Part 2 - What Is Money and How To Think About It
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Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I'm your host, David Stein. Today is episode 392, part two, what is money and how to think about it.

In today's episode, my son Camden and I continue our discussion on money, public money, private money, money is debt backed by debt, money is energy, and how to think about money. So let's go ahead and get started. I hope you enjoy the episode.

Hi, this is David Stein of Money for the Rest of Us, and today I'm here with my son Camden, and this is the second of two discussions we're having about money. What is it? How to conceptualize it? Think about it. How to use it. Camden, what did we talk about last time?

I really enjoyed our conversation that we had last time. I found it to be really interesting and enriching. There's a lot to it that I've thought about over the years and had conversations with you about. But in the last couple of months, especially, my understanding of money has really changed. The basic thing that we covered that was really important to our conversation was the two requirements for money.

That money needs to be convenient, needs to be something that people, a lot of people accept. It needs to have low transaction fees, needs to be easy to use.

The second important thing for money is that it needs to hold its value. Of course, this means that it needs to reasonably stay the same from day to day or week to week. Money might change from year to year. We know that inflation is a normal thing in most economies, but it should stay pretty consistent. I should know that one US dollar today will buy roughly the same thing tomorrow.

When we talked about using those two basic features of what money is, we then divided up money, what we identify as money on a normal basis into two important factors. One is public money and one is private money.

Public money is what we're familiar with as currency, cash. This could be the U.S. dollar. This could be the Japanese yen. And then there was private money. Things that we use as money for these transactions that hold value but are often within a more private system. These private systems could be anything from casinos.

casino chips that hold value that we can use as transactions within a casino. They could be gift cards to favorite local restaurants, to the Apple store, could be tickets at the fair, but most commonly banks.

And that was one of those things that really kind of shakes my world, not in a bad way, but just I find really fascinating is this idea that banks are private money, that even though it's denominated in the same way as public money, we count it in US dollars or whatever currency you use in your country, but that it's different. It's separate. It's private money at a private entity.

And when we talked about those two different things, we talked about how important it is to recognize the difference between public and private money and that there are different risks or different situations that come about for public and private money.

Is there anything that you want to add to that that I kind of understand or remember that well enough? That's right. And the biggest distinction is private money is IOUs from some organization. So when you have a checking account, that bank owes you money. That checking account is a liability of the bank. They owe that money to you. And because they are a private entity, any type of private money is subject to runs. People can fear that they're not able to get their money back. Right.

And as a result, at least with the banking system, governments guarantee that if the bank fails, they'll step in and refund most of your accounts. There's typically a limit. So in the U.S., it's above $250,000. So we talked a little bit about bank runs last time.

One thing that we didn't really talk about is this concept of the money supply, because inflation is the rise of prices over time. And what causes inflation is the creation of more and more money over time. And in order for money to be convenient, there needs to be enough of it.

And one of the challenges with economies for centuries is how do we ensure that there's enough money so that people have money to conduct transactions, but that there's not too much money so that we have too much and there's more money than goods and services being produced. And so that leads to the rise in prices and inflation. And

The way that the economies have been set up to ensure the creation of enough private money is governments essentially given the private banking system the responsibility for creating most of the money. And when I first realized this a number of years ago, it was really quite shocking. And it is controversial.

In doing research for my next book, I found a manifesto from the 1930s that a number of leading economists put together. They published it. And this manifesto was backed by over 200 economists. And they said that the ability of banks to create money by making loans was the chief loose screw in the U.S. monetary and banking system.

They wrote, thousands of commercial banks have power to increase or decrease the volume of our circulating medium, fiat currency, by increasing or decreasing bank loans. They point out when a bank makes a loan, it increases its own promise to furnish money on demand by giving it to the borrower.

So that was back in the 30s. Bank of England put it back probably about eight or nine years ago. They said whenever a bank makes a loan, it simultaneously creates a matching deposit at their borrower's bank account, thereby creating new money. My first loan was to purchase a used car. It was a Ford Granada. My existing car was broken, didn't work. So I went out and I got a bank loan.

