The concept of the "Velocity of Money" offers a fascinating glimpse into the mechanics of how money circulates within an economy, often manipulated by millionaires and billionaires to increase wealth. This economic principle, simply put, posits that the speed at which money changes hands directly impacts economic activity and, by extension, wealth creation. The Federal Reserve, the central bank of the United States, plays a pivotal role in this process by controlling the money supply and interest rates, which in turn influence the velocity of money. For example, when the Fed issues currency at nominal production costs and loans it at face value, it essentially generates a profit from the spread between these two amounts. This system, though seemingly efficient, prompts questions about the extensive profits made by the Federal Reserve and why these are not retained within the government itself, potentially to reduce national debt or fund public services.
At a deeper level, the movement of money through the economy generates significant tax revenue for the government, even though the initial transaction—the creation and sale of currency by Federal Reserve to the Federal government—is conducted at cost. As this money circulates, each transaction involving wages, purchases, and services incurs a tax, compounding the government's revenue. This cascade of economic activities illustrates the practical implications of the velocity of money. Employees spending their wages on goods and services not only contribute to economic activity but also generate tax revenue at multiple points. This illustrates a broader economic principle: money must move to maintain and enhance economic vitality. However, this cycle also highlights systemic inefficiencies and raises questions about the potential for more direct government retention and use of these funds.
Furthermore, the structural setup of financial institutions, particularly the opaque operations of the Federal Reserve since its inception in 1913, has stirred debates and criticisms. The lack of a comprehensive audit of the Federal Reserve feeds into broader concerns about transparency and accountability in monetary policy. Coupled with the significant devaluation of the U.S. dollar since the Fed's establishment, there are legitimate inquiries regarding the effectiveness of this independent entity in stabilizing and enhancing the U.S. economy. Historical events like the Great Depression, the inflation of the 1970s, and the 2008 financial crisis further complicate the narrative, showcasing times when policy missteps by the Federal Reserve had profound negative impacts on the general populace, often exacerbating wealth disparities.
The conversation about the velocity of money is not just a critique of current economic policies but also a broader reflection on monetary philosophy and the nature of money itself. In the modern economy, money takes various forms—commodity money, fiat money, fiduciary money, and commercial bank money—each representing different aspects of economic trust and utility. The shift from tangible asset-backed currencies to predominantly fiat and fiduciary systems reflects a move towards more abstract forms of economic trust. This evolution brings its own set of challenges, especially as it relates to inflation, stability, and the real value of money in everyday transactions.
Lastly, understanding how millionaires and billionaires manipulate economic cycles, particularly through investment strategies in volatile markets like cryptocurrencies, reveals both opportunities and pitfalls for average investors. The strategies employed by the wealthy often involve significant capital, which can influence market movements to their advantage. However, smaller investors can employ scaled-down versions of these tactics, such as strategic buying and selling based on market trends, to optimize their own financial outcomes. While this does not guarantee wealth accumulation on the scale of billionaires, it provides a framework for understanding market dynamics and potentially safeguarding against losses while capitalizing on gains. This practical application of the velocity of money in investment strategies underscores the interconnectedness of economic theories with real-world financial decisions.
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Example:
Let's say you have $100.
It costs the Federal Reserve about 38 cents to print a $1 Federal Reserve Note. The cost to print $2, $5, $10, $20, $50, and $100 bills is basically the same as that for a $1 bill.
The Federal Reserve then loans it out to the Federal government at face value, $1 plus interest.
So, let's say you get $100 in your paycheck.
• Federal Tax on $100 = $24
• State Tax on $100 = $5
• Social Security = $7.65
Total Taxes = $36.65
Take-home pay = $63.35
So, the Federal Reserve makes about 62 cents on every bill printed, regardless of whether it is a $1, $5, $10, $20, $50, or $100, just for loaning money to the federal government, plus interest.
The government's profit-making mechanism on every dollar in circulation is both intricate and highly profitable, though often overlooked. Here's a detailed breakdown. The Federal government acquires each dollar from the Federal Reserve at face value plus interest. This dollar then enters the economy as the government pays its employees. These employees, in turn, pay taxes on their earnings—let’s simplify this to 10 cents per dollar. The money they earn doesn’t just sit idle; it gets deposited into a bank account. Banks, renowned for their ability to maneuver through the tax code, manage to contribute very little in taxes compared to the average citizen. The money deposited earns interest, and the depositor is taxed on that interest, though we'll set aside this complication for now. The employee then uses some of their paycheck to buy lunch. The restaurant owner receiving this dollar is taxed another 10 cents. The restaurant pays its employees, who again are taxed 10 cents. The cycle continues as the restaurant employee buys gas, transferring that dollar to the gas station owner, who is taxed another 10 cents, before paying their employees, who are also taxed 10 cents. The gas station employee then buys groceries, passing the dollar to the grocery store, which is taxed 10 cents, and then the store pays its cashier, who faces yet another 10-cent tax. The cashier might then go get her nails done, where the nail salon owner is taxed 10 cents on that same dollar before paying the nail technician, who is also taxed 10 cents. The nail technician might use that dollar to buy a pair of shoes, leading to yet another round of taxes—10 cents for the shoe store, and 10 cents for the store employee. By this point, the original dollar has been taxed 10% at least eleven times. What started as a simple dollar, initially bought by the government for 38 cents, has now generated $1.10 in tax revenue, without considering the potential for even higher taxes than the 10-cent average used here. This process, known as the Velocity of Money, highlights how a single dollar can continuously generate revenue as it circulates through the economy, each time creating more value for the government. The cycle of taxation is relentless, with the dollar passing through countless hands, each transaction enriching the government further. And it doesn’t stop there—the dollar continues to move until it’s possibly sequestered away in a billionaire's offshore bank account or another tax shelter. Despite this seemingly endless revenue stream, it begs the question: why does the government struggle to manage its finances when each dollar can yield so much?