The Borrow Smart Chronicles - What is Money Supply and Borrowing

Episode 12

Author

Todd Ballenger
January 26, 2024

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"Anybody that sticks with the banjo for 40 years will be able to play it."

Steve Martin

When the government issues bonds and then buys those bonds,
It increases the supply of money, which can increase wealth. https://www.facebook.com/NIFECLA

Weekly Spotlight: Does a borrower create new money or a new money supply? When commercial banks lend money, they don't typically lend existing deposits. Instead, they create new money through a loan. When a bank makes a loan, it credits the borrower's account with a bank deposit equal to the size of the loan, which is an asset to the bank. Banks can often create these loans at up to 10X their deposits.

These loans increase the amount of money available in the economy. As a lender, you are stimulating the economy. However, this is not "new wealth," as a new loan is balanced by a corresponding liability; the borrower's obligation to repay the loan is now a liability that offsets the asset of the bank. 

The transaction is always balance sheet neutral when it is created.

It’s complicated, but when borrowing happens, more money is available, and more money can create new wealth through asset inflation.

Imagine you borrow to buy a house. You have a new money supply you can use to buy a house because of a new loan. If there is more money to buy and a limited supply of houses, you may pay more for the house. You buy a house for $500,000. You have not created new wealth, as you now have an asset worth $500,000 and a new liability of $400,000, and you already had $100,000 in your savings that you used for the down payment. There is no new wealth creation yet for you; that comes through your appreciation.

But the person who sold the house paid $250,000 for it 10 years earlier. They now have $250,000 in new wealth as the asset has appreciated from $250,000 to $500,000. New wealth is only created when the house asset appreciates (or inflates in value). Housing appreciation is tied to the money supply, and the money supply is tied to interest rates. (see image above)

a BORROW SMART CONCEPT
Supply / Demand

We focus on three transitions. The CLA course - transitioning from a lender to a liability advisor. The FAST course - learning to work with financial advisors as a referral source. The Mentor course teaches how personal growth is the only way a business grows(.)

I put together a group of slides we covered this past week, as they felt relevant to many conversations I’ve had recently. I do hope you find them useful. We discuss supply / demand as a mindset.

LIABILITIES
What’s Happening?

more income is happening as is more debt!

Over 90% of US citizens have the most wealth in their house

and the equity in the house is growing

another looking at people without a mortgage by number

and the cost of that debt should come down in the future, but not as fast as we thought it might

the inflation is continuing as housing is up 100% in the last 20+ years

There is nothing here that tells you this could be an 1,800 pound blue marlin in the future, just as there is nothing in a caterpillar that tells you it will become a butterfly

REAL ESTATE
What’s Happening?

institutions are buying houses but only in select markets

and youngish homeowners are finding a way to buy

builders are getting cocky again

overall home buyers are older (longer to save up)

but the cost of owning a home keeps going up

but overall most sales are new homes (builders), and not existing homes

“Muddy waters clear themselves if they are simply left alone.”

Alan Watts

ASSETS
What’s Happening?

long term mindsets are best

the best days in the market make up all the returns

yet there is a lot of risk off and risk on in the market at the same time

consumers are feeling pretty good

“Never wrestle with pigs. You get dirty and the pig likes it.”

George Bernard Shaw

ON BEING HUMAN
What’s Worth Sharing?

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The gulls who scorn perfection for the sake of travel go nowhere, slowly. Those who put aside travel for the sake of perfection go anywhere, instantly

Jonathan Livingston Seagull (one of the best books of all time)

DOPAMEMES
And Other Inspirations…

AIdeas
Future Hacks…

A favorite AI tool for having fun with your own face, or a friends face in a variety of situations:
https://app.artflow.ai/my-creations 

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