@@tvfan14 I was 12 years old when this video was uploaded, I'm currently pursuing a Bachelor's in Finance, but if it wasn't for UA-cam I wouldn't have known this!😕
What about all the fees they charge? A cash cheque takes 5 working days to clear, ATM charge $2.50 per transaction, cashing coins in 10%, late charges..etc...etc and WE bailed them out...Crazy world!!!
Money = work performed vouchers. They want to control as much of the value of your labor as possible. This includes future labor. They NEED you to be working, so they charge a fee and take a larger portion of your work performed. They cause inflation by flooding the market with more vouchers. It decreases the value of your previous labor performed while simultaneously creating need for you to work in the future. It also happens that it gives them free work vouchers that they can use to acquire more fruit of your labors. We are all slaves.
That's not necessarily a problem though. You equate debt as something bad because society told you it's bad. Debt is nothing but a financial instrument representing value. Whether debt is good or bad depends on how you use it.
@@frazercollins9559 Money equates to production. It directly represents an amount of work you have performed for a task. The bankers have been given free vouchers for work. Your work. They then get to charge everyone interest on that work. The system is designed so that they get to milk off everyone else's work/production for free and charge them for it.
This is a casually written approximation of the regulations by a wikipedia editor (I have no idea who). The wording of the actual regulations the banks follow will be quite different.
"but the reserves are not a prerequisite for loans." Yes they are. The money that banks lend out is FIRST given to them by depositors/their customers. Banks can't lend out money that they don't have. There's ZERO mystery about where banks get the money they loan out. If you'd simply look up the term "reserve ratio" or "reserve requirement", you wouldn't be confused about where banks get the money they loan out.
If the Car Buyer gave the 1000$ IOU loaned from the bank to the Car Seller, and then the Car Seller deposited it in the bank, then when was it destroyed? In the first example we are told that the IOU is destroyed when paid back. In the second example the IOU isn't destroyed?
Money gets destroyed when *loan repayments to the bank* are made. When the car seller stores the $1000 in his account, he is not repaying a loan to the bank he is just storing his money. The destroying money part (in this example) won't start happening until the car buyer starts repaying his loan... this will probably happen in instalments over the following months or years.
From wikipedia (Regulation D article): "This reserve requirement stipulates how much of the account balance a bank is required to keep in reserve (i.e. the portion of a deposit a bank may not give out in the form of a loan)." When you deposit money into a bank, that money, by definition, becomes part of the bank's "reserve" (look up "bank reserve"). The bank however, is only required to KEEP 10% of that, and can loan out the remaining 90% (the other "portion of a deposit").
the reserve requirement was eliminated by the Fed in 2020, and many countries including Canada don't have any reserve requirements either so this whole frame of reference is clearly the wrong way to attempt to understand the subject
Money isn't being "created" when a loan is made. Money is being transferred. If I loan you $5, I'm transferring $5 from me to you. Likewise, when a bank loans you $5, it is transferring $5 from it to you.
I agree with most of what the others are saying cley..minus the insult's, you contradict yourself on quite a few points...just re read what you have written! This IS how the banking system works ..like it or not... Do some real research with eyes open and blinkers off!
Suppose that the bank issues 2 spendable IOU’s Both borrowers chose to buy the only car The price of the car will go up . Now it is £1200.00 An extra spendable IOU is now required and created Hello Inflation Demand is higher than supply. Will the increase of interest rates solve this problem i.e .Slow down the numbers of transactions? If so -given in the real world there is no shortage of supply (mostly) the base rates could remain low forever. Of course where supply is limited and demand is increasing - houses for example- then inflation will occur. Which is precisely what has happened.
What you are describing is a not-actually-true teaching aid called the money multiplier model. It get taught up to undergraduate level, but beyond that, when researchers go into more detail, they find out its not true. “The old pedagogical analytical approach that centred around the money multiplier was misleading, atheoretical and has recently been shown to be without predictive value. It should be discarded immediately.” Professor Charles Goodhart CBE, FBA, ex Bank of England.
I completely agree with you, developed countries claim that the services sector contributes to their GDP by 80% which does not make sense. In most developed countries only about 10% of their GDP is real, the rest is spendable IOU or credit.
Great video! I wish I would have found it sooner. All we need to do to get people to understand is to STOP referring to the "IOU" as money. What we have is a form of, "Currency". Two completely different things in terms of value.
Insurance companies, like banks, have similar risks and similar needs for regulations. Both require internal and external constraints on writing insurance policies, making loans, and maintaining minimum reserves. They are based on risk calculations, company policy, and govt regulations. Bank reserves are for interbank transfers and the risk of loan failures. Loan failures include an inability of the borrower to repay the loan or a drop in the market value of the collateral (e.g. house) below the remaining loan liability. Reserve requirements are regulated by the Federal Reserve. Insurance company reserves are for the risk a claim occurs. Reserve requirements are regulated by a state. A bank would become insolvent (unable to create more loans) if many loans failed at the same time dropping reserves below minimum requirements. The housing bubble is a recent example where the market value of houses dropped below the remaining liability. Banks could not make more loans. With that regulatory constraint, loans to businesses and individuals with good credit couldn't be made. Without that newly created money added to the economy, the economy faltered, business expansion froze, GDP dropped, ... the rest is history. An insurance company would either become insolvent (unable to create more policies) or bankrupt if many claims came due at the same time dropping reserves below minimum requirements. Flood or fire insurance claims after a severe rain storm or a wildfire that devastates many homes are examples. Also, during the housing bubble, AIG insured mortgage-backed securities for failure. The securities failed and AIG had to pay more claims than they had reserves to cover. They couldn't pay the claims and went bankrupt. The beneficiaries of those claims, including pension funds, investment banks, nation states, and others, failed without that money, also. Failures cascaded... the rest is history.
IF YOU WANT HURT THE POWER OF AUTHORITIES DON'T RIOT. CLOSE DOWN YOUR BANK ACCOUNT MAKE THEM COME TO YOU FOR THE MONEY. DO THIS BEFORE THEY CLOSE ON YOU , ACT NOW OR YOU WILL LOOSE ALL YOUR MONEY.
Excellent understanding of the reality of the banking system which is simple if one is taught it correctly by competent teachers. Unfortunately in todays climate there are promoters of economics who are ignorant and with a political motive of putting across false information to retain their employment in universities which unfortunately is only too common. Good explanation you use as the analogy of the bath of water. Not a bad analogy and well illustrated but your explanation may be a little obtuse for the average person to understand in that you say the "relative rates of flow" into and out of the bath. Would it not be more clear to say the net difference between the amount of flow going into and out of the system creates a difference in the amount of water in the bath ( i.e. the amount of money in the system). Great description of the misdirecting money multiplier limit. There is no limit because it is a cat chasing it's tail belief that fails to see that more lending creates more reserves since it literally fills the economy with more money. The explanation I like to use is that ALL money in the system today is fiat and all of that is credit rather than a guarantee for a certain quantity of real goods.
If you include the Federal Reserve in "the entire banking system", then yeah... "the entire banking system" creates money, and that's because the Fed creates money. Commercial banks are always borrowing from each other in order to meet their reserve requirements. If they could just "create money", they wouldn't need to borrow it.