When I got the bank loan, I signed the documents. I believe my sister co-signed for it. And so the bank had a loan receivable. They had my promise to pay back this loan. And the interest rate was ridiculous. It was over 10%. But they put money in my account to essentially pay for that car. And maybe they paid the car dealer directly, but that process...

They had a new asset on their balance sheet, this loan receivable. And because they were a bank, they could create the deposit. They could just change the digits in the checking account to create that loan. Now, some other private entity, if we have a company and if we want to lend somebody money, we can't create the money and put it in their checking account. We have to go write a check on our own checking account. So when a private entity makes a loan, it doesn't lead to increased money in the system.

But when a bank does it, it does. And then the challenge is, how do we keep banks from making too many loans and creating too much money? When I think about this, one of the first questions that came to my mind, and hopefully this isn't too far out of scope, is thinking about that manifesto that happened back in the 30s, it seems like this is something that would have just gotten more complicated over time. Because obviously in the 30s, there weren't all these digital networks, there wasn't this online component to banks and things.

And so when I think about now, last week we talked a little bit about how in the earlier days of the pandemic in 2020 and really later into 2020 as well, there was this interesting mix of money being created, in this case, not necessarily through banks, but through the stimulus payments that were being given out by the governments at the same time that there was sort of this cash flow.

shortage. There was this coin shortage. And that interplay just seems like it's gotten more complicated over time, that balance between enough money in the system, but what's enough money? You know, what's too much money? And nowadays having to balance sort of this digital aspect of private money versus the physical aspect of public money. Is there any thought that you have about that?

Well, yeah. So back in the 30s, when this manifesto was written, I believe at the time, the US was still on the gold standard, or at least there was the implicit understanding that most of the money that the Federal Reserve issued, the public currency, so public currency, again, this fiat currency, the cash, is a non-interest bearing liability of the central bank. So they are backing it, not by anything, but

But back then, in theory, it was backed by gold.

So what has happened since then, since the US officially went off the gold standard in the 1970s, between the 1930s and 1970 was sort of a quasi gold standard, but you mentioned the stimulus. Now, while previously most money was created by banks making loans, we've seen a situation in the last 15 years where a significant amount of money was created by

by central banks in coordination with federal government. So when a federal government runs a budget deficit, spends more money than it takes in in tax revenue, typically it issues debt in the form of government bonds.

Well, they did that. But at the same time, you had the central bank, the Federal Reserve, going out into the market and buying those bonds. And effectively, what that meant was the central bank was monetizing that national debt. And then you could see it in this huge jump in this money supply.

that I talked about. And the money supply consists of cash, outstanding. It consists of checking and savings accounts at banks. And then it consists of what's known as money market mutual funds, which is basically deposits that we can perhaps talk about this later, but it's another form of short-term savings. Well, that has increased significantly based on this idea of what's known as quantitative easing combined with the federal budget deficit.

And that has exploded the amount of money in the system. And what is frustrating about it, in one aspect, we've not talked about it. When I took out that car loan, the bank could create the money instantaneously, but there was a loan receivable. And so one of the ideas is that money is energy, and it took very little energy for the bank to create that money.

But think about all the energy that I had to consume, both personal work as well as gas in the car to drive to my job. But all the thing entailed effort to pay back that loan.

So what is helpful about the money supply creation being tied to the commercial banking system is this energy aspect. Any new dollar created, there's a loan associated with it. And there's a borrower that is promising to pay back that loan and expending work in the

energy to pay back that loan. And that's where on the podcast, we've talked about how debt can be both good and bad, but debt represents future work, future effort, future income being brought into the present to spend today. But there's this big component of work and energy that needs to be expended that's effectively backing that money.

