Part 1 - What Is Money and How To Think About It
38:08 Share

As a long-term investor, you need long-term insights. Use AssetCamp to look past speculative market hype and understand past performance, current trends, and model expected returns for stock and bond indexes. Markets move in cycles. Don't miss what's next. Get a seven-day free trial at AssetCamp.com. That's A-S-S-E-T-C-A-M-P dot com.

Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest in, how to live without worrying about it. I'm your host, David Stein. Today is episode 392. It's titled, What is Money and How to Think About It, Part One. This episode format is different than we've done in Money for the Rest of Us. My son, Camden, and I have a discussion about money, and we do it over a period of two episodes.

We dive into a number of aspects of money, public versus private money, how money is debt, what are the attributes of money, how money is energy, and many other topics. Hopefully you'll find this two-part series helpful. Let's go ahead and get started.

The first episode of Money for the Rest of Us was on what is money? And we've had a number of episodes about money. What is it? How to use it? How it's created? What are the risks with money? But there has been a lot of developments in really the last few months where I would say there's a lot of money confusions.

where individuals thought they held something that was money, Terra USD, the stable coin, for example, and within hours, that money was completely gone.

So I thought it would be helpful to bring in my son Camden, who is a partner at Money for the Rest of Us. And we're going to talk about money and talk about stories of money so that we understand the principles of money. And typically, when we think about money, it's helpful to start with our earliest memories of money because money

That, you could call it baggage, you could call it that narrative, that relationship with money starts very, very young. So Camden, welcome to the podcast. Thanks, happy to be here. I guess you could say long-time listener, first-time caller.

That's right. And Camden has worked with the podcast. He worked at Money for the Rest of Us, I think it was four or five years ago, and recently rejoined in April full-time. Camden, when you think about money, your earliest memories of money, mine, I just remember getting dollar bills sent to me in birthday cards from my aunts and uncles, just crisp dollar bills. That was money to me, saving it up, putting it in a piggy bank, and then spending it. What

What are some of your first memories of money? I think some of mine are probably along very similar lines. You know, we get money for our birthdays, for special occasions a lot of times. For me, especially, I remember having a paper route at a really young age.

and know that you would remember that as well. I think I had my first paper route sometime around three and a half. I really don't know why I wanted a paper route so bad that early. And I think it's very generous to even call it my paper route at that age. But I think the memories really start coming through a lot clearer when I was a little bit older. I had another paper route, you know, around ages six, eight, nine. And for me, the physicality of that money, I really remember, especially during the holiday season, when we get a lot of tips that it felt good to kind of hold that cash.

And I stored the cash. I didn't have a piggy bank. I essentially had what was pretty sure a glass decanter, just really ornate glass bottle. The

the really narrow neck. And so it was really easy to roll up all the dollar bills and stick it in. But to get the money out, I remember that I had to really stick my finger in there and fish it out one bill at a time. And that very tactile feel of that is probably one of the earliest memories of money that I have is associating it very much with that feel of the cash coming in and out of that jar and the excitement of counting it in preparation of buying Legos or maybe a Game Boy game and

Really, I think just that feeling of the money is kind of one of the strongest and earliest memories that I have of it.

And I think that's pretty typical that the physicality of money. I remember being in Chiapas in Mexico a few years ago, having bought something from a young girl. I think it was a bracelet or something. And she took the pesos that I gave her those bills. And I saw her put them up to her nose and smell them. And I said, does it smell good? And she said, yeah. Like

Like money smelled good. Feeling money, the touch and physicality of money. Well, let's think about that. So that type of money, that cash is unique among money because it's public money. And by public money, cash is the only type of money as individuals we have access to that is issued by the government.

If you look at a dollar bill, it's a Federal Reserve note. And the Federal Reserve is the central bank of the United States. That dollar bill serves as legal tender, which means it can be used to satisfy tax obligations. But it is the official currency of the United States and other countries have their official currency.

but it's very distinct from other types of money because it is public. Now, it's not backed by anything explicitly, so we can't take that money and go to the central bank and ask for gold like you used to be able to do, but it has some unique aspects to it because it is public. Now, when, Kim, did you get a bank account? I don't remember. Now, obviously, we gave you a newspaper route

At three and a half, because you did want that. You got money for that. Do you recall having a bank account at all?

