Something Out of Nothing

Something Out Of Nothing



If I am addressing a group of people, I will ask someone to lend me $20. Someone is always kind enough to oblige me, and I tell the rest of the people to get out their wallets and purses because we are going to play an exciting game. I will hold up the $20 that I have just borrowed and sell it to the first person who can give me a $10 bill. This exchange usually happens rather quickly. I ask the person who just purchased a $20 for $10 how they feel. Their response is usually favorable. Now I am holding a $10 bill, and I would like to sell the $10 for a $5 bill. This trade also takes little or no time to accomplish. I ask that person how they feel. They typi- cally feel pretty good also. Now I will sell the $5 bill I have from that transaction for $1. This happens quickly because everyone is beginning to understand how the game works. I am left holding a $1 bill, and I ask, "Now that you know how to play the game, I have a pocketful of $20 bills, would you like to play again?” Of course, everyone wants to play again because now they understand how to play the game. I will then take the $1 bill I have left and return it to the person I borrowed the $20 from and ask them how they feel. Not very good, right? I note that I gained three new friends at the expense of one. Now I ask, "Where is our big winner?” Usually the person who bought the $20 for $10 dollars jumps up. Wrong! You see, that person did well but only doubled their money. The person who paid $1 for $5 did much better; they received five times what they paid.


What is more important in this lesson is that three people learned how it felt to be the bank, buying and selling money. They all felt pretty good and made good money. They all realized it was easy to do once they understood how to do it. After learning this lesson they all wanted to be in the banking business. On the surface, they all understood the lesson I presented but, they needed to go one step further in their thought process. The real lesson is how banks and lending institutions are distributing $35 (a twenty, a ten, and a five) for $19 ($20 borrowed and had $1 dollar left), collect interest on the $35 from the $20 that was not theirs in the first place.They have created something out of nothing. The velocity of money and interest collected pay for the $19 they borrowed and much, much more. Every dollar collected by a bank has a future value attached to it.

Unfortunately, most of us are caught up in the other side of their game of paying interest. Unknowingly, many people are so caught up in debt and interest payments that it is ruining their lives. Their ability to use ‘today’s’ dollars, that have the most buying power, is gone because those dollars are going to someone else.


Another aspect of the $20 lesson is that the people who had Liquidity, Use, and Control (LUC) of their money were able to take advantage of an opportunity when it came along. They had the money to buy the $20 for $10; $10 for $5, and the $5 for $1. All too often, people have all their money tied up in other areas. They have prepaid this or overfunded that, to a point where if they need money for a real opportunity, they have no money to take advantage of that opportu- nity. Ask yourself a question, "How often does opportunity knock, and how long will it wait for you?”


As for the poor person I borrowed the $20 from in this lesson, they suffered a "Lost Opportu- nity Cost.” Not only did they lose 19 of today’s dollars, but also the ability to earn money from the $19, forever. On a daily basis, many people transfer wealth away unknowingly and un- necessarily. This problem is compounded when they also lose the ability to earn money on that money into the future, which negates any opportunity to create velocity of money in their lives.

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