1 How Money Changes Quadrants
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In order to understand the Be the Fed process, it is important to first understand the history of money and the four different types of money.Fiat moneyThe financial crisis we’re mired in is caused by fiat money, which is money that’s not backed by gold or silver but rather by the government’s promise.The process in becoming the fed requires a reversal of history.The process begins with the ability to print your own fiat money and use that fiat money to acquire real assets, assets like businesses, real estate, and oil wells.Then, with the cash flow from these assets, you acquire more real assets like real estate and commodity money, like gold and silver.That’s what capitalists do.In fact, the word capital is derived from the word cattle.When modern bankers use the words in kind, the word kind is a derivative of the German word kinder, or baby, which is also where the word kindergarten comes from, meaning a garden of children.When a cattle owner left his cattle with the banker as collateral for a loan, the bank was allowed to keep the babies, the calves or the kinder, as its interest payment.In financial terms, the phrase ’in kind’ means ’to pay back with the same.’ Years ago, it meant paying back the interest with calves.Today it means paying back the interest with money.When commodities are used for money, barter is the word that describes the exchange process.Reserve MoneyThe second type of money was reserve money.When a merchant traveled across the desert to buy goods from foreign lands, rather than carry gold, which was dangerous, the merchant would deposit his gold or cattle with a banker, someone they trusted for safekeeping.The trusted person would issue a note stating that there was gold or cattle in his safekeeping.The merchant would travel across the desert and pay for his purchases with this note, which was known for a time as reserve currency.Fractional Reserve MoneyIt was not long before the banker who was entrusted with the valuables realized that the merchant did not really need or want his gold or his valuables.Notes were lighter, foldable, traveled better, and posed less of a risk than the transport of bags of gold.A light went on in the banker’s head and he began lending out fractional reserve notes.With the introduction of fractional reserve money, banks began printing money.When this happened, the money supply expanded, and so did prosperity.That meant there were 10 dollars in circulation for every one dollar of gold in the bank.Today, when all the savers want their money back at the same time, it is called a run on the bank.He was doing his best to prevent a massive, panic–driven run on the banks.This is how the global economy got into trillions of dollars in debt.Governments all over the world had printed trillions of dollars, yen, euros, and pesos to prevent a global run on the banking system.The bankers were caught lending out money they did not have.Fiat MoneyIn 1971, when President Richard Nixon took the dollar off the gold standard, the dollar became fiat money.This is the type of money that fuels the world economy today.Fiat money is money a government declares to be money.The definition of the word fiat is ’it shall be done.’In simple terms, the government runs a printing press and turns a piece of paper into money.Today, it can be done with an electronic pulse.They don’t even need paper.Taxes go upInflation goes upPrinting money is, essentially, a double tax on the poor and middle class.That‘s why the gap between the rich and everyone else grows wider.Fiat money keeps wages low, and keeps the products we produce less expensive so we can export more.If governments did not devalue their fiat money, products would become more and more expensive, unemployment would rise, and social unrest would brew.Fiat money also means the government pays off its debt with cheaper dollars.And it means the government collects more in taxes as incomes rise into higher tax brackets, even though the value of money is going down.When I invest in real estate, I help the bank lend money to me.Remember, your $1 in savings is the bank’s liability.When I borrow money, my $4 in debt is the bank’s asset.Where did the additional $4 come from?It came out of thin air.It’s how the smaller banks print money.It’s the fractional reserve system.If no one is borrowing, the banks do not want your savings because your savings cost the bank money.At the peak of the financial crisis, savers were pouring money into the banks.When banks could not lend, a few banks began charging savers interest to keep their money safe.It has happened many times in history.This is why becoming the Fed is important.You want to print as much money as possible, your own fiat money, pay as little in taxes as legally possible, acquire more and more assets.These assets will produce more fiat money, and eventually revert back to commodity money, or gold and silver.This is the process the rich use.This process is the reasons why the rich are getting richer as the poor and middle class continue to struggle and become poorer and poorer.Could I Become the Fed?After leaving the Marine Corps, I worked at Xerox learning to sell during the day and started businesses at night and on weekends.I was doing my best to achieve step one on the list of milestones to becoming the Fed, to become an entrepreneur.I knew that if I became an entrepreneur in the B quadrant, I could make much more money than if I was in the E or S quadrants.My life was a series of successes and failures.I paid off the debt by going into the rock ‘n’ roll industry, producing licensed products for bands such as Duran Duran, Pink Floyd, and the Police.My rapid success in rock ‘n’ roll was soon followed by failure.Although I knew that each failure was making me smarter, the pain of failure was excruciating.This is why emotional intelligence and spiritual education are vital to the process of learning.Many times I wanted to quit and many times I wanted to cheat, lie, or steal, but I stayed on the path and faced each day and every problem as one more chance to become smarter, gain more experience, and develop my legal, ethical, and moral character.Eventually I made it.But I may not have without my wife Kim and great friends.Much like fight school, it is a transformational process.Today I own my own Fed.’You can’t do that.’ Or, ’You can’t do that in my country.’I assure them it is done in every country of the world.’Maybe you can’t, but somebody in your country is doing it.This is the way the laws work in almost every country in the free world.The next time you see a large office building, or hotel, or residential project remind yourself that the people who own those big buildings are doing it.’ How are they doing it?I print my own fiat moneyIn 1996, Kim and I started The Rich Dad Company.We raised $250,000 from investors.All money coming in is an infinite return, since all the money we originally invested into the business, our investors’ money and ours, has been repaid.An infinite return is the same as printing money, just as the Fed does.Every year, we design new products and, once again, more money comes in.I invest in real estate using fractional reserve moneyReal estate is a great investment because bankers love real estate.It is much easier to get a real estate loan than a business loan.For every dollar I invest in real estate, like apartment buildings or commercial properties, the bank will loan me another five dollars.Some call it leverage.Our objective is to get our dollar, our fiat money, back.An 0:5 ratio means that none of my money is in the property and it is debt that is financed, 100%, with the bank’s money.By borrowing our $1, we shift from fractional reserve money to pure fiat money.The real estate property is printing our money with 100% of the bank’s money.Having none of our money in the investment, we again achieve an infinite return, which is in effect printing 100% fiat money.I put 10% down, or $1,850, using my credit card.