I'm trying to remember when I actually finally got a bank account. I think for the longest time that jar served as my bank account. I know that I must have had one before this, but definitively I know that when I got my first job at about 14 washing dishes at a local pizza place, I definitely had a bank account at that point. I was making probably $5 an hour, something around the minimum wage at the time in Idaho.

But I needed more space to hold the money. I wasn't earning a lot of money, but I was certainly earning more than a jar's worth. At the time, I really remember that I was still saving up for something. And at the time, it was the Nintendo Wii, which was kind of the big, exciting thing that

that we were all waiting for. And so that's specifically, I remember working that job and putting the money away in the bank account for that. When you got a bank account, did you consider money in the bank, your savings account, your checking account? Did you consider that money? Was there any distinction between money in the bank and money in your piggy bank? I would say no. I think that for me, the money in the bank,

was the same thing. I had a recognition that the money that I put into the bank wasn't literally sitting at my credit union, but I also still kind of had a sense at that age that the money was probably somewhere, that it had some sort of physical equivalent at some location. I remember quite a few years later talking with you about money and you brought up the point that so much of money these days is not cash, it's just numbers. It's

It's entries in spreadsheets. And that, in many ways, was very shocking to me to really realize that and think about it. But the more I thought about it, the more it made sense. And I think that that's really when I started differentiating a little bit between money in the bank and physical money. This recognition that when I got paid, someone was giving me their numbers and my numbers went up. And then when I would go pay somewhere else, my numbers would go down and somebody else's numbers would go up and that all of that could happen.

without any sort of physical cash changing hands or any physical equivalent moving around anywhere.

That was probably the first time I really made a distinction between those two things, but I still don't think I was thinking of money in the bank and physical money as different. I had just separated this idea between something that was physical and a system that was able to work effectively without being analog. Interesting, because my first bank account was at a credit union. It was what's called a passbook savings account. I took my birthday money. I

I went to the credit union and they gave us a paper bound book that showed I had $30. But at that counter, I could look into the safe. In my mind, my money was now in that safe, a bigger bank, bigger protection. But that's not the way it is. Bank money, money at a savings account, a checking account is private money. It is an IOU from the bank.

If you look at a bank's balance sheet, their liabilities on the right side of the balance sheet, things that they owe, the IOUs, checking account deposits is on there and it's private money. And in today's world, that's an incredibly important distinction because most money is private money. It's IOUs, it's debt that somebody owes us.

And I think people get confused with that because it's really easy to get confused because the money is in the bank. We can see that money, but it's digits. But it's actually a promissory note or a promise to pay an IOU from a private entity.

When did you realize that or what are some of your thoughts on that, Camden? On public versus private money? Yes. I mean, honestly, so we've been having some more conversations about what money is over the last couple of weeks and kind of digging into that. And despite all of the work that we've done together and, you know, growing up with you and all the conversations that we had about money, honestly, it probably wasn't until about a month ago that I really made that connection between public money and private money.

And again, it was one of those moments that completely changed the way that I viewed money. It was another way that I started to distinguish between a bank and public currency. Now, obviously, the bank has kind of a different status than maybe other types of private money. The more we started to think about it, the more I was like, well, what are other examples of private?

private money so that I could kind of be grounded in that. What is private money? What does that mean to me? And the more that I thought about it, the more that I realized that things like casino chips would be private money, right? It's in a closed system. It has value within a certain arena, but it's also not something that I can go take out and generally buy things with

or pay my taxes in, or that in-game currencies in video games, or that tickets at your local county fair, that I'm giving public money, cash, over to an attendant. They give me tickets, which then I can take and exchange for rides or services.

Or even gift cards. It was kind of one of the other examples that I came up with is that I'm paying public money cash to get a gift card for a specific restaurant or a specific service, like maybe the Apple store. But that money isn't good anywhere else except for within that system at the Apple store or at the local restaurant.

And so when I started thinking about it that way, it made a lot more sense to me. But it still started bringing up some other questions, which is, I think, maybe kind of what I would throw back at you is if we can have public money and private money, what is a requirement for us to start calling something money?

Clearly, it has to be transactional. It has to hold some sort of value. But contextually, that seems to be different. Aristotle in politics wrote that wealth is often assumed to consist of a quantity of money. But money is the thing which business and trade are employed. So money is used for transactions. It's used to buy things. He goes on. But I

But at other times, on the contrary, it is thought that money is nonsense and entirely a convention, but by the nature, nothing, which is why I find money so fascinating. And it can be mind blowing. You mentioned the revelation, the difference between public and private money. And that's not something that I probably have made as big a distinction in the early years of the podcast.

