Mailvox: Money magic

A reader observes the creation of money ex nihilo in action:

I wanted to share something with you that demonstrates how you are correct that debt and money creation are one and the same.

Recent changes to 401k rules (from the CARES act) allowed me to withdrawn/borrow 90k from my retirement account, with the promise to pay it back over 5 years to avoid the tax penalty. I did this to pay off my mortgage. Even though this doesn’t change the basics of my personal finances, I just like the idea of being the only person with a legal claim on my house. Also, I figured the market is going to go down, so now might be a good time to sell, and buy-back over the next 5 years.

So I apply for the loan. I get the 90k check and deposit it in my bank. I look at my 401k balance and the amount has not changed! The 90k was literally created out of thin air with the understanding that I’m obligated to pay it back over 5 years.

Now that money essentially exist in 2 places; in my house, and in the stock portfolio of my 401k. I naively thought that the 401k was an arrangement between me and the government that I get a tax break on money I put aside for retirement. In reality, the 401k is an arrangement between me on the one side, and the government and the financialized class on the other side. Once I put money in those stocks, I can’t sell it off until I turn 60 without a huge tax penalty. My 401k money is essentially a trust fund for the financial class.

At face value, most would think this is beneficial to me. But in reality, I’m prevented from the opportunity to sell high and buy back low. This protects the financialized racket from any loses today, but it also prevents the opportunity for that money to be redirected toward more profitable endeavors in the future. As losses to the financial market are prevented, so too the opportunity for profits are prevented. And they wonder why the economic recoveries are so feeble or non-existent.

Heads, everybody wins. Tails, they win and you lose. It’s not the worst scam in the history of financial shenanigans. But it will lead to an economy-wide breakdown, in which everyone loses, sooner or later.