But when the central bank basically creates it as part of quantitative easing and a budget deficit, well, there's trillions of dollars created with no real energy or work behind it. And that, in some ways, can corrupt the system and lead to inflation. And we've seen it with the highest inflation since the early 1980s.

It's a really fascinating concept. And one that is also newer to me, too, is thinking about money as energy in this way, because I think most of the time, the most familiar aspect of that is that we go to work, we have a job, we put in that effort, we use that energy, and then we get money.

And we usually just think of that as, you know, I'm doing work to get paid. I'm doing a service for somebody else. And then this is what they're doing to compensate me for that. But we don't necessarily think about money as being really tied to that energy. I think that we do at times think about loans. You know, when we're like when we take this loan, we think about how much work we'll have to do to pay it off, how long it will take us to save money and work to pay it off. But I don't think that we connect it with this idea of energy or money is being backed by energy.

But when he said that, it rang really true to me because I remember one of my first experiences with debt was in many ways at a pretty early age. I was probably, I don't remember exactly, I was probably 12 or 13 and it was summertime. I was too young to have an actual job, but I did earn money by doing extra work around the house. I had normal chores that I was supposed to do, but I had a system set up with you and mom where if I did extra yard work or extra things, I could kind of earn some extra money. We had a system for that.

But I remember that that year I was going on a trip and I really wanted an iPod mini to listen to on this road trip. But I knew that I didn't have the time to save up money before the road trip. And I really wanted the iPod for that road trip. And so you worked out with me sort of a non-interest loan program.

And he said, I will buy you this iPod mini before the trip, but you still have to pay it all back. And so all I was focused on was, cool, I can get the iPod now and I'll have it for this trip and I can load my music up on it and I can listen to it while we're driving. But I remember really distinctly the feeling of the rest of that summer I had to do all this work.

And it wasn't so much that the work was bad. It was just that I knew that I didn't have this thing to look forward to after the work because all of that energy that was being spent was going back to this thing that I'd already gotten. I was spending all of that energy to pay back the loan that I'd gotten from you. And so that was kind of the first thing I thought of when you mentioned that just now is the energy that just came back into paying that.

And I think it's a really fascinating concept and something that maybe some people think about more than I do. But what else about that is really important to understand? You know, in our day-to-day lives, what do we do with that information? I think it's something that a lot of us can feel. But when we think about money and money as energy, what do we do with that? What kind of comfort do we take from that? What types of things should we pay attention to when we approach money or approach earning money or spending money or money creation?

Well, first is I don't think most people connect the two. I think if you ask the average person on the street that took out a loan, they think the bank went and got the money from one of their depositors. So they lent out existing depositors money, cash they had at the bank, and that's what funded the loan. But the reality is, no, what funded the loan was new money created that is specifically tied to the promise of the borrower to pay money back.

And then at the default, that money is still in the system. But when the loan is being paid back, that actually then reduces the amount of money in the system because the money basically gets destroyed as that loan gets paid off. The important concept then is because when we borrow money, we're accelerating future income into the present because we have to do all this future work, expend all this future energy. It helps us to think, well, what should we be borrowing money for?

In your case, you borrowed money, not from a bank, but from me. So we didn't create new money, but it was a one-time thing. You use the iPod mini on the trip, but then you had this weight. People that borrow money to go on vacation. I have a family member, we were thinking about this recently, and they went out and borrowed a bunch of money to go on vacation. Well, that debt's still there. The type of things that it's good to borrow money for is if you're buying an asset that potentially will appreciate.

such as a house, or maybe you're investing in human capital for like taking a class or a student loan. There, we're taking that future income, borrowing money, purchasing something, but there's a return on that investment, be it education, be it a house. It gets a little more challenging with a car because the car depreciates, but that transportation often allows us to get to our job to be more flexible. And so there is a payoff that way.

But really connecting anytime we borrow money is what's the payoff and understanding that money, that borrowing actually creates more money and is energy expended helps us to be prudent in our use of debt. Before we continue, let me pause and share some words from this week's sponsors.