But because there are so many competing forms of private money that is trying to imbue itself with the qualities of public money, I think it's important to make the distinction. And so when we think about what are two requirements of money, the first is it needs to be convenient. Merchants have to accept it. There needs to be a way to get access to it, small bills or coins in the case of public money. The fees to actually use that money need to be low in order to transfer it to others.

Perhaps we can borrow that money at low interest rates, but there's a convenience factor to money to be able to use it. And that money could be anything. Most money is digits. So intrinsically, it's not worth anything. The value of money is the trust we have in it, that we accept cash, money, dollars, yen, because we feel somebody else will take that.

They all accept it as money. And so we all kind of, it's like a social network. There's a network effect. People use money that they think other people will accept. And so that's why it's so incredibly difficult to get money accepted. And that's why public money is the primary form of money that's accepted in day-to-day transactions in terms of cash. But then we have all this private money, mostly bank accounts that are denominated in

And that's something we've seen change dramatically in the past.

the past year with inflation, which is the measure of the rise in prices, is up 9%. But in areas where money is not, let's say it becomes too convenient because there's too much of it, think Venezuela. There's a quote that I read several years ago in the New York Times, and it was a 43-year-old nurse in Venezuela. And she said, we are millionaires, but we are poor because the Venezuelan currency had lost its value.

the public money and bank accounts denominated in private money that were denominated in the Venezuelan currency, it disappeared. This idea of inflation, when did you become aware of inflation?

I think when I think about it, there was an element of inflation that I was always kind of aware of. Like, obviously, growing up, I was reading books that were older and they talked about, you know, people go to the store and they'd buy candy for a penny or they'd buy such and such thing for a dollar. And I knew that I could not go to the store and buy candy.

pretty much anything with a penny and very few things with a dollar and even less so now. And so I think that was probably my earliest idea of inflation. I don't think I was thinking as much about inflation on a day-to-day or even a year-to-year thing because I knew that those books were written a really long time ago. That was before I was born and on some level inherently recognized that prices just changed. But I wasn't necessarily thinking about why. Why?

why prices went up, why a dollar seemed to be able to buy less things. For myself, I know that I really started paying more attention to it over time. I've already mentioned

On a couple of occasions that I would buy video games as a teenager and with each subsequent system that would come out to a new generation of game systems, a lot of times the game prices would go up by $10. And I think that that was kind of one of the first times that I really thought about prices were going up bit by bit over time is that I was prepared each time a new system came out that I had to be prepared to pay maybe $10 more.

And, you know, it's a complicated thing because it's both a recognition that inflation is happening and the value of the cash is going down. So we need more cash to buy this thing. But it can also be, of course, a recognition that maybe the quality is going up.

that it's taking a lot more effort that the budget for these things are a lot bigger. And so it is a complicated calculation. But those are some of the first times I really remember that inflation was happening kind of on a regular basis. But I still maybe hadn't quite internalized this idea that my money that's in the bank, this private money, is sort of losing value at an amount per year. I wasn't thinking about how I was going to be able to buy less with it over

over time if I didn't have investments or things like that. That didn't come around until a lot later. And I don't think that's unusual. Seeing inflation, unless you're in a hyperinflation type of environment or even a high inflation environment like we are now, you don't recognize it. We had discussions in our family. I remember just as kind of the group chat, what are you paying for gas now? The fact that gasoline is $6 a gallon, whereas a year ago it was $3 a gallon, that we recognize it.

but maybe not our overall food budget or other items, unless you buy it regularly. And perhaps that's really a sign of privilege or wealth that when you're wealthy, you don't spend as much time figuring out what the price of something is and how it's changing. Yet, if you're subsisting on eggs or tortillas, you're incredibly aware of the change in prices. And I lived in Mexico in the 80s. And as I talked to individuals, they were incredibly

incredibly aware that the price of tortillas was going up and other items. And it was a period of very high inflation. When I think about that, I mean, just even the inflation that's happening now in my life is definitely one of the first times that I've

