ua-cam.com/video/iiKr-i022mY/v-deo.html ......... The Progressive Growth of the Money Supply Principle (year 2013) tells us the exact quantity of new money the economy needs to works correctly, driving us to the Wicksell interest rate or natural interest. This principle will force central banks to change monetary policy.
1. No sovereign government should ever BORROW money. 2. No one must be allowed to CREATE new money except an independent branch of the government responsible to the people. The absolute worst case scenario is to put this power in the hands of private corporations responsible to their shareholders (as it is now). 3. New money entering the economy must be spent into existence on productive things! Last resort for creating new money is to LEND cash to banks for the banks to then lend out.
The banking system is truly more complex than simply paying for something the same way as we all do. This fascinating discussion should help more people to understand just how the banks pay each other, and make money from their transactions.
This was an EXCEPTIONAL presentation. I didn't fully understand the inter bank settlement and RTGS as the justification for Fractional Reserve Banking. That makes MUCH more sense! Excited for part 4.
I also wanted to know that if giving a loan is a simple as imputing some numbers into an account for a customer then accounting wise what are they debiting to credit the loan account? Where is the double entry? are they debiting an empty account? (Like I said before I would be grateful for any explanation, I want to use your work as a source and want to cover my bases)
Read Richard Werner’s paper ‘Can banks individually create money out of nothing?’. It’s all laid out there. And yes the accounting is that simple: loan assets go up by loan amount and then they create the deposit on the liability side. Balance sheet lengthened and money created.
In our system where currency is issued as debt with interest due, the additional currency needed to repay the principal plus interest must itself be borrowed then repaid with interest due, and so on, and so on. The result by design is all wealth eventually accrues to the issuer. Try Monopoly where the initial $1,500 is borrowed and must be repaid with interest. The bank wins every time. No State shall; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.
It would be much easier if you simply say pretty simple and fascinating truth. Money is money, and interbank liquidity is interbank liquidity. It’s two different “markets”, that should be separated. Once you get there, it’s all just way easier to understand and explain :)
Oh jeez, electronic money is just numbers, yes, and paper money is just paper. It is still a medium of exchange weather it is seashells, paper or ones and zeroes.
But when we had the gold standard there was only so much gold so it would hold value. Yes money is just numbers but creating money on computers makes it go down in value while your wages don't go up to match it. Take that to the extreme and your money becomes worthless - that's the point. it's one big empty promise which could collapse. Where as Gold which money used to be measured against will never be worth nothing as a finite, limited number, cannot be man made asset. To put it another way, if money grew on trees, it would be worth the same as leaves.
Money is not only the medium of exchange. It is also store and measure of value. Inflation caused by monetary expansion distorts short-run measurements and long-run storaging.
Impressive how major C.H. Douglas deductions on how banks operate were this accurate almost 100 years ago, the man was a Tesla of his time for economics, really worth it researching his ideas
At 5.50, only partly. It also depends on the demand for credit from businesses and consumers. The reasons QE has not resulted in a lot of inflation or money creation post GFC has been mainly that there has been limited demand for credit, not a lack of supply/willingness of banks to lend.
i guess that explains why surveys are held regarding the confidence of the countrys population in the general economy. is there a relationship between the confidence of the population and the amount of money the banks will tend to lend?
Where is the deflation in the numbers? Household debt is back to record levels, the S&P is trading rich and housing bubbles are afoot in many world economies. China is trading 9 trillion in WMPs and US housing prices are higher than ever. There is no deflation and there was no deleveraging according to the Fed Z.1. How is it deflationary to bail out banks and massive government spending? Japan has barely even had deflation.
Ive come up with the idea the to explain fractional reserve banking you don't start with someone making a deposit, rather you start with a new bank with 0 deposits and some capital, using the capital of the owner then the bank can immediately begin to lend money, plus the interest they charge the bank will increase its capital, deposits are just a collateral due to the safekeeping service and transfers that everyone needs that off course allows them to have cheap money necessary only if people default or delay in payments
So it looks to me as if we are creating money from our own signature on a piece of paper known as a contract. We give this " asset " to the bank who then monetise it and in return type some numbers in a computer and pay this money back to us, in the form of a few numbers typed into a computer but claim they just lent something which is actualy our own money back to us? We then go out and spend our own money but eventually give all of it to an organisation called " a Bank " On top of that we pay for this service??? That sir is Fraud or have I misunderstood something about this process?
