079: IBC First Principles: Mastering the Basics of Privatized Banking, Part 1

[00:00:00] Hello, everyone. This is John Montoya. And this is John Perrings. We are Infinite Banking Authorized Practitioners and hosts of The Fifth Edition.

[00:00:12] John Montoya: Episode 79, IBC First Principles. This will be a three part series, and today we're going to cover Principles 1 through 3. And just to give you an idea, I was thinking about first principles when it comes to IBC. And it occurred to me that even though I hear the idea for first principles talked about on a number of different subjects I never have actually found anywhere where I can just go to and have a resource for first principles and values when it comes to IBC.

[00:00:47] So these are 10 p rinciples that we've tried to order in so that it has a flow to them. But we want to be able to speak to each [00:01:00] principle. That way, you can have a better understanding of why infinite banking is so important in your life.

[00:01:07] And just to start off, what are first principles? They are the basic building blocks for which all other knowledge and concepts are derived. I thought that was pretty profound. And John, let's go ahead and jump into this, starting with the first principle.

[00:01:25] John Perrings: Yeah. Nelson Nash himself used to say, if you know what's going on, you'll know what to do. And that's the, that's principle number one. And if you know what's going on with the financial system you'll know what to do. If you know what's going on with the government and taxes, you'll know what to do. If you understand that we all have a need for financing almost, through our entire life, You'll know what to do. And it makes IBC really a no brainer. When, if you know what's going on, you'll know what to do. That's what I take away from that, that first principle.[00:02:00]

[00:02:00] John Montoya: Yeah, one of the questions that I think it's important to ask, and as a listener, you should be asking yourself this, what is IBC going to solve for me? Because if you're thinking this is great. I can get my whole life policy started and I can take the max loan possible within 30 days, you don't quite get what's going on.

[00:02:21] You're not solving for a system of financing for your entire life. And in fact, I would argue that you don't see the bigger picture because Nelson made so many great points which we're gonna cover probably through all 10 principles, but one of the profound points that he made to me was just pointing out the fact that so many people are stuck on this idea of their 401k and IRAs and trying to grow that balance.

[00:02:51] And that's going to solve so many problems for them. And they're, talking about their rate of returns. That they're [00:03:00] trying to chase and capture within these closed systems that aren't even under their control. And so they're consumed with getting, a 10 to 12 percent rate of return on a certain amount of money.

[00:03:14] And they're completely missing the bigger picture that they have all this other money going out the window that they should be focused on. In fact, if you think about all the money that goes out the window to finance your lifestyle. It's far greater than anything that you put into your 401k IRA to be locked up for the next 20, 30, 40 plus years of your entire life.

[00:03:37] So if you're focusing on, what's my 401k and what's the balance? Is the market up today? Is it down? You don't really know what's going on. So therefore you don't know what to do. When you step back and see the bigger picture. And you ask yourself what is IBC going to solve for me?

[00:03:57] You're going to [00:04:00] really force yourself to meditate on this thought what do I need to solve? And you'll likely come to the same conclusion that Nelson came to where he realized he had to get rid of the snakes and dragons in his life. He wasn't consumed about just focusing solely on saving for retirement and putting money out of touch for, 20, 30, 40 years he was focused on building a system that he controlled. And that's what IBC is really all about. It's having a system of money that's completely under your control. So we can separate and remove The traditional banking system from our life.

[00:04:46] So that's what it means to me. If you know what's going on in the world today we live in a world where the big financial institutions, our government. They want to control our capital. Why? [00:05:00] Because when they control our capital, they control us. We lose our sovereignty. So it's really imperative that when you figure out what IBC is going to do for you, you come to this conclusion that, you know what, I value my freedom.

[00:05:17] I I value where I place my money because I don't want to have any financial institution traditional bank financial institution. I don't want the government to have a say on what I do with my money. I am an individual. I will make my own decisions. And I will do what's best for me and my family.

[00:05:41] That's what whole life and the principles behind IBC allow you to do. And when you come to that realization, you'll know exactly what to do. And it's not just one policy, as we've said previously on other episodes. It's a system of policies, [00:06:00] so you have to start thinking long range, not just what this one policy will do for you in the next five or 10 years what this policy will do for you over your entire lifetime.