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Kind of the important thing that I think here is when we're tying money and energy together is that this energy is expended in the process of money creation. So that at least that's the way that I'm kind of hearing it is even though the energy isn't necessarily expended in that moment, it doesn't, like you said earlier, it doesn't cost the bank energy to create that money, but it is tied to energy. In this case, it's tied to the work that we're going to do to pay it back. And

And even money that we're getting through our paycheck is tied to the work that we're doing to earn it. So it's tied to this thing. When we look at other types of money or other types of private money and think about energy in creation, one of the first things that I start thinking about is Bitcoin or cryptocurrencies, because that's a big part of the conversation that we're having right now is the energy.

Energy, literal energy in this case, utilities power, computing energy, the electricity that it takes to run these servers to mine Bitcoin. That's kind of one of those other hot topics we hear about right now. When we talk about money and energy, how does that relate?

It's both similar and different. What's unusual about Bitcoin is Bitcoin is one of the few types of money that isn't debt. A public currency is debt of the Federal Reserve. A checking account is an IOU from a bank.

But Bitcoin runs on an algorithm on a computer network. And so there is no, no one owes us that Bitcoin. All Bitcoin is, is this big ledger in the sky, a huge spreadsheet with all the transactions that have occurred. And the money creation is tied to energy because money.

All those transactions have to be confirmed by miners as they work to solve an algorithm or a mathematical problem that involves the transactions that are occurring because about every 10 minutes,

The miners come together and they agree that these new transactions should be added to the blockchain. And as part of that, they're competing to solve this challenging mathematical problem in order to verify the transactions are correct, that there has been no double spending. And then this is the answer. And whoever solves that problem first, then they get a reward of new Bitcoin.

And then those transactions that block, it's added to the blockchain. So it's a completely revolutionary way of money creation.

With the financial system, all the energy expended to run the ATM networks, to heat and cool banking locations around the country, around the world, all that energy is sort of distributed and it's hard to calculate what's the energy use. But when you're looking at Bitcoin, because we can see how many computers are involved in this mining at any given time and the amount does vary based on the price of Bitcoin, all

we can do a better job estimating how much energy is being used. And it seems like an incredible large amount. They compare, well, it uses as much energy as this country. But that energy is being expended to maintain trust in the network, to maintain the integrity of the network. And miners, in order to compete, they have an incentive to use the cheapest type of energy that they can find.

which is typically energy that was going to be wasted anyway, or it could be renewable energy. And so there is that incentive, but there is energy used. But there's energy used for the creation of fiat currency also when it's tied to a loan. It's just that, as you pointed out, Camden, that's future energy because of the work needed to pay back the loan. Whereas Bitcoin, it happens in the moment as that Bitcoin is created.

Now, there are definitely some things about Bitcoin. When we think about money and the role of money, Bitcoin isn't very good at money right now in that it's not very convenient. I don't know if you don't think you've bought anything with Bitcoin. I rarely buy things with Bitcoin. I bought a watch with Bitcoin and it felt really amazing that they would take Bitcoin for purchasing a watch. But in everyday use, most people aren't using Bitcoin because they're not getting paid in Bitcoin.

We use the money that we get paid in and that other people are accepting. It's very difficult for that network effect of money because people have to be willing to accept the money. And that just hasn't been the case for Bitcoin. Bitcoin has done a better job over the long term of holding its value, that second aspect of money, in that what you can buy today with Bitcoin is much more than you could buy four years ago.

On the other hand, what you could buy today with Bitcoin is 80% less than what you could buy with Bitcoin last November. And that's sort of the knock at Bitcoin. It's incredibly volatile because it's not convenient enough. If it was more convenient, there would be more use of Bitcoin.

And then there would be just less people holding it for speculative reasons. And the Bitcoin network would grow and there would be more stability there. But right now, because of the lack of convenience, we get way more volatility, which makes it difficult for it to hold its value over the short term.

