Most people spend decades earning, saving and borrowing money without ever questioning where new money comes from. Adam Stokes argues that understanding the mechanics of modern banking may be the first step toward achieving greater financial independence and making more informed financial decisions.
elocal Report: Based on The Math of Freedom with Adam Stokes and Bisher Khudeira HERE.
Most people are taught how to earn money, save money and borrow money.
Far fewer are taught where money itself comes from.
In the fourth episode of The Sovereignty Brief, financial educator Adam Stokes argues that understanding the mechanics of modern banking may be one of the most overlooked aspects of financial literacy. Rather than beginning with investment strategies, Stokes starts with a more fundamental question: How is new money created?
The 80,000-Hour Contract
Stokes begins with a simple calculation.
The average person may spend around 80,000 hours of their lifetime exchanging their labour for wages, often without calculating whether that path is likely to produce long-term financial independence.
The interview encourages listeners to move beyond simply earning a higher income and instead understand how savings rates, investment returns and purchasing power determine financial outcomes.
The Mathematics Of Financial Freedom
One of the central themes of the discussion is that financial freedom is influenced less by income alone than by the relationship between income and expenditure.
Stokes argues that someone earning a moderate salary while consistently saving a significant proportion of their income may reach financial independence sooner than someone earning several times as much but spending nearly all of it.
Rather than focusing on salary alone, he encourages listeners to calculate their own savings rate and understand how compound growth affects long-term wealth.
Where Does New Money Come From?
The interview then turns to one of modern economics' most debated subjects.
Stokes argues that many people believe commercial banks simply lend out money deposited by savers.
He contends that this is not how modern banking operates.
This view is supported by Professor Richard Werner's empirical research published in the International Review of Financial Analysis. Werner conducted an observational study of a commercial bank during the creation of a real loan and concluded that the bank created a new deposit when extending credit, rather than transferring pre-existing deposits from other customers.
The research supports the credit creation theory of banking, which holds that commercial banks create new deposit money when they make loans.
Following The Money
The interview asks listeners to examine the mechanics of a typical mortgage.
A borrower signs a legally enforceable promise to repay.
The bank records that promise as an asset on its balance sheet while simultaneously creating a matching deposit in the borrower's account.
The borrower then uses that newly created purchasing power to acquire a real asset such as a home.
Over the following twenty to thirty years, the borrower repays the loan, together with interest, using income earned through productive work.
Stokes argues that this process deserves greater public understanding because it lies at the heart of the modern monetary system.
Who Benefits And Who Pays?
One of the interview's broader themes concerns the long-term effects of credit-based money creation.
Stokes argues that people who own productive assets—such as businesses, shares, investment property or selected digital assets—may benefit as those assets appreciate over time.
By contrast, individuals who rely primarily on wages while holding much of their wealth in cash savings may find inflation gradually reduces purchasing power if incomes fail to keep pace with rising prices.
Whether readers agree with those conclusions or not, the interview argues that financial literacy extends well beyond budgeting. Understanding inflation, credit creation, savings rates and compound growth may be just as important as understanding income.
Why Bitcoin?
Although Bitcoin features prominently in the discussion, Stokes presents it as one possible response to what he views as structural weaknesses within modern fiat monetary systems rather than as a guaranteed investment strategy.
His broader message is that individuals should first understand how money works before deciding which assets they believe best preserve long-term purchasing power.
Does This Affect New Zealand?
The discussion is particularly relevant for New Zealand.
Household debt remains among the highest in the developed world, with residential mortgages representing the largest category of bank lending. At the same time, housing affordability, retirement savings, inflation and the cost of living continue to dominate national debate.
Understanding how commercial banks create credit, how inflation affects purchasing power and how long-term debt influences household wealth may therefore be valuable regardless of whether readers invest in property, KiwiSaver, shares, gold or digital assets.
The interview also raises broader questions that New Zealanders may wish to consider:
- How is new money created?
- Why do asset prices often grow faster than wages?
- How does inflation affect long-term savings?
- What role does household debt play in wealth creation?
- Should financial literacy include understanding how modern money is created?
These are questions that extend well beyond cryptocurrency.
The Bigger Picture
The interview ultimately encourages listeners to examine assumptions many people have accepted without question.
Modern economies rely heavily on credit, yet relatively few people receive formal education about how commercial banks create money, how inflation affects purchasing power or how monetary systems influence housing, investment and retirement planning.
Whether readers ultimately agree with Adam Stokes' conclusions or not, the interview highlights the value of understanding the financial system itself before making decisions about savings, borrowing or investing.
eLocal Research: Three Questions Worth Asking
The discussion also raises three broader questions worthy of public debate.
If commercial banks create most new money through lending, should financial literacy include understanding how that process works?
Who benefits most from a monetary system in which new purchasing power enters the economy primarily through debt?
Should understanding money creation become part of financial education alongside budgeting, taxation, investing and retirement planning?
These questions are unlikely to be settled quickly. However, they may prove increasingly important as New Zealanders navigate rising debt levels, changing financial markets and an evolving global monetary system.
Source
Original Interview: The Math of Freedom with Adam Stokes and Bisher Khudeira
Presenter: Bisher Khudeira / The Sovereignty Brief