[00:06:10] So getting back to, Oh, first 30 days, I can take my next or my first policy loan and max it out. You don't get it. If you're doing that, I promise you, you do not get what you're doing. You do not understand the problem. So that's my. Take on this first principle,

[00:06:28] John Perrings: Yeah, nice. It's like, um, you know, kind of said it on a recent episode where, you know, the typical financial, I don't know, game, if you will they're all, the people that run the game they play by different rules than you do. The insiders, right? With IBC the way that it's structured, you're the insider. And so, you have the capabilities, once you capitalize, to do all the things that a typical insider already does with your money, but you can, now you can do it. [00:07:00] So if you know what's going on, you'll know what to do.

[00:07:03] John Montoya: I'll add one more thing. And this, it it leans toward the mission of the Nelson Nash Institute, which is getting to that tipping point of 10%. And there's another reason that the Nelson Nash Institute exists and it's to, ultimately, end fractional reserve banking. And the reason why is because this should really hit home today for everyone, because it affects everyone.

[00:07:37] It doesn't matter, whether you're poor, middle class, or very wealthy, we're all ravaged by inflation. What's the main cause of that? I know that me personally, of course, I would love to see the Federal Reserve go to the dustbins of history. But ending the Federal Reserve by itself doesn't end [00:08:00] fractional reserve banking.

[00:08:01] It would just mean a return to free banking meaning no central bank, but to end fractional reserve banking. Means to end the ability to create money out of thin air. And that's what all traditional banks have the ability to do because when you go take a mortgage, a car loan you use your credit cards some of the stuff is just, this is a fact of life and what we have to do.

[00:08:26] But the what's happening there is that we're actually helping. To feed the system and when the cost of our groceries go up, when rent goes up everything goes up, that, that leads to inflation. Where does the bulk of the money expansion come from? Believe it doesn't. Actually come from the federal reserve.

[00:08:50] Yes, they are a part of it, but it actually comes from from traditional banks lending money that previously did not exist. And what happens [00:09:00] when we keep large amounts of money in a bank account, traditional bank account? They use that as the ability to create new money and that's what gets lent to us.

[00:09:10] Whenever you sign on the dotted line. Take, for example, a mortgage. You're signing a note. That's an IOU. And you can ask yourself where did that money come from? It didn't come from the deposits that we all have on our bank account. Yes, that's used as a reserve. And it used to be that banks had to keep at least 10%, so a fraction of that reserve, and then they conjured up the money elsewhere.

[00:09:35] But nowadays, it's Close to zero. So by, by continuing to operate in this fractional reserve system, we all contribute to the problem of expanding the money supply. So this is. One of the reasons why IBC is really important because it'll lead you down a rabbit hole where you're going to start [00:10:00] to ask what is money?

[00:10:01] Where does it come from? And you start to learn about Austrian economics and Nelson was so impactful for me in helping to explain really how the world works. We'll touch on this I think in point number three with I'm not going to give it away, but we'll touch on the power of banks and how important they are, but it just gets me thinking, inflation is a huge problem that we're now dealing with.

[00:10:26] Really becoming more aware of and why is that? It's in part because we don't control our own capital and we allow these third party banks to conjure money out of nothing.

[00:10:41] John Perrings: Well said, well Said. First principle, number two is there is only one pool of money in the world. And so if you look at the money, it flows like water. And this is also explained in Becoming Your Own Banker, the source material for The Infinite Banking [00:11:00] Concept. And it, again, everything's going to tie into this point.

[00:11:04] Number one, it. There's only one pool of money in the world. And if you think about it that way money has to flow in and flow out. And what it comes down to is how much of the one pool of money in the world is in your control. And so that's something to think about in terms of just a, almost like a mental exercise.

[00:11:26] If you think of money as a pool and it flows like water, the more you can have it flowing on your behalf and under your control the more you'll get from that and the more control over your situation you'll have.

[00:11:41] John Montoya: Yeah. Just as a comparison, I mentioned previously 401ks and IRAs, that's money that is Not in your control. Those are government accounts. There are an example, your house. When you pay a mortgage and you systematically pay that mortgage down over time, [00:12:00] you're creating equity. But that's equity that's not in your control.

[00:12:03] Ultimately that's the bank has first rights to it if you don't, or you stop making your mortgage payments and even to get access to it you have to sell your house or refinance. How many people nowadays with interest rates going from 2 to 3% above 7% which by the way, historically is about normal.

[00:12:26] To be in this range, but you have 70 to 80 percent of the population who refinanced into a lower rate. And now credit card debt just passed a trillion dollars and we're in 2023. Whenever you're listening to this, might be a couple of years from now. These numbers, credit card debt, personal loans, auto debt, they're just going to be much larger in the future.