So kind of one of the first things I think about in related to that is last time, one of the things that you said is that money is something that we should be able to use and not think about too hard. That we shouldn't have to be thinking about the risk of this money or the risk of getting it back. And when I think about Bitcoin...

That, to me, is something that I had to think pretty hard about because it is much more speculative. When I go and pull out money from the bank or put money in the bank, I'm not thinking about it too hard. And I know that part of that is because of the bank's special status as being backed by the government. We have the FDIC insuring the accounts up to those certain amounts. And so I've grown up in an era where bank runs in the United States are not very common.

Where bank failures are managed much more easily. But when it comes to something like cryptocurrency, like Bitcoin, which is considered a private money, it seems like something I have to think about a lot harder. And that seems like another knock against it, where there is that distinction that this isn't maybe very good at being money right now.

That it's something else, that it is a speculation, something that we're investing in as sort of a novelty. And we're just not quite there yet. Is that accurate? Because that seems really important, especially right now where you just mentioned that Bitcoin and cryptocurrencies have fallen 80% over the last couple of months. They're really volatile.

But I don't think that everyone is thinking about them that way because a lot of cryptocurrencies are out there saying, we're money, we're money. Or you have cryptocurrency savings institutions that are acting like banks. We mentioned those last week. What's really important to understand about that?

Well, exactly what you point out. The phrase I used was no questions asked. We should feel comfortable using money without worrying about whether others will accept it, trust that money, or whether it will hold its value in the short term.

One of the interesting thing with Bitcoin though, it is volatile, but there are places around the world where the level of trust in their domestic fiat currency is so small and the level of inflation so high that in that realm, even with the volatility of Bitcoin, many people trust Bitcoin more because it is an algorithm that can't be manipulated. And it is backed by trust and energy.

But it is digits. But that's what blows my mind about money when I looked at it and thought about it. This is right around the time of the great financial crisis. Just realizing that all money is digits. It is digital. And at the end of the day, it's backed by trust. And the money that's going to prevail at the end of the day is going to be whatever people trust the most. And it's going to be whatever entity is backing that money.

So the commercial banking system, the central banking system, the government, if people trust those institutions and the money that is issued by them, then that's what they'll use. And if they don't trust it, then they'll do everything they can to get rid of it and hold something that they do trust. Now, maybe it will be Bitcoin that steps in.

And there's enough trust there. But when you look at, when you think about bank runs, Bitcoin, effectively, we've seen a type of bank run for Bitcoin over the last six months. Many people bought Bitcoin not as money. They bought it as a speculative asset. And when they saw its price start to fall, then more people were willing to give it up and they were willing to accept less money, other fiat currencies for that Bitcoin. And that's what led to its collapse.

So we'll see which money people trust the most. But the takeaway is, which was similar to last week's takeaway, is if we have to ask questions about whether we're going to get the money back, then it's not very good money.

Another type of money that we've not talked a lot about that's sort of in between fiat currency and commercial banks is money market mutual funds. So money market mutual fund is you can go to an entity that sponsors it. It could be Schwab. It could be Vanguard Fidelity. And again, for retail or individual investors, this is included as part of the money supply. And they pay a little higher interest than you can get at a commercial bank.

And that money market sponsor takes that money that we give them. Then they go out and they buy treasury bills, very short-term government bonds. They buy what's known as commercial paper or very short-term commercial loans. And it's counted as money by central banks. They count this as part of the money supply, but we get interest on it. But again, it's also an IOU from a private entity. It is debt-based.

the IOU, and it's debt backed by debt because that entity has gone on and invested it in other people's debt. But again, what can we learn from that? Well, we can learn it is private money, and because it's private money, it is subject to runs. And so during the pandemic financial crisis of 2020 and the great financial crisis of 2008, the Federal Reserve in the US had to step in and backstop money market mutual funds and say, we will guarantee that

They're worth $1 a share. And typically these money market mutual funds are $1 a share and they keep it stable. If it falls below $1, it's called breaking the buck and then people want all their money back. So the idea is to keep it stable. But it's an interesting example because we invest in money market mutual funds like it's money. We don't ask questions whether we're going to get it back.