So maybe I'm dumb...how does fractional reserve work then? We were taught: We deposit money, a fraction is kept, rest loaned out. Thus fractional reserve. So this is not the case, banks create money as they make loans, not from deposits, but then...what is fractional reserve? What is it a fraction of? Deposits? If so, since deposits aren't needed for loans then why is a fraction kept, where does it go? I am interested in truth but it can be super confusing lol Especially when it's been ingrained otherwise through schooling! Also, is this falsehood simply misinformation and how widespread is it? If I was to actually question this to say, my money & banking, or macro prof would they even know about this or would they think I'm insane? lol
The easiest way to figure out that commercial (fractional reserve) banks, don't/can't "create" money, is to look up what FDIC insurance is. The whole reason FDIC insurance exists, is because commercial banks CAN'T create money.
Jct: Professor of Banking Systems Engineering gives this an A+ since it accords with my LETS Banking Systems Engineering Math (SmartestManOnEarth.Ca/bankmath) analysis
It isn't, that's why the world economies are falling. That money and you needing to pay it back with interest is what makes you go to work... If we didn't have bills to pay we wouldn't be motivated to work... Thus we the working class are slaves, you need to work/be a slave in order to be able to purchase anything... Those without jobs/not enslaved are rejected by the system since government grants are never enough to survive even if you qualify for those. Our masters, get paid so much that they don't need to have debt to survive... They work to have enough money to have a deposit when they take out business loans(borrow money to enslave others), and through our labor... They are able to pay off those business loans through our labor and accumulate wealth without bad debt... And thus remain wealthy /masters
There is a big difference between credit money and currency money. You know you can also email the Fed , but if your mind is made up on conspiracy theories there isn’t any help for ya
I refer you to the Bank of England paper: "Money creation in the modern economy" Quarterly Bulletin 2014 Q1, whereby they state in the blurb that money is created by commercial banks making loans but if you look closely at Figure 2 on page 6 the only thing really created by the bank is an asset called a "Loan" which will be paid back slowly over time. The only money actually accrued by the bank is the interest it receives from the loaner. However, this interest has to be paid from other money sources received by the loaner so the source of new money in the system seems to be still a mystery!
+Pinkybum P The source of new money to pay the interest is NOT a mystery. If you consider bank loans to be endogenous, then interest is also endogenous. If bank loans can be paid off , then the interest can also be paid off. There is a time lag and the economy is large. Also, federal govts deficit spend extra money into the economy. That deficit = net private sector savings. That savings can also be used to pay the interest the the bank loans.
+mrzack888 So you are saying the government deficit is the source of new money that is interesting. However, the deficit (and debt) is accounted for, and the debt does shrink eventually meaning money is being taken back out of the system. If the debt build up is not permanent where does the new money come from? I was being a little facetious when I said the source of new money is a mystery however, there is a source whereby the federal government puts money into the system and expects no payment in return, can you work out what it is?
Pinkybum P federal govt spending spends money into the economy first, then it taxes later. Federal govt creates new fiat money into the system when it spends more than it taxes. That extra money can be used to pay interests. Also, people that take out endogenous loans from the banks sometimes default. So that loan actually stays in the economy and are not retired, the circuit is not closed. So that is another source of extra money. Also, by the time you have to pay back interest on endogenous loans, somebody else will also have taken out a loan and be spending that money, all you have to do is earn some of that money to pay off your interest. As long as the credit loan cycles is continuous, then interest is serviceable. IF people stop taking out loans and stop spending, then the cycle crashes.
+Pinkybum P You all have missed the message of the video. New money is created out of nothing within the computers of every bank. First of all, do not conflate the term "money" with the notion of physical currency. Only 3% of all money in the money supply is physical currency, as the video correctly states. The other 97% is electronic IOUs stored in computer systems of commercial banks. The interest to pay a loan must also come into existence the same way all money does...through the making of a loan. This is why there is a constant need for "growth" in the economy. The creation of all money creates the never-ending need for more money, and therefore more loans to be made. If I take a $100K loan out, and I end up owing $50K in total interest paid over time, that additional $50K comes into existence through other people taking loans, and eventually finding it's way into my "pockets" as a result of me working and earning it. You can be sure that somewhere, at some point, that money came into existence when someone took out a load/mortgage. Very literally, what backs our current money system is debt. It used to be gold, but now it's debt. The other interesting thing to note is the fact that this constant need for more and more money to pay the interest owed on the money already created is precisely what causes the conditions for inflation to be ever-growing. At any given time there is a growing amount of interest owed on all outstanding loans in the world. Even the printing of money incurs debt to the Federal Reserve, since the money must be borrowed by the member banks. Because there is no asset offsetting the interest owed (except time, which can't be stored), the amount of money in existence increasingly outweighs the amount of value stored in assets, thereby driving the value of money down.
endogenous money. see, not only Kalecki, Kaldor, Minsky and the other postkeynesians, but also the italian "Teoria del circuito monetario" by Augusto Graziani
Not at all. The "reserve ratio" and the "money multiplier" (or "multiplier effect") are two entirely different things. The "multiplier effect" is defined as "The expansion of a country's money supply that results from banks being able to lend." Since I REJECT the absurd notion that lending creates money, I would reject the entire notion of the "multiplier effect". That's NOT what I'm talking about.
Because money's always coming in ppl want to work but, at what price. What skills does one bring... ppl always want to rise to the top that's ego that's human nature.. bring our standards up across the board
OMG, seriously? When a bank loans money, they ARE first borrowing that money from someone else. Those "someone elses" are called "depositors" or "customers". lol... they are NOT "creating that money out of thin air".
No 1 bank creates money (sort of true), but collectively the entire banking system creates money. That initial deposit you mention, comes from the extension of credit from some other bank. I'm familiar with the textbook explanation of the reserve requirement, but in reality that model doesn't capture the process. Banks make loans, then look for the reserves later to meet their reserve requirement. Given how flush the system is with Excess Reserves post crisis there really is no limit onbank $
Until one understands the monetary system, they will always be handicapped when it comes to understanding how the world operates. This should be the first thing taught to any student in school. Should be...
money are created from nothing,because you sign an agreement that your house would belong to a bank if you do not pay back your loan for building it.By signing the agremment you deposited your house or value of it on your deposit account.So you actually using your own money.Money are created only if they are suppotred by some asset.
Money is not destroyed because the bank never record the creation in the first time. So aqll electronic money circulating in the accounts is jusk BLACK MONEY without a first owner (the bank) registered. So the chain-of-title is broken and banks don't have title to ask for the money back ! The video is just a banking NICE TRY...
marco saba Only half of the true is exposed: the monetary medium is destroyed only in the accounting side, but continue to circulate in interbank clearing accounts...
