New Form of Money?
Bitcoin represents a fascinating new chapter in the evolution of money.
Bitcoin: A New Form of Money?
💵
Fiat Money
- ✗ Unlimited printing
- ✗ Controlled by few elites
- ✗ Loses value over time
- ✗ Opaque monetary policy
VS
₿
Bitcoin
- ✓ Capped at 21 million
- ✓ Decentralized network
- ✓ Inflation-resistant
- ✓ Transparent & predictable
The Universal Truth: All Money Requires Belief
$
Trust in governments & banks
₿
Trust in math & code
🥇
Trust in physical properties
"Digital Gold" - Fixed supply meets modern technology
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Trade on Bybit Get up to $30,000 in bonusesWhat Makes Bitcoin Different?
Bitcoin is:
Decentralized and digital
Capped at 21 million (there will never be more than 21 million bitcoins)
Created in response to fiat money concerns
Transparent, predictable, and designed to be inflation-resistant
When it comes to Bitcoin, no one can choose to print more money. The rules are set in stone. They are fixed. They are equal for everyone in the network. While with fiat money, the money supply is controlled by a few elites. That is one thing that makes Bitcoin so attractive to many people.
Many people, including me, see it as digital gold.
But It's Still Based on Belief
This is very important: This does not mean that Bitcoin is not based on belief. Bitcoin is the exact same thing as gold, the exact same thing as the US dollar. We need belief in order for Bitcoin to exist and work. If everyone tomorrow stops believing in Bitcoin, Bitcoin will be worth nothing.
If that sounds scary, it's not really scary because the same thing is true with the US dollar. The same thing is true with gold. It's always about collective belief. But when it comes to Bitcoin, it's belief in math and code, not institutions like central banks.
When Belief Fades, Currencies Die: Germany's Warning
Why does all this matter?
Money's value is social, not physical. This is important to realize. Physical parts of money can help reinforce the social contract or the illusion we have. For example, there's a very good reason why gold won as money in the past - the best countries and societies ended up choosing gold because of the physical aspects of gold. But still, it's not money unless we collectively believe in it.
Historical Lessons
It's real because we act as if it's real. From stone money on islands to Bitcoin, trust is the only constant.
When belief fades - for example, during times of hyperinflation like Germany after World War I in the Weimar Republic - their currency completely went to zero. The country lost all trust in their government. They printed endless amounts of money, and people stopped believing in the illusion. It lost all value. The illusion broke down.
The Power of Understanding
Understanding that money is a shared illusion helps us:
Question our financial systems
Protect our wealth
Maybe reinvent money (hint: Bitcoin is the most serious example to reinvent money we have today)
What This Means for Your Financial Future
Now that you understand money is an illusion based on collective belief, how can you use this knowledge?
Diversify Beyond Fiat: Consider assets that don't rely solely on government trust
Understand Inflation: Recognize that money printing directly erodes your purchasing power
Explore Alternatives: Research Bitcoin, gold, and other stores of value
Stay Informed: Monitor money supply changes and central bank policies
Think Long-term: Plan for a world where traditional money may continue losing value
Money FAQ: Frequently Asked Questions about Money and How it Works
FAQ
If money isn't real, why does it have so much power over our lives?
Money has power precisely because we all believe in it. It's a shared fiction that works because everyone participates in the belief system. This collective agreement allows money to facilitate trade, store value, and organize economic activity. The illusion is powerful because it's universal - as long as everyone plays along, it functions as if it were real.
How do banks actually create money out of nothing?
Through fractional reserve banking, when banks make loans, they don't lend out existing deposits. Instead, they create new money digitally by simply crediting the borrower's account. For example, if you get a $100,000 mortgage, the bank doesn't transfer $100,000 from other accounts - it creates new digital money. This is why 97% of money today exists only as numbers on screens.
What's the difference between commodity money like gold and fiat money?
Commodity money like gold has intrinsic physical properties that make it valuable (scarcity, durability, divisibility), while fiat money has no intrinsic value and exists purely on government decree and trust. However, both require collective belief to function as money. Gold without the belief that it's money is just a shiny metal; paper currency without belief is just paper.
Can Bitcoin really replace traditional money if it's also based on belief?
Bitcoin could potentially serve as an alternative form of money, but like all money, it requires belief to function. The key difference is that Bitcoin's belief system is based on mathematical rules and code rather than trust in governments or banks. With its 21 million coin cap, it can't be infinitely printed like fiat currencies. However, it still needs widespread adoption and belief to succeed as money.
What happens when people lose faith in a currency?
When collective belief in a currency fails, hyperinflation can occur, as happened in Weimar Germany after WWI. The currency becomes worthless because people no longer trust it will hold value. This demonstrates that money's value is entirely dependent on social trust. People then typically flee to other stores of value like foreign currencies, gold, or barter systems.
How can I protect my wealth if money is just an illusion?
Understanding money's nature as a shared belief can help you diversify into assets that don't rely solely on one form of trust. This might include holding multiple currencies, precious metals, real estate, stocks, or cryptocurrencies. The key is not putting all your faith in one monetary system. Remember, this is educational information - always consult with financial professionals for personal advice.
Quiz: Test Your Understanding of Money
Test Your Understanding: The Money Illusion Quiz
Conclusion
Money is not real - it's a shared story we all agree to believe. From seashells to gold to paper to digital numbers, money has always been about collective trust. Today, as that trust in fiat currencies erodes through endless money printing, we're seeing the rise of alternatives like Bitcoin that aim to create a more transparent, predictable monetary system.
Understanding that money is an illusion isn't meant to scare you - it's meant to empower you. Once you see through the illusion, you can make better decisions about how to protect and grow your wealth. Whether it's through traditional investments, gold, Bitcoin, or other assets, the key is recognizing that the value of money itself is not guaranteed.
The next step in your financial education journey is understanding money supply. What is money supply? How do we track it? And how can we use it to make better investment decisions? These are the questions that can help you navigate the changing landscape of money and finance.
Disclaimer: This content is for educational purposes only and should not be considered financial advice. Investing involves substantial risk of loss. Always conduct your own research and consider your financial situation before making any investment decisions.
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