Relying on the media to help understand the current economy is futile. The media just clamors on and on about whatever the surface news is, with input from Wall Street and the government. However, they concentrate on the fake money stock market but barely get to the real economy.
Similarly, in fantasy football, real NFL analysis does not serve as a one-to-one correlation. A quarterback can be a fantasy goldmine but struggle as an NFL quarterback. Blake Bortles and Jameis Winston are great examples, and many Konami code quarterbacks are, as well.
Using parallels to fantasy football, we can learn a lot about the economy. The first thing to understand is this all started when the dollar was taken off the gold standard. Without any hard asset backing the US dollar, it entered into its fiat currency status, basically meaning only the faith in the US economy held its value. This would have been fine if not given the control a select few have on the economy who tend not to confront the problem head-on.
- Fiat Currency Chronicles: The Fake Money League
- Fiat Currency Chronicles: Fractional Reserve Banking
- Fiat Currency Chronicles: Income Streams
Control of Fiat Money Supply
Besides raising and lowering interest rates, the Federal Reserve can also increase or decrease the amount of U.S. Dollars. The government tracks the supply of money in two buckets.
The first, M1, is the actual cash supply.
The second, M2, is cash in savings accounts, not typically flowing hands.
This is a key distinction to make. M1 is the money that flows between people, banks and businesses. M2 is money that helps in some vehicle like a CD, money market or stock market with a period before it can enter a transaction.
Here is what divides the real economy into the “fake” or fiat economy. The real economy strength is the flow of actual cash changing hands.
This YouTube video by Ray Dalio provides a complete breakdown.
So this brings us to the fake money or fiat economy. As you can see in the chart above, the M2 supply has been declining in recent months. Why are people burning their cash? How else can money supply be declining?
Jesse Myers explains this very well in his article for Once-In-A-Species:
Since nobody is burning stacks of dollars as firewood, how can M2 be shrinking? The key here is to understand the accounting mechanics of our credit-based economy. When a business takes out a $1 milliom loan from their bank, they log in to see those dollars in their account. Where did they come from? The commercial bank, as part of the Federal Reserve banking network, created those dollars out of thin air. In doing so, the bank issued themselves a $1 million deposit liability on their balance sheet and offset it with a newly created $1 million loan asset (which will generate interest income for the bank over time).
All-else-equal, M2 grows as commercial banks issue new loans (creating money) faster than existing loans are retired. Conversely, M2 shrinks when banks retire old loans faster than new loans are issued.
Basically, the fake economy runs on credit/debt creation, which is controlled by banks’ lending standards and interest rates.
This is where fantasy football comes in handy in understanding the phenomenon.
Understanding the Real Cause of Inflation
There are so many fantasy football leagues these days. People are constantly inventing new ways to make their leagues more fun. Just look at the scoring variance.
First, the industry went from standard leagues to (Points Per Reception) PPR leagues. They arbitrarily created points out of thin air, similar to banks when they create a loan. Another league then created tight end premium scoring, again arbitrarily creating points. Points per rush attempts, first downs, etc., are basically similar to increasing the M2 supply.
So, what is the fantasy football equivalent of M2 supply reduction? Going from full PPR to half PPR or negative points for interceptions.
Taking this analogy a step further helps explain the real cause of inflation: the creation of money supply, especially the fake money, M2. By granting full points for PPR, wide receivers and pass-catching running backs get inflated in value. Likewise, tight end premium inflates the value of prolific pass-catching tight ends like Travis Kelce.
Awarding negative points for interceptions or fumbles deflates bad quarterbacks or running backs with fumbling problems. Similarly, an increase in the money supply causes inflation, and a decrease in money supply causes deflation, generally speaking.
Fake Money’s Impact on the Real Economy
Fractional banking is a good topic for a later article, but the principal is that banks use your deposits to create loans. One person’s checking account with $10,000 gives them the authority to loan $10,000 to someone else. The time from 2010-2022 is referred to as the age of easy money when interest rates were low and the government gave banks authority to create more money than ever before via fractional banking.
A great analogy for this time period is Scott Fish Bowl 13 (SFB13) league scoring. Scott Fish decided to eliminate negative points and increase points for volume. As he said, he “wanted the theme to be about indulging our favorite brands.”
The Current U.S. Inflation Rate is 2.97% percent, the lowest it’s been since March 2021.
From 2010 to 2022, the US economy indulged in money creation like never before. I’ll elaborate on this in my next article, but this is fake money creation.
This affects us, the regular working people. As money creation ceases, businesses, especially the big businesses, cannot take loans to pay their bills. So they start laying off people.
The fake economy causes real problems for the real economy, us. These big businesses get saved by government bailouts, but people do not.
This is the nature of government monetary policy due to the dollar being removed from the gold standard. No government will tackle the real economy head-on but just keep printing money and causing long-term inflation.
Take action on your finances because your money is losing purchasing power like an aging player on your fantasy football roster.
Thanks for reading my analogy of fake money! Find me on Twitter @ThePruPatel for more financial and fantasy football advice!