Doc's Daily Commentary

Mind Of Mav

How Are Dollars Born and Destroyed?

Inflation and deflation are a pain in the butt for most people to understand.

Finance is made out to be complex. Therefore, understanding the dollars you earn becomes complex, and as a result, you end up working harder and longer to earn them. What if you could understand finance better simply by understanding how money is created and destroyed? Well, you can.

I learned not so long ago how dollars are created. I only just learned how dollars die. Thinking about the birth and death of dollars similar to the way we explain the birthrate for humans is brilliance. Travis K on Twitter came up with this philosophy.

The world is convinced that we’re going to experience inflation or even hyper-inflation because of all the money governments are printing.

Travis thinks something different is going to happen. I agree with him.

Let’s first talk about how a dollar is born.

A dollar is born when a loan is made.

When a bank issues a loan they take collateral. Collateral in simple terms means “something pledged as security for repayment of a loan, to be forfeited in the event the loan isn’t repaid.”

A bank can issues dollars for people to borrow based on how much collateral they hold. A bank can’t lend infinite dollars. Thanks to the concept of fractional reserves, they can lend ten dollars for every dollar they hold. (The ratio varies for each bank.) Customer deposits create loans. Loans create money. So if a bank has one dollar then they can lend ten dollars to a customer off that single dollar. This is how money is created out of thin air.

A loan births new dollars into the system.

Banks lending a lot → more total dollars and inflation.

The reverse is how dollars die

A dollar can die too. “Dollars die when debts are paid back,” says Travis.

This is the part that surprised me: Money printing only increases the collateral the banks have to lend against according to Travis.

Money printing gives birth to potential dollars that can be put into circulation and used by you and me.

This is the simple reframe to understand about money creation

I freaking love the simplicity of this concept. Ready? Here we go.

What affects how many dollars are created are these two things:

1) Banks’ appetite for lending.
2) Bank customers’ appetite for borrowing.

Dollars can’t be created and put into circulation without these two things occurring. And what drives banks to lend and customers to borrow money? Their psychology.

How we feel about the economy has a huge part to do with how slow or fast the recovery will be.

Human psychology massively affects inflation.

Nothing matters if the banks feel “weird about lending”

It sounds strange, but what if banks right now feel weird about lending? Well, they do. They’re not writing as many loans.

They’re taking less risks. They’re battening down the hatches for what they view as an impending economic storm.

The Federal Reserve can create money and give it to the banks who will use it as collateral, but it doesn’t matter if the money isn’t put to productive use.

The inflation we’re seeing could be a mirage

Travis argues that we are seeing some inflation and that’s because “corporates panic-borrowed out of fear.” This fear helped give birth to more dollars.

A lot of dollars are about to die

So if loans being repaid kills dollars, then a lot of dollars are about to die. Many countries, including Australia (where I live), have allowed people to put their mortgage payments on pause.

This pause on paying back debt is about to end. Once the pause ends, dollars have to be repaid. And this will change whether we see inflation or deflation.

Dollars may stop multiplying for a while.

Travis says the “dollar birthrate will decline.” Why? People are feeling a lot of uncertainty. When fear is a driver amongst consumers, they stop borrowing or desire to borrow a lot less. It’s a natural progression because even if you still have your job, chances are you’ve see someone lose their job.

When people are losing their jobs around you it affects your psychology — and therefore, your desire to spend money, save money, and borrow money.

When there is more demand for products and services, prices go up and so does inflation. When there is less demand for products and services, prices go down to create more demand again.

The collective financial psychology has economic consequences and helps drive inflationary vs. deflationary behavior.

What Does This All Mean for You?

How this affects you is that something different is happening. As the stock market hits record highs and asset prices keep going up, people are running to get rid of dollars because they fear inflation will eat away at the value of their hard-earned dollars. But if debts are going to be repaid then the dollar birthrate, according to Travis, is going to decline.

This means asset prices could go down and people will wish they held on to their dollars so they could buy more with them as prices come down and discounts become available.

The argument between inflation vs. deflation continues. I haven’t made up my mind yet about exactly what is going to happen. But staying informed and looking at both scenarios becomes key in this uncertain recessionary environment.

Opportunities will appear for those who take the time to understand what is happening and invest their money accordingly.

You could rush to the Robinhood trading apps of the world and treat finance like the casino, investing blindly based on hype and Twitter influencers. (Unfortunately, that usually means the house wins and they take all your money.)

Or why couldn’t you do well by educating yourself in simple terms about what is happening in finance? Nobody has all the answers in the world of finance but there are clues everywhere that can tell you what could happen if you overlay history and use it as a compass.

Understand how dollars are created and how dollars die so you can take advantage of the biggest wealth transfer in history.

Buying back time with your money is a huge advantage in life.


The ReadySetCrypto "Three Token Pillars" Community Portfolio (V3)


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What is the goal of this portfolio?

The “Three Token Pillars” portfolio is democratically proportioned between the Three Pillars of the Token Economy & Interchain:

CryptoCurreny – Security Tokens (STO) – Decentralized Finance (DeFi)

With this portfolio, we will identify and take advantage of the opportunities within the Three
Pillars of ReadySetCrypto. We aim to Capitalise on the collective knowledge and experience of the RSC
community & build model portfolios containing the premier companies and projects
in the industry and manage risk allocation suitable for as many people as

The Second Phase of the RSC Community Portfolio V3 was to give us a general idea of the weightings people desire in each of the three pillars and also member’s risk tolerance. The Third Phase of the RSC Community Portfolio V3 has us closing in on a finalized portfolio allocation before we consolidated onto the highest quality projects.

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What is the goal of this portfolio? 

The “Top Ten Crypto” portfolio is a democratically proportioned portfolio balanced based on votes from members of the RSC community as to what they believe are the top 10 projects by potential.
This portfolio should be much more useful given the ever-changing market dynamics. In short, you rank the projects you believe deserve a spot in the top 10. It should represent a portfolio and rank that you believe will stand the test of time. Once we have a good cross-section, we can study and make an assessment as to where we see value and perhaps where some diamonds in the rough opportunities exist. In a perfect world, we will end up with a Pareto-style distribution that describes the largest value capture in the market.
To give an update on the position, each one listed in low to high relative risk:
SoV/money == BTC, DCR
Platforms == ETH, XTZ
Private Money == XMR / ZEC / ZEN
DeFi == MKR / SNX and stablecoins
It is the most realistic way for us to distill the entirety of what we have learned (and that includes the RSC community opinion). We have an array of articles that have gradually picked off one by one different projects, some of which end up being many thousands of words to come to this conclusion. It is not capitulation because we all remain in the market. It is simply a consolidation of quality. We seek the cream of the crop as the milk turns sour on aggregate.

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