[00:12:48] But. What choice will people have, but to potentially be forced into a situation if the banks even approve them, but to [00:13:00] refinance into a higher rate if they need access to cash because they're using their house as an ATM because they don't control that pool of money. And.

[00:13:10] It's just so important that we have a place where we can redirect wealth that is completely under our control. Even I'll give an example, I touched on 401ks, IRAs equity in a house. We all keep money in a traditional bank. It's just a fact of life. Try to limit that to maybe two to three months of expenses.

[00:13:33] But if you're keeping large amounts of money in the bank, because you're too afraid to go out on the risk spectrum, which I completely understand. But if you're keeping large amounts of money in the bank and you want to go to your bank and ask for that money in cash. You're going to likely be refused because they're going to limit the amount of cash that that they will give you.

[00:13:56] In fact, they'll probably give you a certain amount and then ask you to come [00:14:00] back the next day. And if you've ever seen a bank run, we did have we, we did experience a bank run here in the United States. I think it doesn't happen. That's not true. It happened in March of this year, people were lined up outside of First Republic Bank and Silicon Valley Bank because they were worried about, not being able to access their money.

[00:14:21] So they're all in line. And they're on their apps and trying to move money out as quickly as possible because the banking institution is. Extremely fragile. And we have this illusion that it's not because they're stickers of confidence called FDIC, which, FDIC is just as solvent as the traditional banking system.

[00:14:40] But this is another example of a pool of money that we all have that is not under our control. Those deposits sit in a traditional banking account. The, these are claims on our money that we have. It's not actually our money anymore. Compare [00:15:00] that to the cash value in a whole life insurance contract.

[00:15:04] We have first right to that money. We can get access to that money anytime we want to, for whatever reason we want to. We're not going to be there, there's no Spanish inquisition or Gestapo asking us what we're going to use the money for. Why do we need it? There's only two questions that an insurance company will ask.

[00:15:25] How much of our cash value would we like and where would we like it sent to? That's it. So it's really imperative that if you don't have a place. Where you can both control and have access to that money, then you need to develop a system outside of the traditional banking system, outside of a government sponsored retirement plan where you can take control over your life.

[00:15:54] Because what it boils down to philosophically for me is if [00:16:00] if you don't have economic Then you're not going to have civil liberty. And what I mean by that is you're not going to have the choice to vote with your wallet. And for me, that is way more important than any ballot that you can fill out come election time.

[00:16:21] John Perrings: Yeah, it's a, I think one of the most common. places where people think they're keeping value is their house, so I think a lot of people are like, yeah, banks I have to keep my money there 'cause that's really the only option. But I understand that there, there've been some problems and they I think, realize it in the back of their head. But then a place where I think a lot of people really feel like they're building value as their primary residence. And just like you were saying, they'll. They'll buy a house. They'll use home equity lines of credit as their kind of personal ATM. And I don't think people really realize how[00:17:00] the lack of control that they actually have when using those types of assets.

[00:17:05] The value of your house is really very much tied up and locked away in the walls of the house, subject to the whims of of the, of a bank to get that value and when you need it most. That's when the banks are least likely to allow you to get to that value without selling.

[00:17:24] The big problem is people don't have the ability to weather the storm. And this was absolutely true for me, in my earlier years of working, you didn't have the ability to weather some of those storms out there. And so you have to sell, and that's really where the values lost value is exchanged.

[00:17:43] And so when, and when I say exchange, shifted wealth shifts happen when people sell and liquidate because they have to that value. Get someone else gets that value because there's only one pool of money in the world [00:18:00] and so that value shifts to someone else because you were not able to weather the storm and and a lot of times the storm isn't as bad as people think.

[00:18:09] Sometimes it's there's a lot of, fear, uncertainty, and doubt that gets put out there around, changes in the stock market, et cetera. So a lot of people sell, shift that value to someone else. And if they had just held tight, if they had the ability to hold tight a lot of times those things tend to come back.

[00:18:27] But it's just it's all about timing. So there's only one pool of money in the world.

[00:18:34] John Montoya: Yeah I really that point that you just made, John. It makes me think of opportunity cost. And we were actually discussing this last night at dinner. My daughter brought a friend over and they were going to study economics. After dinner and I asked him what's, what do you guys study in economics?

[00:18:52] And my daughter says opportunity costs and I said, okay, great, we'll explain it to me. And she did a pretty decent job. [00:19:00] So I was pretty proud of her. But to the principle that we're talking about one pool of money, the point that you just made when you have. Access to a pool of money, it means you don't have to sell off an asset that maybe, the timing isn't right.