I've really watched it closely because I've definitely paid attention at other times in my life to gas going up and down. And some of it is seasonal. You know, gas tends to be more expensive in the summer. I remember in the 90s when gas was like a dollar something. And now I live in California and I'm watching, you know, over the course of several weeks, I watched the gas prices go up from, you know, I still remember at moments when I could get it for four dollars and then it was in the five dollars and now it's in the six dollars. And I'm seeing a couple of places start to drop.

sort of tickle $7. And that's not a fun thing to watch. It's happened pretty quickly. But even through the pandemic, I've also watched other things, other prices go up. There's a local delicatessen that I like to go to sometimes, and they have probably the best pastrami sandwich that I've ever had. And it was never a cheap delicatessen. Things in the Bay Area are often just more expensive in general. But

But, you know, this this pastrami sandwich had maybe seven ounces of pastrami in the sandwich. It's a pretty good amount. And when I first moved here and was trying it out, I remember I really want to try the sandwich, but it was eighteen dollars. And that was like a lot for a sandwich for me. You know, my my anchor price for a sandwich was a lot lower than eighteen dollars. But I tried it and I was like, this is really good. However, that same sandwich is now twenty four dollars because of, you know, in

inflation because of shipping and limitations in beef production. And now I don't really buy the sandwich anymore because if $18 was painful, $24 is really painful to pay for a very normal sized sandwich. My anchoring of sandwiches, even if it's the best pastrami sandwich I've ever had,

doesn't really let me buy a $24 sandwich. And there's plenty of other places that I've been watching prices go up in food too. That's kind of the extreme example. But just in this short period, I've really been able to pay attention to that much more acutely as I've watched it kind of squeeze different areas of the budget and affect various things that I do or don't want to buy. Well, yeah. And that's like, we're seeing inflation. And

And we won't get into in-depth on what inflation is. We have a free email course on inflation, what causes it, how to protect against it. And listeners can get that at moneyfortherestofus.com slash inflation. But we're seeing how inflation can make people angry. Like I'm aware as we eat out that it's costing more. A few months ago, we were traveling from Arizona to Idaho. We stopped in Utah. It was a vendor. And I asked the woman, we were buying a sandwich. And I said, have you raised your prices?

And they'd only been open a year and they'd never raised their prices. And she got to the point where, yeah, we have to raise them now. And they're going to raise them because what they didn't want to do is make their food cheaper. And that's what you're often seeing as you see inflation is the quality might not be as good because they don't want to pass on those higher costs. And so they might cut down on how much meat they put on the sandwich. Or it doesn't sound like the pastrami place that you mentioned is doing that. But that inflation makes people angry because they want to blame somebody.

Before we continue, let me pause and share some words from this week's sponsors. As many of you know, I used to be an institutional investment advisor. I advised clients like the Texas A&M University System, the Sierra Club Foundation, and others strategizing investments across billions of dollars. To help, I had access to top-tier tools and information, which was crucial for making smart investment decisions.

Since starting this podcast, however, I've been frustrated that the same tools I relied on aren't available to you, even though personal investing requires just as much thought and trust as institutional investing, maybe even more since it's your own money. That's why I created AssetCamp. AssetCamp's tools and insights puts you at the forefront of investing, allowing you to make informed decisions using stock and bond data that was once only available to institutional insiders for tens of thousands of dollars per year.

Asset Camp is not a stock picking tool. It's asset-focused research built on the same methods used to grow and manage leading endowments and investment funds worldwide. Asset Camp helps you easily understand what drove past returns for the stock and bond markets, laying the foundation for your next move. With Asset Camp's powerful charts and tables, you can easily identify potential opportunities and risks.

You can also confidently navigate the future by modeling expected stock and bond market returns and stress testing all your decisions. Asset Camp also teaches you expert investing tactics in a monthly user webinar, including an open Q&A portion where I answer your investing questions.

I invite you to try AssetCamp free for seven days at AssetCamp.com. That's seven days free access to the world's only asset-focused research tool built specifically for individuals like us. Try it free at AssetCamp.com.

Ladies and gentlemen, get ready for a rollercoaster of romance. Season 29 of The Bachelor premieres Monday, January 27th, and this season's got some flavor to it.

