 Do you know how money is created and how it disappears? Where's my money? Where's my money? Good day, fellow investors. My name is Sven Karlin. I'm an independent investor, stock market researcher that focuses on investing in great businesses. However, I like to look at the macro picture to see whether where will be the tailwinds and headwinds for those businesses. In that line, I have read through Delio's book that came out and one of the key things there is to understand credit, debt and money and the self-reinforcing cycles there. So today we're going to explain how money is created, how is that a self-reinforcing cycle on the upside and then how money disappears and how that is a self-reinforcing cycle on the downside. Let's start by discussing this. I was recently reading the Wall Street Journal and this came across a very interesting article how this bungalow sums up Silicon Valley's housing shortage. The 102-year-old four-room house in California sold for 100,000 dollars in 2003 and just closed for 1.78 million. Now let's see how money is created. So someone paid cash let's say for this bungalow in 2003, 100,000 dollars. Now the next buyer comes across, it was a Google engineer that paid 1.78 million for the same house. So 20% down payment let's say on the mortgage he puts 356,000 down and takes a 1.4 million loan. The person that is selling walks away with 1.78 million in cash. The new cash created is 1.78 million minus 356,000 of the down payment. It is 1.4 million is the new cash created. So 1.4 million is pure cash to spend on other things by a bigger home spend on whatever. So just this transaction through the loan created 1.4 million of new cash that entered into the system because the person selling the house thanks to home price appreciation now walks away with new money, new money that can be spent into the economy, new money that can be put as collateral for an even bigger mortgage for even more new money and more money, more money, more money makes the economy work, work, work, work, self-reinforcing cycle to the upside and everything looks great because there is more money, more money, more asset values go up, more jobs, more everything and that's a self-reinforcing cycle and this self-reinforcing cycle creates the illusion of more wealth. Let's see. Powell, Fed secretary just asked about how he views the risk of another asset bubble says the vulnerabilites were moderate and household balance sheets are in good shape. Of course household balance sheets are in good shape thanks to the home prices shooting up over the last 10-15 years and he says we do see some build-up in asset prices, the asset prices are high, equity prices are high relative to historical levels but not like a bubble but high. So we will see whether there is a bubble later but at this stage, at this stage everybody likes that those prices are higher. Now how does money disappear? Let's say that at some point asset prices are too high, nobody wants to buy them because everybody knows they are too high, those home prices who will be the next buyer and then there is a little bit more supply because people get scared and try to sell the home they have a huge mortgage on and more supply nobody wants to buy because prices go down and then as the person that got that mortgage repays the mortgage there is less money into the system so money slowly disappears. If banks are unwilling to give new loans, bigger loans because asset prices are down, unemployment goes up, there is no more people, there is no more collateral to give bigger and bigger loans, that money that pushed everything up now pulls everything down and you have a normal long-term cycle that we have been discussing into the other videos as Reilly Deilio shared his book Big Dead Cycles with us. So this is crucial to understand also when investing, when things are really good in the economy be sure to know why those things are really good. When things are bad be sure to know why those things are bad and this will give you the crucial perspective to sell high or to be protected when being long and to buy low to be sure that there will be a reversal also in the downtrend and you can buy low and take advantage of again the new trend that will emerge in time. So this is just an example of how things work that will give you a better idea what to do and when to do what. Thank you for watching, looking forward to your comments and I'll see you in the next video.