The Yin and Yang of Money Creation

The Yin and Yang of Money Creation,

Michael Noel
6 min readMar 24, 2021


In Ancient Chinese philosophy, yin and yang is a concept of dualism, describing how seemingly opposite or contrary forces may be complementary, interconnected, and interdependent in the natural world, and how they may interrelate to one another.

We see these relationships, the yin, and the yang, in everyday life,

Day and Night — Every day as the Earth rotates, you experience a yin and yang cycle.

Seasons — Seasons are another example of yin and yang as the Earth travels around the sun.

We even see these relationships in economics, although economists tend to ignore them.

As an example, The Consumer Price Index, (CPI) is a misleading measure of inflation. Why? Well, CPI isn’t measuring the rate of Asset Price inflation (API) which is the Yang for the CPI yin.

Asset Price Inflation Means You Can Now Buy Less House Than You Could Before.

When we inflate the money supply by 20%, (we just did this by the way) it means that on Wall Street, people that own assets did nothing to make 20% more money (purchasing power).

And that means on Main Street, people that create things for a living, those who manufacture things, had to work 20% harder to get nothing.

Manufacturing must now generate 20% more cash flow this year just to remain where things were the year before. Manufacturing must now do 20% more work to have the same purchasing power that they had a year ago. Therefore Manufacturing must now raise prices or expand the customer base or find efficiencies.

And on Wall Street, if you own that asset, you had to do nothing. You could have sat on the Beach in Belize and watched the stock market and you would have 20% more purchasing power.

That is the dichotomy.

And when the money supply expands 20% a year, your business has zero value.


Because now your company and employees both have to earn more than the yearly dilution of the currency to add value over the prior period. If your employees are getting diluted by 20% every year, you’ll likely have no employees left over-time.

As the rate of money supply expands over time, any assets that are based upon future cash flows develop diminishing returns.

This is where the economy is today, on the brink of hyperinflation. Wherever you look, prices for consumer goods, real estate, stocks, and bonds are on the rise. That means that the purchasing power of money is on the decline. For if, say, stock prices go up, your money unit can buy fewer stocks. What it also means is that although people holding assets, whose prices increase, become “richer,” people holding money get “poorer.”

Economists generally go off the rails trying to explain this.


The Yin and the yang, generally rising prices the Yin of the Fiat Money system yang.

In today’s fiat money system, banks, relentlessly increase the quantity of money through credit expansion. They extend credit which creates new money out of thin air, money that is not backed by anything.

The borrowers of this new money are the beneficiaries because they can use their new money to buy products at uninflated prices. As this new money is passed from hand to hand over time, the demand for products increases, which drives prices up.

As the cycle continues over time, receivers can only buy at inflated prices.

The income and wealth of the early receivers increase at the expense of the late receivers, not to mention all those people who do not gain anything from the increase in the money supply.

The issuance of fiat money creates winners and losers. With fiat, the early receivers reap a “windfall profit” at the expense of all those who come later in line.

This is unlike what happens in a genuinely free market, in which people trade voluntarily with one another and both parties benefit.

As things stand, there is no escape.

If you destroy a free market you create a black market.

If you make ten thousand regulations you destroy all respect for the law.

~ Winston Churchill.

Nation States have monopolized money production, and people use the governments’ fiat money. “Digital Currencies” have either been outlawed or made uncompetitive by legal tender laws and/or by subjecting them to taxes and/or VATs (value-added taxes).

The issuance of fiat money cannot be, and is not meant to be, beneficial for all; it is done to favor some at the expense of others.

In general, those who have easy access to bank credit belong to those who benefit: governments, commercial and investment banks, big businesses, the financial industry at large. (The 1%)

The disadvantaged are, generally speaking, the rest of us. (99%)

This is unlike what happens in a genuinely free market, in which people trade voluntarily with one another and both parties benefit.

A consequence is that artificial booms are set in motion. The increase in credit supply not backed by real savings pushes the market interest rate down to an artificially low level, which in turn discourages savings, increases consumption, and it also fuels additional investment.

The painful news is that the boom brings overconsumption and malinvestment.

People live beyond their means. They consume more and save less compared to what they would have if the market interest rate had not been artificially lowered.

Firms engage in investments which under unhampered market conditions are actually not profitable.

However, as long as the market interest rates remain artificially lowered through injections of fiat money issued through credit expansion, the boom is upheld.

When the inflow of additional credit and money dries up, however, and the market interest rate returns to its normal level, the boom will turn to bust.

People enjoy the boom, and they loathe the bust. So, once they have initiated the boom, central banks can count on support from politicians, banks, industrial firms, unions, employees, and even pensioners to take all kinds of measures to keep it going. No one wants to pay the tab run up by the boom.

As a result, the central bank brings interest rates to ever lower levels and pumps ever more credit and money into the system to keep the boom going.

Sound Familiar?

Change is coming and it is not what you think it is.

The future is decentralized.

I’m ready for it, are you?

Michael Noel CBP

#Blockchan #Tokenomics #DigitalCurrencies #Consensus #Disintermediation



Michael Noel

Experienced Platform Business Model, W3, DLT, Consultant, Advisor, and Architect - Since 2011 Blockchain, DLT, and Platform Business Model Development (W3)