+marco saba Sorry, but you're incorrect. Commercial Bank Money ONLY exists within the computer systems of commercial banks. It is created when a loan is made, and it's destroyed as the loan is paid off. The money we are talking about here is NOT the same as Central Bank Money, which includes CURRENCY (notes, coins, gold bullion). The only type of money that circulates in the interbank clearing accounts is electronic Central Bank Money. The commercial bank's own money, which is purely electronic, never leaves their own computers. So, if you get a loan from a bank, and do all transactions only with that bank and vendors who use that bank, you will never indirectly deal with the Central Bank. As so many people do, you also seem to be confusing the terms MONEY and CURRENCY. These terms are NOT synonymous.
Credit IS money. Here a good start for you: Werner, R.A., A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis (2015) www.sciencedirect.com/science/article/pii/S1057521915001477
marco saba At this point in time, credit is the ONLY money, since even Federal Reserve Notes are completely tied to credit. This monetised debt can increase the money supply, either with the issuance of new Federal Reserve Notes or with the creation of debt money (deposits). There really is a lot to all this.
The money creation is not the issue the issue comes when that money enters the economy and leaves the economy cause it doesn't match with production or depreciation nor price liquidation
You're wrong. Retail banks don't create physical currency, cash. That is true. But they issue electronic money out of nothing (not entirely redeemable in cash at a 1:1 ratio) each time they issue a loan. That electronic money is just a promise (not an obligation on the part of the bank) to pay nominally tantamount of cash upon demand for that promise. But because you can exchange that e-money for paper money at 1:1 or use it instead of cash, also at 1:1, altogether to pay for stuff IT'S MONEY
That bathtub image is not correct, what is leaving the tub is more than what's entering it because of interest, the federal reserve creates 1 billion in loans to the federal government, and then wants it back say 1.05 billion back, the government has to repay money that does not exist, all the dollars in the world were created by the federal reserve as loans, and all loans must be payed back, but now the federal reserve wanrs more than that amount back because of interest, where are you gonna bring it from?? How are you going to pay back more than the amount of dollars in existance?! You can't, except if you take another loan to pay for the previous loans. And that's and endless vicious cycle. The federal reserve must be destroyed, fiat money must be abandoned, currency has to be backed by gold again.
Elijah Barrett Prettyman (August 23, 1891 - August 4, 1971) was a United States federal judge. Prettyman was born in Lexington, Virginia. Educated at Randolph-Macon College, he received a Bachelor of Arts in 1910 and a Master of Arts in 1911. He then earned a law degree from Georgetown University Law School in 1915. Prettyman began practicing law in Hopewell, Virginia in 1915. After serving as a captain in the United States Army during World War I, he spent the next 35 years either in private practice, working as a corporation counsel, or working for the U.S. Bureau of Internal Revenue (IRS). In particular, he was a special prosecutor for the IRS both in Washington, D.C. and New York City from 1919 to 1920, and later general counsel to the IRS from 1933 to 1934. On September 12, 1945, President Harry S. Truman appointed Prettyman to the United States Court of Appeals for the District of Columbia Circuit to fill the seat vacated by Judge Justin Miller. He was confirmed by the United States Senate on September 24, and received his commission on September 28. From 1958 to 1960, he served as Chief Judge of the court. He assumed senior status on April 16, 1962, and remained a senior judge until his death in 1971.
I studied monetary economics at the LSE 1989-92, and Charlie Goodhart wrote one of our major textbooks. And we weren't taught anything that contradicts this video. I can't speak for other unis, but I don't see why they think we were taught something different as students.
Charles Goodhart is one of the rare good guys who understands how the monetary system works. So you were very lucky to be taught by him. If what you were taught does not contradict this video then I am very happy. But sadly most other students are told a story about relending of deposits and how the money multiplier acts as a cap... both bullshit.
Your bank balance is simply a record of how much the bank owes you. If someone thinks the bank is warehousing their money, that person is just ignorant, and being ignorant doesn't change how things actually work. The bank only warehouses 10% of your money. This is the "reserve requirement". The fact that you call this "cash" an "illusion" (it's an illusion created by ignorance), means that you agree with me. According to you, that cash isn't "really there". It's been loaned out.
If a commercial bank takes everybody's money, and blows it on bad investments, the government will have to bail them out. This is because a commercial bank CAN'T create money to replace the money they owe. They can sell off assets and whatnot, and try to raise money to pay back their creditors (depositors) before going to the government with hat in hand, but they can't simply "create money out of thin air". This is a common, but rather absurd misconception.
Very lucid explanation of how most bank money is fictitious and not a physical concrete thing of notes and coins. The intelligent layman would think of money as a liquid which flows along pipes among various agents into and out off their liquid tanks (input pipe and output pipe plus assets). This would be understandable if all the money in the economy was physical and the Royal Mint printed more money when it was needed. But this is not the case. When Bob borrows £1000 from the bank to buy a car his bank creates a fictitious £1000 into your account. Bob then gives a guaranteed bank cheque an IOU written out for £1000 to the car salesman called Bill. Bob gets the car and the Bill takes the cheque to the same bank who create a fictitious £1000 into Bills account. Bob must make the repayments at say 10% to the bank for the £1000 loan from his fictitious money bank account via his monthly income. Bill gets interest of 5% on his deposited cheque of £1000. Since the interest of the loan 10% is greater than the 5% interest of Bills deposit then the Bank make a fictitious profit (paid into their own account) on the initial loan of £1000. The banking/finance system has become a system of virtual money which in theory is inexhaustable. Virtual Money has been created out of debt. The federal reserve F is the amount the bank has in physical cash to payout to its depositors if they want it in paper notes or hard cash which is part of its liabilities. If the banks total assets A (which change over time) are less than its total liabilities L (which change over time and this would include every depositor withdrawing their money-a run on the bank) then it becomes insolvent. Would I be correct in thinking that the total amount of virtual money in an economy is enormously greater than the total amount of physical hard cash in the economy ?
you are very correct, and your comment was the final puzzle piece to understand to full image of our corrupted banking system and therefor economics. to your question, YES there is ALOT of more money then hard cash. in reality almost everything is running on virtual money at the moment. if people knew there wasn't any value backed on their money they had everyone would be broke right now. But banks play their tricks to make sure people wont go to their banks like the great depression where they wish to have their money and gold back.
You can get this information anywhere (although there's a lot of wrong information out there too). Try wikipedia for example. When you deposit money into a bank, the bank is allowed to loan out 90% of it, but must retain 10% (in it's vaults/"reserve"). That % is known as the "reserve ratio". It's NOT "loaning money into existence". It's loaning out the money YOU lent to them. When you go to the bank to get paid back (to withdraw money), that money comes from the bank's "reserve" (NOT "thin air")
When you say things like "seems like", and you call things "fiction", you are agreeing with me. Just because people THINK the bank is "creating money", doesn't mean it actually is. Those people are just wrong. Anyways... banks are required to have on hand, 10% of the money they owe everyone. If the bank doesn't get paid back the money people owe to the bank, then a bank will borrow from another bank. This has absolutely nothing to do with creating money.
In other words, a bank's reserve is whatever money they have on hand, plus whatever money they have in their Federal Reserve account. When you put money into a bank, you are putting money into the bank's reserve (because any money that a bank has, is considered part of it's reserve). Any money they lend out, by definition, comes out of the bank's reserve.
What is the name of the account from which the $5 is deducted? Presumably this must be described in some banking regulation document - please give me a reference to that document.
