The below is an AI summary of a Substack about how our monetary system works and what to do in response. I wish I had known this 20 years ago.
The principle articulated in Monopoly's Rule 11that the bank can never run out of money because it can simply create moreserves as a remarkably accurate analogy for the operational reality of the modern Federal Reserve system. This analysis examines the mechanics, consequences, and strategic implications of this monetary framework, revealing a system that systematically redistributes wealth and creates structural advantages for specific economic actors.
The Federal Reserve's implementation of its own "Rule 11" began in earnest during the 2008 financial crisis with quantitative easing (QE). The Fed's balance sheet expanded from approximately $900 billion to $4.5 trillion between 2008-2014 through three rounds of QE. This expansion accelerated dramatically during the COVID-19 pandemic, when the Fed added $4.8 trillion in just two years, bringing its total balance sheet to nearly $9 trillion by early 2022. This meant the Fed created more money between March 2020 and March 2022 than in its entire 106-year history preceding 2008.
The mechanical process involves the Treasury issuing bonds, which the Fed purchases primarily through designated primary dealer banks. Crucially, the Fed doesn't use existing dollars for these purchasesit creates new digital currency by crediting the sellers' accounts. This process, euphemistically termed "asset purchases" or "providing liquidity," constitutes money creation in its purest form. The fundamental reality remains: the institution that creates the currency cannot become insolvent in that currency, much like the Monopoly bank.
The consequences of this money creation manifest through what economists term the "closed loop problem." While the money supply (M2) has expanded approximately 70-fold since 1960, reaching over $22 trillion today, the supply of desirable assetsproductive real estate, profitable companies, and scarce resourceshas grown at a much slower rate, typically 2-3% annually. This divergence creates inevitable asset price inflation as increasing quantities of currency chase relatively finite assets. The S&P 500's rise from 100 in 1980 to over 6,800 today and the dramatic appreciation of real estate values reflect this dynamic rather than proportional increases in underlying economic productivity.
The distributional consequences are captured by the Cantillon Effect, named for 18th-century economist Richard Cantillon, who observed that those who receive new money first benefit at the expense of those who receive it later. In the Fed's implementation, primary dealer banks and their clientshedge funds, institutional investors, and large corporationsreceive the newly created currency first. They deploy this capital to acquire assets before prices adjust to reflect the increased money supply. By the time the currency circulates to ordinary workers through wage increases or consumer spending, asset prices have already risen, effectively transferring purchasing power from later recipients to earlier recipients.
The data substantiating this effect is staggering. According to Federal Reserve statistics, the wealthiest 10% of Americans own 90% of all stocks, while the bottom 50% own just 1%. The wealth gap between the top 1% and bottom 50% has exploded from approximately $4 trillion in 1990 to $47 trillion today. The average member of the top 1% saw wealth increase by approximately $13.6 million (8.3x) during this period, while the average person in the bottom half gained roughly $19,300 (4.3x). This divergence accelerated markedly following the 2008 crisis and subsequent QE programs, demonstrating how monetary policy functions as a powerful wealth redistribution mechanism.
The system incorporates a structural asymmetry in risk assessment and consequence management. Historical precedentsthe 1998 Long-Term Capital Management bailout, the 2008 Bear Stearns rescue and subsequent crisis responses, and the 2020 pandemic interventionsestablish that financial institutions benefit from a de facto "Get Out of Jail Free" card. When these institutions face losses from risky behavior, the Fed intervenes with liquidity support and asset purchases, socializing losses through inflation and currency debasement. This creates moral hazard and ensures that financial elites capture profits during expansions while avoiding the full consequences of their miscalculations during contractions.
The fiscal context exacerbates these dynamics. With monthly deficits reaching $284 billion (as exemplified by October 2025's $404 billion receipts versus $689 billion outlays), the government must continuously issue debt. The Fed ultimately monetizes significant portions of this debt through its bond purchase programs, creating a feedback loop where deficit spending necessitates money creation, which in turn fuels the asset inflation and wealth redistribution described above.
Given these structural realities, strategic adaptation becomes necessary. The winning approach mirrors successful Monopoly strategy: prioritize ownership of scarce, productive assets over currency accumulation. Real estate in desirable locations, gold with its 5,000-year history as a store of value, and Bitcoin with its mathematically enforced scarcity represent assets that cannot be devalued through central bank money creation. These assets maintain their value not because they appreciate in absolute terms, but because they preserve purchasing power as the currency unit depreciates.
The fundamental insight remains that countries borrowing in their own currency don't typically default through formal bankruptcy; they devalue their obligations through inflation. The United States appears committed to this path given its structural deficits and debt levels. Consequently, individuals must recognize that the system won't changethe rules are written by those who benefit from them. The rational response isn't futile opposition but strategic positioning within the existing framework. Ownership of scarce assets represents the only reliable defense against the systematic wealth transfer effected through monetary inflation and the Cantillon Effect. In the real-world version of Monopoly, the bank possesses unlimited paper and ink, and victory belongs to those who recognize that cash is for transactions while assets are for preserving wealth.
