The goal of Rich Culture is to simplify the world of finance to everyday people to understand what is really going on and be able to respond smartly to economic cycles. The ravagers of the financial system counts on people not understanding what is really going on.

I am not here to tell you to avoid the system. I am here to show you how you can win. The game is winnable. But you have to understand what is going on and how to position. If you read my first book, you’d recall that the secret of success is positioning.

The chart I’m starting with here is the 2023 global GDP chart from Visual Capitalist. We will start from there and go deeper. The first rule to winning the game is to understand what they game is.

The Numbers Game

In a game of numbers, where there are winner, there must always be losers. Otherwise, the numbers won’t be balanced. Let’s take an example.

If there are 20 cars owned by Bob and Sandy buys 10 cars from Bob. It means Bob loses 10 cars and Sandy now has 10 cars. The total number of cars does not change.

If there are 900 transactions between those cars, at each point of the transaction, the number of cars must always sum up to 20. If at some point you hear that Sandy has 5 cars and Bob now has 18 cars, you know there is something fraudulent going on. That’s simple, right?

The global GDP in 2023 sums up to $105 trillion. And that’s even an IMF projection. But let’s assume that is already a fact. The question then is - how much money is in the world?

Whatever your first guess to that question is, it is too low. According to the UN, the world has a global debt of $92 trillion (2022). Pay close attention.

Vanguard, BlackRock, and Fidelity Investment jointly have over $20 trillion assets under management. But if we really want to know how much money is in the world, we have to look at the international foreign exchange (FX) transactions.

It is hard to get those numbers precisely. But just for you to have a glimpse of what we are talking about, over-the-counter (OTC) FX turnover in April 2022 averaged at $7.5 trillion per day. Per day, yes you read that correctly.

My main concern about the global economy is what is allowed to stay away from the accounting books. For example, how much money is off balance sheet of the Fed? How much derivatives do we really have in the world and and what is the true value of the underlying asset? Let me explain.

Adding the Numbers

Back to the Bob and Sandy example. The world now has at least 4 ways of making the number of cars sum up to more than 20. And if you overlap two or more of those ways, you end up with something crazy.

But let’s consider the magic addition methods. Why this important? It is because the entire global economy runs on this narrative. This is the game. And you have to get it.

The first one is called Fractional Reserve Banking. This states that commercial banks can loan out the money you keep in them. So, you keep $100 in the bank. The bank loans $100 out. Technically, you still have $100. The bank has $100 in their asset column (as a loan that will get repaid). The person who took the loan also now has $100 (because the bank gave it to him and expects him to pay back).

That is $300 from $100. Can you see how that works? The maths don’t add up. And yes, right now, some American banks can loan out from 100% of their base. Now, I will come back to this when talking about inflation.

The second one is Derivative Trading. This one is a bit complex. Fred wants to own an Apple stock. But there is none for sale. Tom owns 10 Apple stocks and wants to give Fred the opportunity to own one without forfeiting any of his. So, he creates a financial product (aka derivative) to mimic Apple stock and stakes his 10 Apple stocks. So, Fred can now buy those derivatives that behaves exactly like an Apple stock. Meaning that when Apple price goes up, it does too. When it goes down, it does too. The only problem is that if push comes to shove, Fred does not own an Apple stock. Tom does.

Now, this gets crazier. If you think a house is going to go up in price, you can actually speculate on that without buying the house. In fact, the owner of the house can be oblivious to all of this. The home price increased by 15%. While the owner of the house may never care about that, there are some people who have made money on that. They bought derivatives that bet on the house price.

Can someone do that for a whole community? Yes! Can someone do that for the entire housing market in America? It is possible. So, your house is still your house. But someone can make $15k profit on it last month and you would never know. This is why mortgage is such a big thing. Mortgage allows your house to become an underlying asset for derivative trading.

The third one is Quantitative Easing (QE). This became popular (or was possibly invented) after the 2008 financial crisis. This is the central bank of America (aka, the Federal Reserve) pump new money into the financial system by buying up government bonds.