Modern Money Mechanics says at the start "The relationships shown are based on simplifying assumptions." - its oversimplified teaching material. As I've said before, cut and paste "Senior economists queue up to dismiss textbook explanations of our monetary system" into google.
Hi. If money can be created out of nothing, than what is the incentive for banks to pay depositors a interest rate? For the bank, there seems to be no benefit to having someone deposit money (IOU) at your bank. So why pay an interest rate? Thanks.
Regulation D makes no mention of any concept of loans coming from reserves. Indeed, a senior Vice President of the Federal Reserve Bank of New York once said " banks extend credit, creating deposits in the process, and look for reserves later". Do a search for "The Proof That Banks Create Money" on the positivemoney website and read it all.
I still don't see how the bank is incurring any risk when it loans money, if it is just typing it in as a liability without actually giving anything up. Because say the bank loan never gets paid back. The bank never gave anything up. So while yes, they don't get money for free, they still aren't 'losing' anything. If banks are not loaning money, then they are creating it. And if they 're creating it then there is no risk. The only risk would be inflation, but that gets spread out to every dollar in America and just devalues the currency. The bank stays protected. Correct me if you think I'm wrong.
Yes, exactly what I thought. Additionally, if banks "just type it in as a liability without actually giving anything up", there would be no need for the bank to deposit money for their costumers and pay them interests, if this money isnt needed to give out loans. There needs to be something more to it.
Firstly, the bank can't make money entirely out of thin air, in needs to be based on a deposit. The bank can then loan part of the deposit out as part of the fractional banking system. If the depositor wants their money back, the bank needs to be able to provide it. The bank takes the risk that the individual defaults on the loan. If there's default, the bank will need to cover up the depositor's principle from other money.
I think you should consider deleting "not what the textbooks tell you." from the title. I think it makes the video sound less reliable.. But it is valuable information, and thank you for that.
oops for the university grads who have degrees that are based on mis-instruction eh! I would be suing my university for my fees back. As a lawyer I'd be happy to take your case :)
I think if the bank had already loaned out 90% of deposits in your example, it could still create a new loan by borrowing the extra needed reserves from another bank - or directly from the central bank if need be. So it's false to say that the bank is only allowed to lend out 90% of (pre-existing) deposits, but correct to say that the bank must maintain a 10% reserve of the deposits it created ("out of thin air").
i am an absolute neophyte in economics, but i have the feeling that the system can not work without inflation and individual bankrupcies. Because the system contains the money of loans but NOT THE MONEY for the INTERESTS !!!!!! And this money can only come from the loan of someone who defaulted. So regularly some people must fall out of the system, don't pay back their loans, which provides money for the others to payback their interests. For exemple : A,B,C,D borrow 3 from BANK. As interests, each must pay back 1. The BANK put 12 in the SYSteme. A,B,C,D need a total of 16 to payback their loan when only 12 exist in the SYS ? Only the default of payback of minimum 1 of the players, can allow such an unfair system to continue. Tell me if i am missing something.
1sanremy thats why new loans need to be created continiously. interest of old loans is payed with new loans. new loans have to be pumped into the economy. this leads to inflation.
@@mickanomics Thanx for making me loose my time. The sound track is nearly not audible and the explanation that "BANKS SPENDINGS = INTERESTS" is not convincing at all.
During his first term in office Barack Obama said something to the effect that, "The truth is that for every dollar deposited in a bank, it results in up to $10 in loans." This is what he was talking about. Fractional reserve banking.
dude i dont know about economics but i know in some other subjects textbooks are full of shit. always go to the professional practioners for explanations
As I understand it, inflows are natural resources and labor. If I owe you $10, I can either pay you $10, do some chores that you feel is worth enough to expunge the debt, or give you $10 worth of physical property (oil, gold, steel, etc.). The water tap in the diagram is not "money", it is labor and/or resources.
It would be nice to add an explanation of why banks' money creation does not automatically "make the banks rich" (or in what way it does), e.g. what happens to banks when loans go bad, why banks today are still reluctant to extend loans despite being awash in reserves, and what distinguishes banks' creation of spendable IOUs out of nothing from "counterfeiting money" (a critique from M. Rothbard & co).
The IOU value is derived from the promissory note being paid as agreed by the issuer or borrower in question. If said person or institution is of low credit duality and defaults the credits issued need to be written off to zero in value.
There’s a reason why they never teach this in school
They do
Higher learning
@@planetglitch7058 I never learned any of this in school. I learned this and everything related to it outside of school.
@@tvfan14 I was 12 years old when this video was uploaded, I'm currently pursuing a Bachelor's in Finance, but if it wasn't for UA-cam I wouldn't have known this!😕
@@gamuchiraindawana2827 watch Richard Werner video also
What about all the fees they charge? A cash cheque takes 5 working days to clear, ATM charge $2.50 per transaction, cashing coins in 10%, late charges..etc...etc and WE bailed them out...Crazy world!!!
That's how they pay their employees. But the owners get all the interest
Money = work performed vouchers. They want to control as much of the value of your labor as possible. This includes future labor. They NEED you to be working, so they charge a fee and take a larger portion of your work performed. They cause inflation by flooding the market with more vouchers.
It decreases the value of your previous labor performed while simultaneously creating need for you to work in the future.
It also happens that it gives them free work vouchers that they can use to acquire more fruit of your labors.
We are all slaves.
wow,,, expensive in the US!!?
The system is designed to keep people in debt.
That's not necessarily a problem though. You equate debt as something bad because society told you it's bad. Debt is nothing but a financial instrument representing value. Whether debt is good or bad depends on how you use it.
@@frazercollins9559 Money equates to production. It directly represents an amount of work you have performed for a task. The bankers have been given free vouchers for work. Your work. They then get to charge everyone interest on that work.
The system is designed so that they get to milk off everyone else's work/production for free and charge them for it.
@@frazercollins9559debt is slavery
At last, a clear explanation that isn't in cartoon form.
This is a casually written approximation of the regulations by a wikipedia editor (I have no idea who). The wording of the actual regulations the banks follow will be quite different.
Well, your reply proves my point.
"but the reserves are not a prerequisite for loans."
Yes they are. The money that banks lend out is FIRST given to them by depositors/their customers. Banks can't lend out money that they don't have. There's ZERO mystery about where banks get the money they loan out. If you'd simply look up the term "reserve ratio" or "reserve requirement", you wouldn't be confused about where banks get the money they loan out.
If the Car Buyer gave the 1000$ IOU loaned from the bank to the Car Seller, and then the Car Seller deposited it in the bank, then when was it destroyed? In the first example we are told that the IOU is destroyed when paid back. In the second example the IOU isn't destroyed?
Money gets destroyed when *loan repayments to the bank* are made. When the car seller stores the $1000 in his account, he is not repaying a loan to the bank he is just storing his money. The destroying money part (in this example) won't start happening until the car buyer starts repaying his loan... this will probably happen in instalments over the following months or years.
mickanomics
So in this example, the depositor is not required?.....The bank could exist WITHOUT depositors?
mickanomics How does your "bathtub" account for the fact that UK consumer wealth is ten times higher than UK consumer debt?
nixy49 Yes, the bank could exist WITHOUT depositors.