[00:19:16] Because all your money's locked up in other places previously mentioned where in order to become liquid, now you may create a taxable event. By having to sell off an asset. When you have your IBC pool of policies, you wouldn't have to think what am I going to sell off? And what's going to be the ramification the second order effects of selling off this asset.

[00:19:39] It's, not only could you potentially create a taxable event by selling off an asset to become liquid but you could be selling at the worst time, meaning that investment hasn't fully matured. And so you're. Exiting an investment well before it has the opportunity to take off. And so you're [00:20:00] really limiting your future options unless you have control over a pool of money that no one else can dictate.

[00:20:09] And liquidity.

[00:20:13] You're going to be able to hold on to those other assets. You're going to be able to avoid a taxable event and you're going to be able to avoid selling prematurely. That, that's a huge benefit. So I'm glad you brought that up.

[00:20:27] John Perrings: Yep. And the value transfer a lot of times happens in the banking sector, right? So that takes us to point number three where banking is the most important business in the world, right? No business entity or individual can operate without the use of the banking system in the modern world. I think this is the last point of today's episode number three. And I think we're ending on this one today because it's important to understand that what we're often trying to [00:21:00] do with clients who come into our world, want to implement The Infinite Banking Concept is helping them understand that banking is a higher order operation than investing. The more you can turn over money the better off, the more value you'll create. You're essentially, because remember, the grocery store analogy and the, and becoming your own banker that's essentially treating money as inventory. And the more you can turn inventory over the more value you create in your grocery store. Just inventory in your grocery store, the proverbial cans of peas, just like those cans of peas. If you can turn dollars over in your bank, which is your grocery store for money the more value you create. And so the banking business does not necessarily have to be With a chartered bank, it just has to be understood how banking works and we can [00:22:00] do similar things in our life and not have to do it with a chartered bank.

[00:22:08] John Montoya: I want to examine the word banking too, to help clarify what we mean by banking, because when we bank, we're storing our value someplace. And there's different places where we can store value. Back in July, I was able to go up to the Mount Shasta area and this is the peak of summer.

[00:22:37] And we're climbing to one of the, one of the peaks up there, not Mount Shasta, but a neighboring peak. And there still happened to be snow on the ground. And it was a small bank of snow, and I thought that was so interesting to me. It's not something I think a lot about. I can probably still count the amount of times I've seen snow in my life on both hands.

[00:22:59] [00:23:00] So it was fascinating to me to be in 90 degree weather, climbing up a mountain, and there was this snow bank. It was basically a store of what essentially had become ICE, but there it was. And, that... Little snow bank is going to create runoff water, and it's going to flow someplace else, pool of money flowing everywhere.

[00:23:25] But the idea of banking as a store of value the reason why we traditionally bank is because we want to store our value, but this, there's another reason why we bank. And I think maybe if we called it lending, we'd have a better idea of the process of IBC and what we're trying to solve.

[00:23:48] We're trying to solve for what we call the banking function. But in other words, this is the lending function. Because if we think about how often, or [00:24:00] actually why we really go to banks in the first place, it's because we don't have enough capital saved up. And if, or if we do have enough capital, we're putting it in the wrong places, right?

[00:24:12] 401Ks, IRAs in the walls of our house or we're putting it and leaving it in a checking savings account CD at the bank, but it's not enough for what we need to finance in our life. And so what do we have to do? We're forced to. Ask for a loan, and if we have, good enough credit an income we're worthy of that loan.

[00:24:35] Then the bank will give us a loan on their terms, not our terms, on their terms, and we have to agree to it. So banking is the most important business in the world because it allows us to finance our lives, but it does so under terms that we have to agree to. What does IBC do? It takes control [00:25:00] back from those traditional banks.

[00:25:02] And allows us to solve for the most important business in the world and solve for our lending function. And yes, there is a store of value there and it's guaranteed to increase every single year. I love that part of IBC and whole life policies. So it eliminates the luck, skill and guesswork, but we're solving for that lending function.

[00:25:23] And. And that's really key because if we can solve for that then we're solving a lot of problems in our life. So banking is the most important business in the world. And there was a joke. I don't know who made it, but it's probably the second oldest business in the world. And I'll let you think about what the first and oldest business in the world is.

[00:25:46] But banking is most likely the second oldest business in the world. So if you haven't solved for it, and specifically, I'm talking about the lending function. Then you need to realize that [00:26:00] it's something that needs to be accomplished in your lifetime and not tomorrow, next year, 10 years from now, you need to do it as soon as possible so you can start capitalizing and saving money in the best place you possibly can, where you can control it and eliminate the snakes and dragons as previously mentioned.