But it's also subject to runs. And the reason why we don't ask questions is because central banks have been willing to step in to backstop it. Not every day, but whenever there's a crisis, they step in. But it's just another example of anytime we use money, understand what's the trust level in it, what's backing it. Do we have to ask questions whether we're going to get it back or not? And if we do, then it's not really money. It's an investment. And our mind frame should change in terms of how we analyze it.

And I think that's really fascinating because the more that I thought about it, you know, one of the things that people, the criticisms that people have of cryptocurrency is they're like, well, it's just this made up thing. And then I'm always like, but all money is just this made up thing. And whenever I say that, my friends are always like, you sound like one of those crypto bros, really crypto, crypto, crypto all the way, because that's kind of the thing they're always touting is, well, all money is just this made up thing.

But it sounds like the important distinction, the fact that money is a made up thing, you know, and that cryptocurrency is also a money that's a made up thing doesn't just give it a pass as money just because it's similar in that regard.

We could say monopoly money is a made-up thing, and it is private money, but we're not really doing anything with it. It's not convenient. Nobody accepts money. There isn't a level of trust in monopoly money as money, so nobody will take it. Exactly. And so it's not so much that, well, cryptocurrency is also a made-up thing, and money is a made-up thing, therefore cryptocurrency is money.

It's more that cryptocurrency is a made up thing and public money in many ways is a made up thing and monopoly money is a made up thing. And so it's more that it could be money, but these other factors have to come into play. It has to be convenient. It has to hold value. There has to be that trust, that network of energy there.

that starts backing it up and we have to all start kind of using it. Theoretically, we could all start using monopoly money if the biggest network of people suddenly said monopoly money is worth something and it was backed by something. We felt like there were institutions or energy or something behind it. We could use monopoly money as money, right?

Well, we could. And the fact that cryptocurrency sponsors know that the cryptocurrency is not money in the same way that fiat currency that's part of the commercial banking system is money, which in one way we know that is cryptocurrency lobbyists have lobbied for cryptocurrency to basically have to either have access to the central bank or get some type of backing.

In other words, what gives people confidence to use money market mutual funds, to use checking accounts and savings accounts at banks is the guarantees by the government. That's what keeps people using it. And cryptocurrency advocates would love to have that same backing for cryptocurrency because then people will accept it and they wouldn't worry so much about it. I don't think it's a good thing and I don't think it'll ever happen, but we'll see. But you're ultimately right. Money is trust.

And if that trust wanes, then people don't want to hold that money anymore. And that can happen with fiat currencies. We've done episodes on the podcast in the past about what happens, for example, if the commercial banking system, commercial banks that have deposits at the Federal Reserve that are known as reserves, if they decide that they don't trust the central bank anymore and they want to withdraw their reserves and exchange it for currency.

They have that right. There's nothing to stop Citicorp, JP Morgan from going to the Federal Reserve and say, hey, we would like a trillion dollars of currency in exchange for our reserves because they're already doing that. That's how we get currency into the system. When a commercial bank sees more demand for the actual dollar bills, then they basically reduce the amount of the reserves and they're given dollar bills.

But if that went to an extreme level, then suddenly we have huge amounts of currency in the system and a huge amount of distrust in the central bank. And that would lead to an explosive level of inflation, even more than we have now.

And that's why trust in the entity and the importance of our leaders to maintain their integrity to not create too much money is so important because we've seen countries where people no longer trusted the currency or the central bank. And those currencies ultimately fell in value relative to other currencies and led to hyperinflation.