The principle articulated in Monopoly's Rule 11that the bank can never run out of money because it can simply create moreserves as a remarkably accurate analogy for the operational reality of the modern Federal Reserve system. This analysis examines the mechanics, consequences, and strategic implications of this monetary framework, revealing a system that systematically redistributes wealth and creates structural advantages for specific economic actors.
The Federal Reserve's implementation of its own "Rule 11" began in earnest during the 2008 financial crisis with quantitative easing (QE). The Fed's balance sheet expanded from approximately $900 billion to $4.5 trillion between 2008-2014 through three rounds of QE. This expansion accelerated dramatically during the COVID-19 pandemic, when the Fed added $4.8 trillion in just two years, bringing its total balance sheet to nearly $9 trillion by early 2022. This meant the Fed created more money between March 2020 and March 2022 than in its entire 106-year history preceding 2008.
The mechanical process involves the Treasury issuing bonds, which the Fed purchases primarily through designated primary dealer banks. Crucially, the Fed doesn't use existing dollars for these purchasesit creates new digital currency by crediting the sellers' accounts. This process, euphemistically termed "asset purchases" or "providing liquidity," constitutes money creation in its purest form. The fundamental reality remains: the institution that creates the currency cannot become insolvent in that currency, much like the Monopoly bank.
The consequences of this money creation manifest through what economists term the "closed loop problem." While the money supply (M2) has expanded approximately 70-fold since 1960, reaching over $22 trillion today, the supply of desirable assetsproductive real estate, profitable companies, and scarce resourceshas grown at a much slower rate, typically 2-3% annually. This divergence creates inevitable asset price inflation as increasing quantities of currency chase relatively finite assets. The S&P 500's rise from 100 in 1980 to over 6,800 today and the dramatic appreciation of real estate values reflect this dynamic rather than proportional increases in underlying economic productivity.
The distributional consequences are captured by the Cantillon Effect, named for 18th-century economist Richard Cantillon, who observed that those who receive new money first benefit at the expense of those who receive it later. In the Fed's implementation, primary dealer banks and their clientshedge funds, institutional investors, and large corporationsreceive the newly created currency first. They deploy this capital to acquire assets before prices adjust to reflect the increased money supply. By the time the currency circulates to ordinary workers through wage increases or consumer spending, asset prices have already risen, effectively transferring purchasing power from later recipients to earlier recipients.
The data substantiating this effect is staggering. According to Federal Reserve statistics, the wealthiest 10% of Americans own 90% of all stocks, while the bottom 50% own just 1%. The wealth gap between the top 1% and bottom 50% has exploded from approximately $4 trillion in 1990 to $47 trillion today. The average member of the top 1% saw wealth increase by approximately $13.6 million (8.3x) during this period, while the average person in the bottom half gained roughly $19,300 (4.3x). This divergence accelerated markedly following the 2008 crisis and subsequent QE programs, demonstrating how monetary policy functions as a powerful wealth redistribution mechanism.
The system incorporates a structural asymmetry in risk assessment and consequence management. Historical precedentsthe 1998 Long-Term Capital Management bailout, the 2008 Bear Stearns rescue and subsequent crisis responses, and the 2020 pandemic interventionsestablish that financial institutions benefit from a de facto "Get Out of Jail Free" card. When these institutions face losses from risky behavior, the Fed intervenes with liquidity support and asset purchases, socializing losses through inflation and currency debasement. This creates moral hazard and ensures that financial elites capture profits during expansions while avoiding the full consequences of their miscalculations during contractions.
The fiscal context exacerbates these dynamics. With monthly deficits reaching $284 billion (as exemplified by October 2025's $404 billion receipts versus $689 billion outlays), the government must continuously issue debt. The Fed ultimately monetizes significant portions of this debt through its bond purchase programs, creating a feedback loop where deficit spending necessitates money creation, which in turn fuels the asset inflation and wealth redistribution described above.
Given these structural realities, strategic adaptation becomes necessary. The winning approach mirrors successful Monopoly strategy: prioritize ownership of scarce, productive assets over currency accumulation. Real estate in desirable locations, gold with its 5,000-year history as a store of value, and Bitcoin with its mathematically enforced scarcity represent assets that cannot be devalued through central bank money creation. These assets maintain their value not because they appreciate in absolute terms, but because they preserve purchasing power as the currency unit depreciates.
The fundamental insight remains that countries borrowing in their own currency don't typically default through formal bankruptcy; they devalue their obligations through inflation. The United States appears committed to this path given its structural deficits and debt levels. Consequently, individuals must recognize that the system won't changethe rules are written by those who benefit from them. The rational response isn't futile opposition but strategic positioning within the existing framework. Ownership of scarce assets represents the only reliable defense against the systematic wealth transfer effected through monetary inflation and the Cantillon Effect. In the real-world version of Monopoly, the bank possesses unlimited paper and ink, and victory belongs to those who recognize that cash is for transactions while assets are for preserving wealth.