Why is the reserve ratio wrong?
From wikipedia (Regulation D article):
"This reserve requirement stipulates how much of the account balance a bank is required to keep in reserve (i.e. the portion of a deposit a bank may not give out in the form of a loan)."
When you deposit money into a bank, that money, by definition, becomes part of the bank's "reserve" (look up "bank reserve"). The bank however, is only required to KEEP 10% of that, and can loan out the remaining 90% (the other "portion of a deposit").
the reserve requirement was eliminated by the Fed in 2020, and many countries including Canada don't have any reserve requirements either so this whole frame of reference is clearly the wrong way to attempt to understand the subject
I don’t believe the money is destroyed, only the value of the money being destroyed.
Look at the image at 1min53seconds in.
Hard part is to get the sheeple to believe it.
Just kp your tea to your self
Money isn't being "created" when a loan is made. Money is being transferred. If I loan you $5, I'm transferring $5 from me to you. Likewise, when a bank loans you $5, it is transferring $5 from it to you.
Did you even watch the video all the way to the end? You write as if you didn't.
I agree with most of what the others are saying cley..minus the insult's, you contradict yourself on quite a few points...just re read what you have written! This IS how the banking system works ..like it or not... Do some real research with eyes open and blinkers off!
Fictional Reserve Banking
Suppose that the bank issues 2 spendable IOU’s
Both borrowers chose to buy the only car
The price of the car will go up . Now it is £1200.00
An extra spendable IOU is now required and created
Hello Inflation
Demand is higher than supply.
Will the increase of interest rates solve this problem i.e .Slow down the numbers of transactions?
If so -given in the real world there is no shortage of supply (mostly) the base rates could remain low forever.
Of course where supply is limited and demand is increasing - houses for example- then inflation will occur.
Which is precisely what has happened.
What you are describing is a not-actually-true teaching aid called the money multiplier model. It get taught up to undergraduate level, but beyond that, when researchers go into more detail, they find out its not true. “The old pedagogical analytical approach that centred around the money multiplier was misleading, atheoretical and has recently been shown to be without predictive value. It should be discarded immediately.” Professor Charles Goodhart CBE, FBA, ex Bank of England.
I completely agree with you, developed countries claim that the services sector contributes to their GDP by 80% which does not make sense. In most developed countries only about 10% of their GDP is real, the rest is spendable IOU or credit.
Great video! I wish I would have found it sooner. All we need to do to get people to understand is to STOP referring to the "IOU" as money. What we have is a form of, "Currency". Two completely different things in terms of value.
Yaa "IOU" itself is NOT money. "IOU" is a promise of payment of money to the lender. But again "currency" is also NOT "money".
Your "proof" section forgot to provide a drop of evidence. Especially as to why Reserve Requirements don't work, you just make a boldfaced assertion!
Insurance companies, like banks, have similar risks and similar needs for regulations. Both require internal and external constraints on writing insurance policies, making loans, and maintaining minimum reserves. They are based on risk calculations, company policy, and govt regulations.
Bank reserves are for interbank transfers and the risk of loan failures. Loan failures include an inability of the borrower to repay the loan or a drop in the market value of the collateral (e.g. house) below the remaining loan liability. Reserve requirements are regulated by the Federal Reserve.
Insurance company reserves are for the risk a claim occurs. Reserve requirements are regulated by a state.
A bank would become insolvent (unable to create more loans) if many loans failed at the same time dropping reserves below minimum requirements. The housing bubble is a recent example where the market value of houses dropped below the remaining liability. Banks could not make more loans. With that regulatory constraint, loans to businesses and individuals with good credit couldn't be made. Without that newly created money added to the economy, the economy faltered, business expansion froze, GDP dropped, ... the rest is history.
An insurance company would either become insolvent (unable to create more policies) or bankrupt if many claims came due at the same time dropping reserves below minimum requirements. Flood or fire insurance claims after a severe rain storm or a wildfire that devastates many homes are examples. Also, during the housing bubble, AIG insured mortgage-backed securities for failure. The securities failed and AIG had to pay more claims than they had reserves to cover. They couldn't pay the claims and went bankrupt. The beneficiaries of those claims, including pension funds, investment banks, nation states, and others, failed without that money, also. Failures cascaded... the rest is history.
IF YOU WANT HURT THE POWER OF AUTHORITIES
DON'T RIOT.
CLOSE DOWN YOUR BANK ACCOUNT MAKE THEM COME
TO YOU FOR THE MONEY. DO THIS BEFORE THEY
CLOSE ON YOU ,
ACT NOW OR YOU WILL LOOSE ALL YOUR MONEY.
Or buy gold and silver
A 'bank' that does not require depositors is NOT, by definition a bank.
It's time for Trading Standards to take action against this mis-description.
Thanks a lot for crystal clear lucidity. Your genuineness & intellectual honesty are palpable. God bless.
Excellent understanding of the reality of the banking system which is simple if one is taught it correctly by competent teachers.
Unfortunately in todays climate there are promoters of economics who are ignorant and with a political motive of putting across false information to retain their employment in universities which unfortunately is only too common.
Good explanation you use as the analogy of the bath of water. Not a bad analogy and well illustrated but your explanation may be a little obtuse for the average person to understand in that you say the "relative rates of flow" into and out of the bath.
Would it not be more clear to say the net difference between the amount of flow going into and out of the system creates a difference in the amount of water in the bath ( i.e. the amount of money in the system).
Great description of the misdirecting money multiplier limit. There is no limit because it is a cat chasing it's tail belief that fails to see that more lending creates more reserves since it literally fills the economy with more money.
The explanation I like to use is that ALL money in the system today is fiat and all of that is credit rather than a guarantee for a certain quantity of real goods.
If you include the Federal Reserve in "the entire banking system", then yeah... "the entire banking system" creates money, and that's because the Fed creates money. Commercial banks are always borrowing from each other in order to meet their reserve requirements. If they could just "create money", they wouldn't need to borrow it.
So maybe I'm dumb...how does fractional reserve work then? We were taught: We deposit money, a fraction is kept, rest loaned out. Thus fractional reserve. So this is not the case, banks create money as they make loans, not from deposits, but then...what is fractional reserve? What is it a fraction of? Deposits? If so, since deposits aren't needed for loans then why is a fraction kept, where does it go?
I am interested in truth but it can be super confusing lol Especially when it's been ingrained otherwise through schooling!
Also, is this falsehood simply misinformation and how widespread is it? If I was to actually question this to say, my money & banking, or macro prof would they even know about this or would they think I'm insane? lol
Check out anonymous answer from feb 15 2012. www.quora.com/Can-a-bank-lend-more-money-than-it-has
*I would tell you but then you might get angry, start a revolution overthrowing the banks and government.* 🤪😂
The easiest way to figure out that commercial (fractional reserve) banks, don't/can't "create" money, is to look up what FDIC insurance is. The whole reason FDIC insurance exists, is because commercial banks CAN'T create money.
