THE ILLUSION OF MONEY 🧵 Most people think of money as something...

THE ILLUSION OF MONEY 🧵

Most people think of money as something concrete, cash in hand or deposits in a bank account. That is an illusion. Money is not a fixed thing. It is a web of asset and liability relationships across the entire financial system.

Your deposit is an asset to you but a liability to the bank. A Treasury bond is an asset to investors but a liability to the government. Strip it down and you see: every dollar is a claim. Money is a balance sheet relationship.

This is why money and credit can be interchangeable. When a bank extends a loan, no new physical money is created. Instead, a loan (asset) and a deposit (liability) are born simultaneously. Purchasing power emerges from accounting, not from the Fed's printing presses.

Most of what we call money is actually credit. Promises to pay in the future dominate the financial system. Credit is spending power, and it dwarfs the amount of physical currency in circulation.

There is no universal definition of money.

There is NO rule that says money is a store of value or medium of exchange!!

What matters is confidence in those relationships. Every asset is someone else’s liability. Duration risk measures the uncertainty of value through time. Credit risk measures the uncertainty of repayment. These are the true foundations of money.

Once you see money this way, the illusion disappears. There is no fixed ideal of a dollar. There is only a shifting system of claims, promises, and liabilities. Understanding that system is the starting point for decoding capital flows.

Capital flows are the movement of these claims across the risk curve. When credit risk is perceived to be low, capital rotates outward into riskier assets. When risk rises, capital retreats inward toward safety. Money is the language. Flows are the motion.

This is why macro begins with money. The structure of assets and liabilities defines the system. The flows of capital across that system are the signal. If you track the flows, you see the regime shifts before they appear in headlines.

There is a full list of educational primers on these moving parts here:
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A Playbook on the credit cycle, Bitcoin, and every aspect of macro here (free)

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And the most recent video on how to think about rates moving into Jackson Hole tomorrow:
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