There's one thing that I want to ask about that's sort of connected with that idea. We're talking about trust and trusting money. Earlier, you used a phrase that really stuck out to me and sticks out to me still in talking about trust. And I think maybe what in the minds of most people, but you talked about money is debt backed by debt.

And that to me is kind of a confusing concept. And at least on a more surface level, kind of flips my little trust light a little bit, turns on my little red light where, you know, we have complicated feelings around things like debt and say, well, money is debt backed by debt. And then I say, well, what does that mean? And how does that factor into trust? And maybe that's a really complicated question, but is there anything more that you can kind of say about that concept of money being debt backed by debt and how that kind of fits into this view?

When I say it's debt, money is debt. So the first layer of debt is it's an IOU. You've deposited the money somewhere. Somebody has given you something. So we have one layer of debt. It's an IOU. But then it's a question of...

all right, what did that money sponsor do with those funds? And oftentimes they'll lend that out. And an example, money market mutual funds is an example that we discussed. So Vanguard owes, if I have an account at Vanguard and their money market mutual fund, they owe me money. It's an IOU. They try to keep it at a dollar per share, but then they've gone and taken those funds and they've lent them out. And so other people owe money to Vanguard. Where we're seeing that issue now is in the cryptocurrency lending space.

So I had an account at BlockFi. They promised to pay me 8% interest. BlockFi owed me that money, but they took that money and then they lent that out to other investors that used it to speculate in cryptocurrency, which I closed my BlockFi account because I got uncomfortable with that. And now BlockFi is scrambling to not go bankrupt.

They haven't said that, but they're out looking for loans because BlockFi's problem right now is they have all these IOUs from...

people like me that had deposited money to earn interest, and those people want their money back, but they don't have the money because the money is lent out. And this is a problem that banks have always had when you have what's called an asset liability mismatch in that they've lent money long and there's not enough money to redeem depositors. And you're seeing this in the crypto lending space. We saw it with Celsius Network last week. And what did they do? They suspended withdrawals because they didn't have the money.

And so when there is debt backed by debt, then we start have to thinking about, particularly in the private money space, well, how liquid is that second layer of debt? Will I be able to get my money out when I want it?

And that's when it becomes more of an investment. Because if it's guaranteed by the government, then we know we can get our money out irrespective if the second layer debt defaults. But if it's not backed by the government, then it's an investment. And one of the questions that we ask with any investment is how liquid is it? How easily can we get our money out? And if it's not liquid, then we should get a higher return to compensate for that illiquidity.

So that would be one of the really important distinctions between banks as private money and other private money is that banks, even though they are debt backed by debt, they are FDIC insured up to $250,000 in the account, which helps it maintain that liquidity. So we don't have to worry as much that if the bank has a problem, the bank goes under that we're able to get our money back as long as it's below that threshold. Is that correct? That's right.

And I think that's a really helpful thing. I mean, I know that's a really helpful thing for me to realize, and especially making that distinction between something like a bank, money, mutual funds, and other types of private money like cryptocurrency and where it currently stands in the system is that we need to think about it more as that speculation, that it's not meeting those requirements for money that we've set up, the convenience, the holding value.

The no questions asked, thinking about it as private money, having to think about those things like liquidity that we don't necessarily have to consider in other forms of money.

That's right. And if we have to consider it, then it's an investing. And that's why we spent a lot of time on money for the rest of us talking about investing versus money. We talk about both of them, but the frame of reference that we use and approaching them should be completely different. And hopefully you have found this little mini series of these two episodes about money, trust, debt helpful to you as you think about how

how you use money and how you use debt prudently in your daily life. Hey, if you've liked these episodes, please leave a review of the podcast, something we don't ask very much on Money for the Rest of Us. We welcome your feedback. Maybe we'll do more of these little conversations, but hopefully you have found them enjoyable.

Everything we shared with you in this episode has been for general education. We've not considered your specific risk situation. We've not provided investment advice. This is simply general education on money, investing in the economy. Have a great week. Thank you.