Jct: Professor of Banking Systems Engineering gives this an A+ since it accords with my LETS Banking Systems Engineering Math (SmartestManOnEarth.Ca/bankmath) analysis
If money is created when banks issue loans, how is the money to pay the interest on the loans created?
It isn't, that's why the world economies are falling. That money and you needing to pay it back with interest is what makes you go to work... If we didn't have bills to pay we wouldn't be motivated to work... Thus we the working class are slaves, you need to work/be a slave in order to be able to purchase anything... Those without jobs/not enslaved are rejected by the system since government grants are never enough to survive even if you qualify for those. Our masters, get paid so much that they don't need to have debt to survive... They work to have enough money to have a deposit when they take out business loans(borrow money to enslave others), and through our labor... They are able to pay off those business loans through our labor and accumulate wealth without bad debt... And thus remain wealthy /masters
I don’t understand how a school can take something soo simple and confuse it to the point where people don’t understand it.
There is a big difference between credit money and currency money.
You know you can also email the Fed , but if your mind is made up on conspiracy theories there isn’t any help for ya
*Interesting. So what's the difference. Hopefully it sets off the bells and whistles in my head.* 🤔
Just cause you claim it is so does not make it so.
The cost of bank loans is externalised to society (socialised) through inflation.
Bills of exchange & Promissory notes (IOU, note payable) = debt based economy = credit (created). No payments, only debt discharge.
I refer you to the Bank of England paper: "Money creation in the modern economy" Quarterly Bulletin 2014 Q1, whereby they state in the blurb that money is created by commercial banks making loans but if you look closely at Figure 2 on page 6 the only thing really created by the bank is an asset called a "Loan" which will be paid back slowly over time. The only money actually accrued by the bank is the interest it receives from the loaner. However, this interest has to be paid from other money sources received by the loaner so the source of new money in the system seems to be still a mystery!
+Pinkybum P The source of new money to pay the interest is NOT a mystery. If you consider bank loans to be endogenous, then interest is also endogenous. If bank loans can be paid off , then the interest can also be paid off. There is a time lag and the economy is large. Also, federal govts deficit spend extra money into the economy. That deficit = net private sector savings. That savings can also be used to pay the interest the the bank loans.
+mrzack888 So you are saying the government deficit is the source of new money that is interesting. However, the deficit (and debt) is accounted for, and the debt does shrink eventually meaning money is being taken back out of the system. If the debt build up is not permanent where does the new money come from? I was being a little facetious when I said the source of new money is a mystery however, there is a source whereby the federal government puts money into the system and expects no payment in return, can you work out what it is?
Pinkybum P federal govt spending spends money into the economy first, then it taxes later. Federal govt creates new fiat money into the system when it spends more than it taxes. That extra money can be used to pay interests.
Also, people that take out endogenous loans from the banks sometimes default. So that loan actually stays in the economy and are not retired, the circuit is not closed. So that is another source of extra money.
Also, by the time you have to pay back interest on endogenous loans, somebody else will also have taken out a loan and be spending that money, all you have to do is earn some of that money to pay off your interest. As long as the credit loan cycles is continuous, then interest is serviceable. IF people stop taking out loans and stop spending, then the cycle crashes.
+mrzack888 +Pinkybum P do a google search for "mickanomics" and "repayable" for the answer to this question.
+Pinkybum P You all have missed the message of the video. New money is created out of nothing within the computers of every bank. First of all, do not conflate the term "money" with the notion of physical currency. Only 3% of all money in the money supply is physical currency, as the video correctly states. The other 97% is electronic IOUs stored in computer systems of commercial banks.
The interest to pay a loan must also come into existence the same way all money does...through the making of a loan. This is why there is a constant need for "growth" in the economy. The creation of all money creates the never-ending need for more money, and therefore more loans to be made. If I take a $100K loan out, and I end up owing $50K in total interest paid over time, that additional $50K comes into existence through other people taking loans, and eventually finding it's way into my "pockets" as a result of me working and earning it. You can be sure that somewhere, at some point, that money came into existence when someone took out a load/mortgage.
Very literally, what backs our current money system is debt. It used to be gold, but now it's debt. The other interesting thing to note is the fact that this constant need for more and more money to pay the interest owed on the money already created is precisely what causes the conditions for inflation to be ever-growing. At any given time there is a growing amount of interest owed on all outstanding loans in the world. Even the printing of money incurs debt to the Federal Reserve, since the money must be borrowed by the member banks. Because there is no asset offsetting the interest owed (except time, which can't be stored), the amount of money in existence increasingly outweighs the amount of value stored in assets, thereby driving the value of money down.
endogenous money. see, not only Kalecki, Kaldor, Minsky and the other postkeynesians, but also the italian "Teoria del circuito monetario" by Augusto Graziani
Not at all. The "reserve ratio" and the "money multiplier" (or "multiplier effect") are two entirely different things. The "multiplier effect" is defined as "The expansion of a country's money supply that results from banks being able to lend." Since I REJECT the absurd notion that lending creates money, I would reject the entire notion of the "multiplier effect". That's NOT what I'm talking about.
Because money's always coming in ppl want to work but, at what price. What skills does one bring... ppl always want to rise to the top that's ego that's human nature.. bring our standards up across the board
OMG, seriously? When a bank loans money, they ARE first borrowing that money from someone else. Those "someone elses" are called "depositors" or "customers". lol... they are NOT "creating that money out of thin air".
Excellent clear and no off-putting music.
To repeat .....
So in this example, the depositor is not required?.....The bank could exist WITHOUT depositors?
totally depressing
As stated by Central banks of England, Germany, Iceland, Norway... YES
Yep!
@this worlds on fire *Why would the government need money from banks? If the government creates the money.* 🤔🤪
*No. It needs depositors, but not the depositors that have their money sitting in a checking account.* 🤔🤪
No 1 bank creates money (sort of true), but collectively the entire banking system creates money. That initial deposit you mention, comes from the extension of credit from some other bank. I'm familiar with the textbook explanation of the reserve requirement, but in reality that model doesn't capture the process. Banks make loans, then look for the reserves later to meet their reserve requirement. Given how flush the system is with Excess Reserves post crisis there really is no limit onbank $
Until one understands the monetary system, they will always be handicapped when it comes to understanding how the world operates. This should be the first thing taught to any student in school. Should be...
money are created from nothing,because you sign an agreement that your house would belong to a bank if you do not pay back your loan for building it.By signing the agremment you deposited your house or value of it on your deposit account.So you actually using your own money.Money are created only if they are suppotred by some asset.
Money is not destroyed because the bank never record the creation in the first time. So aqll electronic money circulating in the accounts is jusk BLACK MONEY without a first owner (the bank) registered. So the chain-of-title is broken and banks don't have title to ask for the money back ! The video is just a banking NICE TRY...
See here for a 2014 forensic evidence: dx.doi.org/10.1016/j.irfa.2014.07.015
marco saba
Only half of the true is exposed: the monetary medium is destroyed only in the accounting side, but continue to circulate in interbank clearing accounts...
