Is money really just an IOU (I Owe You)?

It’s been often explained that when banks make a loan, they are basically creating money. Many people still think that money is created backed with some type of asset that has value, but the reality is that the current financial environment we live on is very different. In fact, there’s really no limit on how much money banks can create, provided they can find enough people willing to borrow it.

Money is not really backed anymore by asset that holds value, is instead just an IOU (I Owe You). Banks are granted the right to create IOUs that governments recognize as legal tender by its willingness to accept them in payment of taxes.

One of the biggest problems with the current malfunctioning system is that when central banks print money in excess, the resulting inflation is often damaging for the economy.

Institutions such as the US Federal Reserve were created to regulate the money supply to prevent inflation although, in this very interesting video, Mike Maloney opened the viewer’s eyes to the true history of money and the powerful cycles that are moving the markets today.

Don’t miss this opportunity to watch this video from the series Hidden Secrets of Money, a specially relevant episode that helps understanding why quantitative easing (QE), bailouts or stimulus programs are just hocus-pocus terms for increased currency creation.