Here is the math wizardry here - the central bank has no money. The only thing the central bank has is monetary authority and a balance sheet (to keep track). Meaning that, if the central bank tells you that they sent you $200, your bank will have to credit you with that amount (because of the authority of the central bank).

This time there is no underlying asset or any need for one. Fractional reserve banking needs your deposit, derivative trading needs a real asset to be the underlying asset. QE needs nothing. Just a situation or condition that “forces” the hand of the central bank to act. We had that with the 2008 financial crisis and also in 2020.

The fourth one is FX (Foreign Exchange) swaps. This one is really crazy and I’ll try to simplify. You have 20 million pounds in the UK but you need 10 million dollars in America. Instead of changing some of your pounds to dollars, you look for a company in America that has the 10 million you want but also needs a few million in pounds. Then you collaborate on how you can help yourself.

Why does this make sense? The exchange rate is going to be much higher if you decide to try to change your pounds directly. You will pay a lot of fees in moving the money. And you will also incur taxes too, which can be a lot. FX swaps enable countries to do what they have to do in another country without the heavy lifting.

How does it impact the maths? Well, you can invest 10 million dollars in America based on the 20 million pounds you have in the UK without touching the 20 million pounds. And the company that helps you with the 10 million in America doesn’t have to display that in their balance sheet as an expense. These FX swaps are kind of treated differently on a balance sheet.

Broken Mathematics

Now imagine if you got money from the central bank’s QE program. You used that money to purchase a derivative. You used the derivative to take some kind of loan from the bank. And then use that loan amount as FX swap.

You might want to read that paragraph again.

Now imagine if you are an investment bank. The richest people in the world (in my opinion) are investment bankers. They have a very tough job and it is very easy to become a criminal in that world. The lines you shouldn’t cross get blurred very quickly. But they deal with money beyond the wildest dreams of most people.

I’m just trying to show you that the maths is broken beyond repair. Bob produced 20 cars. But he now has 500 (on paper). Sandy bought 5 cars but 50 people also own those cars. Sandy is using the car. But to those other 50 people, it is an “investment”. That makes room for all kinds of accounting tricks.

But the tax agencies aren’t fooled (in most of the cases). The public is played the fool. And has to continue playing the fool for the game to continue. But if you recall my starting argument, you know where this is going. In a numbers game, where there are winners, there are also losers.

In a world of broken maths, where is the loss? Who is taking the L? In what form is the L?

The L

This super multiplication of money results in more taxes, to keep up with the bond payments. But most importantly, it results in inflation.

Why do you think the central banks set the inflation target to 2%? It is because they know what is happening. And they know that they are gradually devaluing the currency over the long term. And in the short term, they call it wealth creation.

Yes, it does help create wealth when producers and creators have access to capital. But money doesn’t go directly to producers, entrepreneurs, or anything like that. Who does the money go to? My answer to that is a question:

Who are the richest group of people in your country?

Forget about the richest person. That is a fancy diversion. Every reasonable country wants an entrepreneur to be their richest person. Mainly to get a good look internationally.

In most first world countries, the richest group are the bankers. In less developed countries, it is mostly the government officials. So, who takes the L?

First, what is the L? Devaluation of currency. In other words, inflation.

Who takes the L? People who work for money. This is why you should never work for money. Work to be fulfilled. And then figure out how to make money from what you do.

How to Game the System

There are two basic ways:

1. Don’t work for money. They are printing it (as I have shown you with the maths not adding up). Of course, you can be paid at what you do but play for something higher

2. Own things that can be considered as underlying assets and don’t trade it for anything in the world. Own something tangible, not paper

Inflation will keep going up. Everybody is wise up to the game now. If the money you are making isn’t going up as inflation is going up, then there is a problem. You are playing the game wrong.

Next, I will show you the flaw in economic growth which should guide the kind of assets you can get into, and those you should stay away from.