+marco saba Sorry, but you're incorrect. Commercial Bank Money ONLY exists within the computer systems of commercial banks. It is created when a loan is made, and it's destroyed as the loan is paid off. The money we are talking about here is NOT the same as Central Bank Money, which includes CURRENCY (notes, coins, gold bullion). The only type of money that circulates in the interbank clearing accounts is electronic Central Bank Money. The commercial bank's own money, which is purely electronic, never leaves their own computers. So, if you get a loan from a bank, and do all transactions only with that bank and vendors who use that bank, you will never indirectly deal with the Central Bank. As so many people do, you also seem to be confusing the terms MONEY and CURRENCY. These terms are NOT synonymous.
Credit IS money. Here a good start for you: Werner, R.A., A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis (2015)
www.sciencedirect.com/science/article/pii/S1057521915001477
marco saba At this point in time, credit is the ONLY money, since even Federal Reserve Notes are completely tied to credit. This monetised debt can increase the money supply, either with the issuance of new Federal Reserve Notes or with the creation of debt money (deposits). There really is a lot to all this.
The money creation is not the issue the issue comes when that money enters the economy and leaves the economy cause it doesn't match with production or depreciation nor price liquidation
You're wrong. Retail banks don't create physical currency, cash. That is true.
But they issue electronic money out of nothing (not entirely redeemable in cash at a 1:1 ratio) each time they issue a loan.
That electronic money is just a promise (not an obligation on the part of the bank) to pay nominally tantamount of cash upon demand for that promise.
But because you can exchange that e-money for paper money at 1:1 or use it instead of cash, also at 1:1, altogether to pay for stuff IT'S MONEY
Thank you very much for this information.
So would it be true to say that money is being created on the strength of future earnings.
That bathtub image is not correct, what is leaving the tub is more than what's entering it because of interest, the federal reserve creates 1 billion in loans to the federal government, and then wants it back say 1.05 billion back, the government has to repay money that does not exist, all the dollars in the world were created by the federal reserve as loans, and all loans must be payed back, but now the federal reserve wanrs more than that amount back because of interest, where are you gonna bring it from?? How are you going to pay back more than the amount of dollars in existance?! You can't, except if you take another loan to pay for the previous loans. And that's and endless vicious cycle.
The federal reserve must be destroyed, fiat money must be abandoned, currency has to be backed by gold again.
mickanomics.blogspot.com/2012/02/is-interest-repayable.html
"Just cause you claim it is so does not make it so." lol same to you mister - because it's you who's claiming some wild shit about how loans work.
Ppl want more ppl want fair ... Ppl want hammocks a canoes
Gold and Silver and commodities and labour Energy" is "Money" Banks cannot create Money. Period.
+I AM Kenrick Can you give me a quick explanation about how the monetary system is similar to a Ponzi scam? I just don't understand the similarities.
I owe you?
It's kind of a nice hammock if we all chipp in a bit
Ha, a bank paying 5% interest. Dream on.
Elijah Barrett Prettyman (August 23, 1891 - August 4, 1971) was a United States federal judge.
Prettyman was born in Lexington, Virginia. Educated at Randolph-Macon College, he received a Bachelor of Arts in 1910 and a Master of Arts in 1911. He then earned a law degree from Georgetown University Law School in 1915. Prettyman began practicing law in Hopewell, Virginia in 1915. After serving as a captain in the United States Army during World War I, he spent the next 35 years either in private practice, working as a corporation counsel, or working for the U.S. Bureau of Internal Revenue (IRS). In particular, he was a special prosecutor for the IRS both in Washington, D.C. and New York City from 1919 to 1920, and later general counsel to the IRS from 1933 to 1934.
On September 12, 1945, President Harry S. Truman appointed Prettyman to the United States Court of Appeals for the District of Columbia Circuit to fill the seat vacated by Judge Justin Miller. He was confirmed by the United States Senate on September 24, and received his commission on September 28. From 1958 to 1960, he served as Chief Judge of the court. He assumed senior status on April 16, 1962, and remained a senior judge until his death in 1971.
I studied monetary economics at the LSE 1989-92, and Charlie Goodhart wrote one of our major textbooks. And we weren't taught anything that contradicts this video. I can't speak for other unis, but I don't see why they think we were taught something different as students.
Charles Goodhart is one of the rare good guys who understands how the monetary system works. So you were very lucky to be taught by him. If what you were taught does not contradict this video then I am very happy. But sadly most other students are told a story about relending of deposits and how the money multiplier acts as a cap... both bullshit.
+Zena Merton
It is the fraudulent nature of fractional banking and fiat money that many universities neglect to share.
Your bank balance is simply a record of how much the bank owes you. If someone thinks the bank is warehousing their money, that person is just ignorant, and being ignorant doesn't change how things actually work. The bank only warehouses 10% of your money. This is the "reserve requirement". The fact that you call this "cash" an "illusion" (it's an illusion created by ignorance), means that you agree with me. According to you, that cash isn't "really there". It's been loaned out.
If a commercial bank takes everybody's money, and blows it on bad investments, the government will have to bail them out. This is because a commercial bank CAN'T create money to replace the money they owe. They can sell off assets and whatnot, and try to raise money to pay back their creditors (depositors) before going to the government with hat in hand, but they can't simply "create money out of thin air". This is a common, but rather absurd misconception.
How is everlasting money made?
Forget repayment.....What about defaults and the vanishing of the debt entirely w/o repayment? Also seems inherent in the system
Very lucid explanation of how most bank money is fictitious and not a physical concrete thing of notes and coins. The intelligent layman would think of money as a liquid which flows along pipes among various agents into and out off their liquid tanks (input pipe and output pipe plus assets). This would be understandable if all the money in the economy was physical and the Royal Mint printed more money when it was needed. But this is not the case. When Bob borrows £1000 from the bank to buy a car his bank creates a fictitious £1000 into your account. Bob then gives a guaranteed bank cheque an IOU written out for £1000 to the car salesman called Bill. Bob gets the car and the Bill takes the cheque to the same bank who create a fictitious £1000 into Bills account. Bob must make the repayments at say 10% to the bank for the £1000 loan from his fictitious money bank account via his monthly income. Bill gets interest of 5% on his deposited cheque of £1000. Since the interest of the loan 10% is greater than the 5% interest of Bills deposit then the Bank make a fictitious profit (paid into their own account) on the initial loan of £1000. The banking/finance system has become a system of virtual money which in theory is inexhaustable. Virtual Money has been created out of debt. The federal reserve F is the amount the bank has in physical cash to payout to its depositors if they want it in paper notes or hard cash which is part of its liabilities. If the banks total assets A (which change over time) are less than its total liabilities L (which change over time and this would include every depositor withdrawing their money-a run on the bank) then it becomes insolvent. Would I be correct in thinking that the total amount of virtual money in an economy is enormously greater than the total amount of physical hard cash in the economy ?
you are very correct, and your comment was the final puzzle piece to understand to full image of our corrupted banking system and therefor economics. to your question, YES there is ALOT of more money then hard cash. in reality almost everything is running on virtual money at the moment. if people knew there wasn't any value backed on their money they had everyone would be broke right now. But banks play their tricks to make sure people wont go to their banks like the great depression where they wish to have their money and gold back.