Citizens of Bachelor Nation will recognize this season's heartthrob as one of the fan favorites from Jen's season, Grant Ellis. But now he's looking to see if his wish of everlasting love will be Grant-ed. With his infectious laugh and athletic prowess, this goofball is set to charm a house full of hopeful hearts. From candlelit dinners to adrenaline-pumping dates, watch as this day trader navigates the twists and turns of finding

love in a mansion filled with 25 of America's loveliest ladies. Will Grant find his perfect match or end up with a broken portfolio? Tune in for the most exciting season yet of The Bachelor, starting this Monday, January 27th at 8, 7 central on ABC and available to stream on Hulu.

When we talk about mind-blowing ideas on money, for me, the biggest idea that just shocked me was the fact that money can be created out of thin air. That banks, these private entities that issue private money, IOUs in the form of checking and savings accounts, they create that money out of thin air when they make a loan.

We don't think about it that way. We think, well, our money is in the bank and then the bank's going to lend that money to somebody else. When in fact, what happens is an individual takes out a loan, the bank records a receivable on their balance sheet as an asset, and then they create that money, that deposit, because it is digits.

They got digits on the left side of the balance sheet, the receivable, and they create digits on the right side of the balance sheet of the deposit. And it's that money creation through loans that is what leads to minor inflation over time as the money supply increases. And the reason why we do that and banks have that special status is because as an economy grows, we want to keep the convenience of money. So there needs to be enough money in the system circulating so that transactions can occur.

The process for doing that is bank lending. That is the primary way that money is created. Most money has been created. This private money and it facilitates the transaction, the convenience of money. But we can't have too much money created because then it doesn't hold its value and inflation gets too high. And so there's always this tension between the convenience of money and money holding its value.

What we have seen in the last year or two is that system completely disrupted because we've had huge stimulus payments throughout the world from the pandemic. At the same time, the Federal Reserve has been creating money to basically monetize the debt that's being issued. And we won't get into the mechanics of that. There's episodes of the podcast that we go into great detail on how that process works.

But we've seen the money supply, which is primarily cash and private money held at banks, as well as money market mutual funds, which we can discuss later. That's exploded in the US. It's up over...

over 50% in the last several years. So there's so much more money. And if there's not enough goods and services created, then we get these supply constraints, like you mentioned with the meat production or the other materials that that shop owner is having to pay more because there's stress in the system, because there's too much money that creates more demand because if people have got free money from stimulus, then they want to spend it, especially as the economy reopens.

Well, one thought that I had about that, that I just find really interesting when I think back through the pandemic and kind of especially in 2020, is we think about all of this money entering the system. And yet we're very aware that in some ways it felt like there was less because when you're not working within the digits, if you're working on cash and know that that difference between sort of private money and digital money and analog money. At that point, I was living in an apartment complex that had laundry that required quarters.

And all of a sudden we had this coin shortage because no one was out spending the physical money anymore and they weren't moving the coins around in the way that they had been. And all of a sudden I couldn't get coins anywhere. And it's still kind of happening. There's still I go to the grocery store and the automatic checkouts a lot of times still tell me that I can't get change.

because they don't have the quarters or they don't have the coins for it. And so I remember the laundry became really difficult because I couldn't find anywhere to get quarters. The grocery store wasn't giving me quarters. None of the banks nearby got quarters. I finally found I had to drive further into Oakland and found a bank that was giving out quarters, but they were limiting it to two rolls per person because...

Because so many people were coming in and needed quarters for laundry. And it was just this really fascinating period when you think about this interplay between the limits of money when we need cash, but also this ability to create digital money. Because, you know, we'd received a stimulus check and I'd gotten digital money. I'd gotten that private money from the bank. But.

But I had that difficulty in changing it from private money into public money, into cash that I needed to do my laundry. And it became a real headache for a couple months there.

Well, yeah, because money, to be convenient, it has to circulate, it has to move. The U.S., for example, has $2 trillion worth of Federal Reserve notes, which would be bills, $100 bills, $10 bills, but we have all these coins. And there clearly was a shortage of coins for the very reason you point out. One, the pandemic limited the ability of the mint to create more coins.

But then it wasn't moving. And so if money's not circulating, then it becomes inconvenient because people can't have it. We saw that in Venezuela. There was so much inflation. So the value of the money was falling dramatically. And then there weren't new bills being created. And I saw one report where people were paying for parking with granola bars because that was what they had. The physical money was down to granola bars.

You've lived, Camden, and you spent a lot of time living in Korea and Japan. Their economy is different in terms of their use of public money versus private money. What's different over there? I think one of the things that really surprised me, and I know that you've traveled to Japan. The first time we went to Japan, we went together. And I remember that a lot of our early experiences were trying to find ATMs, to find the right ATM, because we needed so much cash.

