To give context to the article, we need to understand how we have got to where we are. Getting into financial debt, either by borrowing money from institutions or other investors, has only become ‘normal’ for a relatively short period time.
The Federal Reserve and Modern Day Banking System
The federal reserve was passed into law by Woodrow Wilson on December 23rd 1913. It was created ‘to provide the nation with a safer, more flexible, and more stable monetary and financial system’.
The reality is slightly different.
In 1910 a group of bankers met on Jekyll Island, near Georgia in the USA. A blueprint (the Aldridge plan) was created at the meeting outlining the role that the government has in monetary policy in the USA. It wanted to move away from the European model and have a national reserve association to function as the US Central Bank.
The Federal Reserve is not a private corporation. It is part private and part public, with its Board of Governors an agency of the United States government. The regional Federal Reserve Banks are private corporations acting as agents of the government that are owned by their member banks.
They can create money from thin air, and then charge interest on it. The taxpayer ends up footing the bill for the interest. This is all based on the governments promises to pay it back using the taxpayer’s labour.
It is little more than a banking cartel who are in bed with the government.
This now goes on all over the world.
Economic Reality – The Rules of the Game
As the money supply increase, the value of the currency goes down, which is why the price of goods goes up. The quantity of money increases at a rate faster than the products and services.
The only monetary systems that last a prolonged period are the ones which require human effort to produce. This is the only way to stabiles the purchasing power of a currency. Gold, in particular, requires human effort to mine, for example.
You are free to not participate in ‘the system’, but there is no honour in moaning about it. If you choose to participate, then there are rules in place which allow you to prosper. Yet, the odds are stacked against you without knowledge of the ruleset. Freedom comes from education, and the rules have been set for you.
Play or be played.
On a fundamental level; the more debt you utilise; the wealthier you become.
It seems paradoxical, but this is set up on purpose. It allows an economy to keep growing and expanding. The trouble is, the majority of people have no idea how to use debt to their advantage; they use it to bury themselves and then blame the system for their downfall.
Utilising Debt
Having studied the game and the system, I began investing in property in 2012. I have since transacted millions of pounds worth of property and have built a healthy portfolio. None of which would have been possible without debt.
This led to investing in other asset classes, including precious metals (gold and silver), business, stocks/shares and cryptocurrency. All of them acquired using debt facilities. It can free yourself from financial concerns.
See the table below showing some of the biggest companies in the world and their level of debt
| Company | Debt Level | Value |
| Apple | $100 billion | $1.38 trillion |
| Amazon | $75 billion | $1.25 trillion |
| Disney | $50 billion | $216 billion |
| Ford Motors | $100 billion | $258 billion |
| General Electric | $95 billion | $309.13 billion |
| AT&T | $166 billion | $210.8 billion |
3 Reasons Why Debt is Your Friend
1) You can buy real assets with fake money.
The more money that is ‘printed’; the value of the money in your pocket goes down and generally speaking, the value of ‘real assets’ go up. To prove this to yourself, check out the historical prices of property and metal.
As the federal reserve and other central banking institutions continue to print money, the money sat around in your savings accounts become worth less and less. Hence, savers lose out, and borrowers (appropriately used) get wealthy.
This fake money can be your greatest asset as the value of it goes down, and the value of the ‘real assets’ you buy goes up.
2) Inflation eats away debt.
People still don’t understand inflation because they think and speak of it as rising prices. The definition of inflation does NOT include rising prices! Inflation is an expansion of the money supply, as mentioned above. That is the ONLY real definition, and it is the cause of rising prices, not an effect.
It can also be a considerable shift in the natural disruption in the number of goods. Such as Robert Mugabe seizing all the farmland in Zimbabwe. His cronies didn’t know how to farm, collapsed the market and the money in circulation had nowhere to go.
A bit of a past time. Freddo chocolate bars used to be 10p in 2000. They are now 30p in 2020—a 200% increase in price, which is an effect of inflation.
The money that gets pumped into an economy needs to find a way back out of it in the recovery of a recession. People have more money in their pockets because there is more in circulation. People then spend the money, and the economy continues to expand.
In theory, as the economy starts to grow, the central banks and governments should siphon the money back out of the economy so that inflation doesn’t get out of control – leading to hyperinflation.
Hyperinflation
“Hyperinflation can take virtually your entire life’s savings, without the government having to bother raising the official tax rate at all.” – Thomas Sowell
Hyperinflation is a concern at the moment. It probably won’t happen, but it is possible. When there is too much money in circulation, chasing too few goods/services, the currency becomes worthless.
In Venezuela, 3,000,000 bolivars will buy you a kilo of carrots. 3,500,000 bolivars will buy you a bar of soap. Although ‘in the west’ we have a far more solid financial and social infrastructure, it isn’t impossible.
Why can inflation be your friend?
Let’s say you borrow £100,000 to buy a property. In 10 years, like the Freddo’s, the asset has gone up in price/value. Having more money in the economy, which has happened consistently since the creation of the federal reserve/modern central banking system, the value of that £100,000 debt becomes worth less relative to when you took it out.
So, the assets you have acquired go up, and the inflation drives down the value of the debt.
3) You can buy cashflow
The fake money that gets printed, which only has value because people think it does, can buy streams of income.
The money that you borrow has an interest rate attached to it; that is the cost of borrowing. Particularly in today’s economy, you can borrow money very cheaply and acquire assets that provide cash flow, such as Real Estate.
Currently, the base interest rates in the UK is 0.1%. I can borrow money at 2% pretty easily and buy a property that yields 8%. That means I make a 6% spread between my debt expenditure and my rental income. (There are obvious costs involved which haven’t been added for simplicity)
You can also borrow money to acquire businesses which are already providing an income for the directors. If the income is higher than the debt payment, then buying the asset with debt may be a good investment decision for you.
Anybody can do this; you just need to learn how the system works.
Conclusion
This article is only a fundamental overview of how debt can be used for wealth creation. The financial system is set up for people to win who educate themselves; it can cripple people who do not.
I would recommend reading a few books on the economy, investing and the banking system.
Creature from Jekyll Island – G.Edward Griffin
Economics in One Lesson – Henry Hazlitt
Rich Dad, Poor Dad – Robert Kiyosaki
There has been an enormous surge of people using cryptocurrency since the 2008 financial crisis. This comes with a whole new set of rules and isn’t at the mercy of a central banking system. I believe this will be the future of money.