You can get this information anywhere (although there's a lot of wrong information out there too). Try wikipedia for example. When you deposit money into a bank, the bank is allowed to loan out 90% of it, but must retain 10% (in it's vaults/"reserve"). That % is known as the "reserve ratio". It's NOT "loaning money into existence". It's loaning out the money YOU lent to them. When you go to the bank to get paid back (to withdraw money), that money comes from the bank's "reserve" (NOT "thin air")
It's safe fractional banking
When you say things like "seems like", and you call things "fiction", you are agreeing with me. Just because people THINK the bank is "creating money", doesn't mean it actually is. Those people are just wrong.
Anyways... banks are required to have on hand, 10% of the money they owe everyone. If the bank doesn't get paid back the money people owe to the bank, then a bank will borrow from another bank. This has absolutely nothing to do with creating money.
I guess what we fight for is credit
In other words, a bank's reserve is whatever money they have on hand, plus whatever money they have in their Federal Reserve account. When you put money into a bank, you are putting money into the bank's reserve (because any money that a bank has, is considered part of it's reserve). Any money they lend out, by definition, comes out of the bank's reserve.
thanks for this great video
Ther is a video on this page." International Monetary System New Economic Slavery"
Who built it the proper high five
Tht group there tht group there.
Thank you very much
What is the name of the account from which the $5 is deducted? Presumably this must be described in some banking regulation document - please give me a reference to that document.
How r u suppose to repay a loan with another loan?
See about 13mins 30sec into this: ua-cam.com/video/pwgWtxPKJzA/v-deo.html
Modern Money Mechanics says at the start "The relationships shown are based on simplifying assumptions." - its oversimplified teaching material. As I've said before, cut and paste "Senior economists queue up to dismiss textbook explanations of our monetary system" into google.
Hi.
If money can be created out of nothing, than what is the incentive for banks to pay depositors a interest rate?
For the bank, there seems to be no benefit to having someone deposit money (IOU) at your bank. So why pay an interest rate?
Thanks.
Bank created credit must be backed by a small portion of deposited money. Look up "Fractional Reserve Banking"
Regulation D makes no mention of any concept of loans coming from reserves. Indeed, a senior Vice President of the Federal Reserve Bank of New York once said " banks extend credit, creating deposits in the process, and look for reserves later". Do a search for "The Proof That Banks Create Money" on the positivemoney website and read it all.
I still don't see how the bank is incurring any risk when it loans money, if it is just typing it in as a liability without actually giving anything up. Because say the bank loan never gets paid back. The bank never gave anything up. So while yes, they don't get money for free, they still aren't 'losing' anything.
If banks are not loaning money, then they are creating it. And if they 're creating it then there is no risk. The only risk would be inflation, but that gets spread out to every dollar in America and just devalues the currency. The bank stays protected.
Correct me if you think I'm wrong.
Yes, exactly what I thought. Additionally, if banks "just type it in as a liability without actually giving anything up", there would be no need for the bank to deposit money for their costumers and pay them interests, if this money isnt needed to give out loans.
There needs to be something more to it.
Firstly, the bank can't make money entirely out of thin air, in needs to be based on a deposit. The bank can then loan part of the deposit out as part of the fractional banking system. If the depositor wants their money back, the bank needs to be able to provide it.
The bank takes the risk that the individual defaults on the loan. If there's default, the bank will need to cover up the depositor's principle from other money.
I think you should consider deleting "not what the textbooks tell you." from the title. I think it makes the video sound less reliable.. But it is valuable information, and thank you for that.
oops for the university grads who have degrees that are based on mis-instruction eh! I would be suing my university for my fees back. As a lawyer I'd be happy to take your case :)
The £10 note is an IOU, "I promise to pay the bearer on demand the sum of 10 pounds".
Ha Ha .... Yes, and the new £5 note will say " I have nothing to offer......" !!
Bet they had a laugh when they thought to use a Churchill quote.....
I think if the bank had already loaned out 90% of deposits in your example, it could still create a new loan by borrowing the extra needed reserves from another bank - or directly from the central bank if need be. So it's false to say that the bank is only allowed to lend out 90% of (pre-existing) deposits, but correct to say that the bank must maintain a 10% reserve of the deposits it created ("out of thin air").
i am an absolute neophyte in economics, but i have the feeling that the system can not work without inflation and individual bankrupcies. Because the system contains the money of loans but NOT THE MONEY for the INTERESTS !!!!!! And this money can only come from the loan of someone who defaulted. So regularly some people must fall out of the system, don't pay back their loans, which provides money for the others to payback their interests. For exemple : A,B,C,D borrow 3 from BANK. As interests, each must pay back 1. The BANK put 12 in the SYSteme. A,B,C,D need a total of 16 to payback their loan when only 12 exist in the SYS ? Only the default of payback of minimum 1 of the players, can allow such an unfair system to continue. Tell me if i am missing something.
1sanremy thats why new loans need to be created continiously. interest of old loans is payed with new loans. new loans have to be pumped into the economy. this leads to inflation.
thanx for your confirmation
See about 13mins 30sec into this: ua-cam.com/video/pwgWtxPKJzA/v-deo.html
@@mickanomics Thanx for making me loose my time. The sound track is nearly not audible and the explanation that "BANKS SPENDINGS = INTERESTS" is not convincing at all.
During his first term in office Barack Obama said something to the effect that, "The truth is that for every dollar deposited in a bank, it results in up to $10 in loans." This is what he was talking about. Fractional reserve banking.
Cut and paste "Senior economists queue up to dismiss textbook explanations of our monetary system" into google.
Dude, you are an excellent enlightener of economics knowledge.....
dude i dont know about economics but i know in some other subjects textbooks are full of shit. always go to the professional practioners for explanations
how is money destroyed? when you repay the bank, the bank will still set it in circulation by loaning it out or by spending it
I ALSO DON'T SEE HOW IT'S DESTROYED
Awesome
i understood it and i like the banking system so far.
Very interesting video, but I think it would be a very good idea for you to review the subtitles!
You should have included some documents laws
this is inaccurate, because water flows into the bathtub from somewhere, and returns there! ...Same as gold and so on. It doesn't come from nowhere.
+Skywalker Services You are 100% mistaken here. It is a complete fallacy to equate the current system with gold.
As I understand it, inflows are natural resources and labor. If I owe you $10, I can either pay you $10, do some chores that you feel is worth enough to expunge the debt, or give you $10 worth of physical property (oil, gold, steel, etc.). The water tap in the diagram is not "money", it is labor and/or resources.
Nice video. Well done. Happy to support spreading the work.
Simon Dixon
Great. Thanks
It would be nice to add an explanation of why banks' money creation does not automatically "make the banks rich" (or in what way it does), e.g. what happens to banks when loans go bad, why banks today are still reluctant to extend loans despite being awash in reserves, and what distinguishes banks' creation of spendable IOUs out of nothing from "counterfeiting money" (a critique from M. Rothbard & co).
The IOU value is derived from the promissory note being paid as agreed by the issuer or borrower in question. If said person or institution is of low credit duality and defaults the credits issued need to be written off to zero in value.
Good video a nice explanation of the money creation process.