One of the really fascinating things about Japan is that we have this vision of a country that's very technologically advanced, and they are, but they really like to use cash. And I don't remember the exact figures, but I think it is something between 60 and 80 percent of transactions that happen in Japan are still done exclusively in cash. They like to give it as gifts. They like to use it at shops.

And cash is a really big thing. When I was living there in 2018 and 2019, I

had my local bank. It was the prefectural bank. And I had a bank card that allowed me to get cash from the ATM, but I didn't have anything else. They didn't give me a debit card. I couldn't use my bank card at a store. I also didn't get a credit card. And when I thought about it, everybody was kind of like, it's a hassle. You don't really need to bother getting a credit card. And so I was earning my money. It was being deposited into the bank. And then pretty much everything I spent outside of my rent, I

I spent in cash. My rent, I would pay through direct transfer. I'd go to the ATM and I direct transfer my rent money to the apartment company and it would come out. I also had a bank book and it would print out all of my transactions on my bank book, how much cash I was putting out, how much cash I was bringing in. And I remember it was just really different because I had to keep track of how much cash I

I had on me and what I was spending. And it just really changed the way that I would budget. And it was just fascinating because I went from essentially now I carry more cash after living in Japan. But before I lived in Japan, I almost never carried cash on me. And then all of a sudden I was living there and the weekend would come and it wasn't uncommon for me to be carrying $200 on me at any given time because I needed it.

And also because the crime rate is generally so much lower that I wasn't worried about carrying that much money on me. But they're just so used to dealing in cash that it's not a big deal. I could go into the 7-Eleven, I could buy something that was worth, you know, about three US dollars, and I could give them the equivalent of a hundred dollar bill and no one would blink an eye. That was just really normal. It was expected that you would have to break larger bills. But I think

I think what really stood out to me was how many ways they had developed to make cash convenient. Because a lot of the times we think about currency and cash as being kind of inconvenient when we want to buy certain things. But it was so dominant that I paid all my bills in cash. I would get mailed my electricity bill and I would go over to the convenience store, the 7-Eleven or the Family Mart, and I would pay my bill there. They would scan it at the register.

And I would give them cash. And then that would get logged away in the system. They would let the utility company know that I had paid my bill. That would get transferred over to them. And I also did it with online shopping. I wanted to buy things in Japanese yen. Of course, I had a credit card. I had...

US dollars in a bank account, but I was making money in Japanese yen. So I wanted to spend my money in Japanese yen because my bank account in the US wasn't growing. I wasn't sending any of that money back at that time. And I remember specifically that I bought a used iPad. I bought a refurbished iPad directly from Apple on their website. It was about 600 US dollars, but I couldn't buy it on a credit card.

because I didn't have a Japanese credit card and I wanted to use the Japanese yen that I was earning. And so my two options were to, I could pay the courier. So the courier could come to my house, they could bring the iPad. And before they gave it to me, I could pay them. It was a premium for that in cash. I'd pay them in cash and they would log it in the system and say, okay, yes, you paid. But there was a premium to that. I think it costs an extra, it might've cost like an extra 30 to 50 US dollars. And I didn't want to do that. That was

It wasn't that far of a walk to the convenience store again. And so in this case, I checked out. They said, how do you want to pay? I said, I want to pay at a convenience store. They said, well, which one do you want to go to? Gave me all the different convenience store chains. I said that 7-Eleven is the closest one to me. So I said, I want to go to 7-Eleven. They said, OK. They sent me an email that had

had 7-Eleven specific code, and this is a 7-Eleven code, then they said, we will ship it as soon as we receive confirmation of your payment. So I went to the 7-Eleven. I pulled out my equivalent of $600 in cash at the ATM. I went over to the cash register. I said, I have an online purchase that I need to pay for. I showed them my phone. They scanned the QR code and kind of put in the code and

And I handed them my cash and then they gave me a receipt and said, you're good to go. And a little bit later, I got an email that said, we've received your payment. We're shipping your iPad. And it was just kind of mind blowing. It was such a different experience having so much of it was just a completely different experience in this interplay between private and public money where so many of these transactions were being done directly in public money through a completely different infrastructure.

Yeah, it's interesting. I wonder if one reason in Japan that cats...