[00:26:18] John Perrings: Yeah. And, just going back to the book, it's, I think in this section, it's important to reiterate that you finance everything you buy. You either pay interest to someone else when you use their money, or you give up interest you could have earned when you use your own money to buy something. And going back to, the business of banking, you're never getting away from it. You're just either You're doing it efficiently or somewhat efficiently with someone else's money, or you're doing it very inefficiently with your own money when what you could be doing is doing it efficiently with your own money. And that's what, that's really what IBC does. You can never get rid [00:27:00] of opportunity costs, lost opportunity costs. That's the cost of the next best thing foregone when anytime you use money, right? So you can never. Get rid of it. It always exists. But what you can do is you can minimize it by having a more efficient process for implementing the banking function in your life.

[00:27:22] And that's really what IBC does.

[00:27:24] John Montoya: Absolutely. That could almost be and it probably is a principle on all on its own. Opportunity cost. One thing to emphasize here, and John, you've mentioned it a number of times and always do a great job of this, is that we don't Need to utilize a whole life to solve for that banking process .

[00:27:48] But the reason why we choose a whole life policy to replicate the traditional banking system is because of how it's engineered to put us. First in [00:28:00] line, how it's engineered to increase in value every single year. So you can attempt to use a personal line of credit at the bank or any other financial instrument that you think might do the job to solve for that banking function.

[00:28:15] John Montoya: What you're going to realize and probably rather quickly is that a whole life policy and a system of whole life policies is the best way. For you to solve for your need for financing in your life,

[00:28:33] John Perrings: Absolutely. You just can't do. What we do with whole life insurance with really any other asset, these mutual insurance companies just have such a long track record of doing what they're supposed to be doing. They put you in the driver's seat as a policy owner, you're a part owner of the mutual company. And you get the benefit of the law of large numbers, AKA actuarial science working on your behalf. And you [00:29:00] just can't get that anywhere else. Banking actually is the other side of the coin of life insurance. They have their own sort of way of actuarially calculating things.

[00:29:10] They just use different metrics to do it, but nothing quite competes with insurance because the data is so known where you don't have things like market fluctuations and things like that, that the banks have to deal with. The data is so known in terms of like mortality data or in the case of health insurance, all the health data, in the case of car insurance, all the accident data. There's probably a cooler word than accident data, but all of that stuff is, there's so much information on that, that's really where a lot of the power of whole life insurance and life insurance comes in in terms of being able to create efficiency for you in how that asset grows.

[00:29:58] John Montoya: What we're doing with our [00:30:00] whole life policies is transferring the risk of performance the risk of having a line of credit. Frozen or shut down on us, which happens when you operate in the traditional banking world.

[00:30:13] All the business owners know this they're at risk of the banks sending out a letter and basically saying, Hey, we're going to freeze your line of credit or we're exiting the business. So you need to come do a we're transferring that risk. To a life insurance company where one of the things I really like about these mutual life insurance companies, we all share this aligned incentive where we've got like minded people that are pooling capital together to help solve for all the risks in our life, our whole life. And there's, as you mentioned, there's a number of [00:31:00] different risks. No life is perfect. We're all going to have curve balls and to be able to have a place where we can know.

[00:31:08] That a portion of our wealth is safe and available to us, no matter what comes in our life. It it's a peaceful way of living and you just you can't really put a price on that. But for those that have already started with IBC, you know how impactful and powerful that is to have that reservoir, that snow bank, if you will.

[00:31:38] Up on a mountainside, even when it's 90 degrees and blazing and know that here's some sustenance. Here's some access to capital, which we need for our entire life that we're always going to be able to get access to. It's pretty remarkable.

[00:31:56] John Perrings: Awesome. I think that's that's going to [00:32:00] wrap up part one of three IBC first principles. So today we talked about, if you know what's going on, you'll know what to do. We talked about the fact that there is only one pool of money in the world. And then lastly, that banking is the most important business in the world.

[00:32:15] And so if any of this is resonating with you and you'd like to. Learn more about how these principles could apply in your life specifically. You can always head over to thefifthedition. com. You can book a free 30 minute consultation with us right there. And we also have an online course for those of you that like to just do as much research as you can on your own before talking to someone. Looking forward to getting into part two and we'll see you next week.

[00:32:44] John Montoya: Take care, everyone.

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