Cash is it's much more of a cash denominated culture is because inflation has been very low in Japan for decades. And so individuals don't feel like their money's losing value if they're holding it in cash. Now, cash, another attribute of cash that's distinct is because cash doesn't pay any interest. It's a non-interest bearing liability of the central bank. It can't be defaulted on.

If people trust the cash, they'll take it. But there isn't any aspect of cash being defaulted on because it pays no interest. Whereas with private money, there is the potential for default, where if they bank owes us money, it's an IOU. A checking account is an IOU. If they go bankrupt...

then we could lose our money if it wasn't guaranteed by the government. And for many years, particularly in the 19th century, even up to the 30s, bank runs and bank defaults were incredibly common.

So you had to be very careful about where you put your money, which bank you use, because you didn't know. Back in 2001, we banked for the first time using an internet bank. It was NetBank. Used it for five or six years. It was incredibly convenient. Got higher interest because it was internet bank. And then in 2007, it was one of the first banks to fail in the great financial crisis.

But I didn't even realize it failed because I just got an email from ING saying, hey, we took over NetBank. We're your new bank. But behind the scenes, it had all been orchestrated by the FDIC because NetBank failed. And that's an important distinction with private money.

Private money can be defaulted on. There can be runs. And so we need to make sure there's guarantees. And this is where in the current environment, people have gotten confused. We know public money, it can't be defaulted on. That's cash.

Private money, there can be defaults. Checking accounts and savings accounts below a certain limit in the U.S. is $250,000. That's guaranteed by the government above that amount. And we saw that with NetBank or other defaults that occurred with banks in the great financial crisis. People that had balances above that limit, they didn't get their money. A lot of these new private money issuers, particularly in the cryptocurrency space,

They pretend they're like a bank, but the money's not guaranteed. One of the important distinctions with money apart from investing, and we talk a lot about investing on money for the rest of us, is money shouldn't require us to research and to do due diligence whether we'll get it back.

An investment has a higher return, but it takes some work to understand what the return drivers are, what the risks are, how much could we lose, how much potentially has been lost in the past with that investment. We shouldn't have to do that with money. We should just be able to accept money with no questions asked.

That's what makes it money. And what we've seen with some of the stable coins in the cryptocurrency space, TerraUSD, Beanstalk, this is private money that required additional due diligence that completely lost its value. But many people lost incredible amounts of that because they just thought it was like regular money, like a bank account. And some of these new apps

Just to wrap up...

so that I understand everything that we've talked about. And I look forward to be able to talk more about this in depth here in the future. When we think about money, some of the most important aspects of it are, first, we have to recognize what money is and what the specific requirements for money are. And so what we've talked about is it has to be convenient. It needs to be able to be accepted, no questions asked. And that is true for both public and private money when we're using that money and

And it's convenient that can be public money, currency and cash that we're using at grocery stores that we're using to pay our taxes. It could be private money that is convenient with effectively no questions asked like casino chips.

And so it has to be convenient, but it also has to hold its value. So from a day to day, week to week, it needs to stay consistent. That doesn't mean that over the years it doesn't change at all or have small drifts, but it means that we don't have to think about it. We don't have to do our due diligence about whether it's going to be the same thing tomorrow or that we're going to be able to get it back. Am I understanding that right as far as like the distinctions about what makes money money as a concept?

Yeah, I think so. Other than typically, maybe you do in Japan, we don't pay taxes with cash. We often are using private money to pay taxes. So yeah, I agree, that distinction.

And then the other, the aspect of no question to ask, if we have to ask questions about whether we're going to get the money back, then it's not money in the traditional sense. Then it becomes more of an investment and we have to ask additional questions of what is it? How does it generate a return? What are the risk?

And then it becomes a very distinct process because it's separate. Money, we shouldn't have to ask whether it's money or not. And if we have to do additional research on it, then it's not money. It's an investment. So we need to tread carefully because the lines are being blurred when it comes to money.

And ultimately, the safest money is cash, except as you point out, it can be stolen. And so we need to use all types of money, but just make sure we understand what kind of money is it, who's backing it, is it public or private, is it convenient, and will it hold its value?

If you want to learn more about inflation, which we talked on again, you can get that course at money for the rest of us dot com slash inflation. It's free. Everything we've discussed in this episode has been for general education. We've not provided any type of investment advice. This is simply general education on money, investing in the economy. Have a great week.