This is somewhat true, for people who are denying this. This is why in Economics there is M0/M1 money supply or an M4 money supply. M4 money supply includes money created by banks by issuing loans. This is usually 5-6 times the amount of M0 or M1 money.
Ps also there is a difference between "demand" in the economy and money. The extension of credit by banks boosts aggregate demand, but does not add to the money stock in net terms, as the loan needs to be funded by a depositor, which is a sort or "anti money" that contras the credit creation. If depositors ask for their money back, the bank needs to call in loans to repay depositors, and the multipier goes into reverse.
Money supply "isn't determined by reserve ratio but by the confidence of banks". I'd be willing to be the more liquidity on their ledger the more "confident" they are, preserving the correlation. "Legally speaking the money in your account isn't really money at all". And what law is that you're referring to?
Law of common sense. There are many cases of peoples balancea displaying trillions of dollars by mistake, and when banks fix that mistake, it's not theft, as the balance number is not money, it only turns to money when you cash it out or transfer to another bank
What I don't get is... those 10.000 pounds, you say they're just being created but, aren't they just part of the central bank reserves of the Barclays account? Aka money that the central bank owes Barclays?
Hello,I have a question : I don't understand when you state that they hasn't been a reserve ratio for years? Do you have evidence for this? (I am doing a paper on the relevancy of banks today and this is a genuine question, I want to understand)
You may find prof. Werner research interesting also some UA-cam channels like money and macro(which I don't fully trust) explain why reserve ratio doesn't limit credit creation (rendering fractional reserve theory outdated). To my understanding as long as the lenders are somewhat creditworthy the bank will create the loan, the smokescreen is that we don't really know how much money is created by the bank and how much belongs to savers or deposits.
Banks are limited by their capital - they need to have enough capital or reserves to settle interbank payments each day otherwise they need to borrow reserves from other banks or the CB. They’re also limited in how much they create based on how many credit worthy borrowers come in. They don’t just create money out of nothing as that nothing or deposit is connected to a loan, expected reserve balances, and fulfillment of capital requirement. Money multiplier isn’t real post-gold either.
This is an excellent video which clearly explains the exact process on which our entire economy depends. Positive Money and New Economics Foundation are the ONLY organisations to have actually researched every single legal document in the UK to establish the facts in these videos - they are totally and completely irrefutable. There is however one minor typo I should point out to the editors - at 09:07: the phrase "commercial bank money" - commercial is spelt wrong. That aside, fantastic video.
Power has always been concentrated in th few in any large society, I think it's better in the hands of hard working bankers than in corrupt politicians or in the past Nobility.
You want the governments and our money in the hands of bankers? They don't have our interest in their minds. At least governments need to get our vote so sure it they'll spend the money more in our interest?
If you went default, the bank would lose money. When you create a bank acc and give some deposits, bank creates virtual money that appears on your account. So your real money will go somewhere by a loan from someone, and your virtual money will go another way while you use it. So there are 2 different ways of money, but in the end, virtual must meet real money and be destroyed into thin air, since you withdraw your money from your bank (your cash get back in your hand, and your number on your acc turn 0). But remember someone that lent your money? If they went default, you wouldnt get back your money, but it s not your business, thats the banks fault, they must pay it back for you aka losing thier own money. In conclusion, bank will lose money when someone go default.
Banks don't lend money they just created out of thin air, they lend money they get from customer deposits. That's why they care if you default on the loan, because then they can't give their customers their money when they decide to withdraw from their checking accounts. This video is complete b.s.
That is simply wrong. I'm to lazy to explain someone a fractional reserve system. Just look another video here and even if you go to universities you will learn that the fractional reserver system makes it possible to lend much mor thane really is available.
Why does the government accept anything other than its own money as taxes? Why isn't that distinction drawn? That's the distinction between a stock or a contract and a dollar bill, one can pay taxes, another can't.
Yes, the total amount of money can keep expanding without limit when there is no reserve ratio. But that's exactly what the money multiplier model says: if the reserve ratio is zero, the multiplier is infinite. So... how does all this contradict the money multiplier model?
mikedd56 It's not trying to make it seem like we should all be so alarmed because it's done electronically, it's saying we should be alarmed because A) This is how the system actually works and this is not taught in universities and B) That the BANKS have the majority of the control over the flow of money in the system and NOT the government. Electronic banking is fantastic, but the point is that banks utilise this to create non exsistent money that unsettles the economy.
So the point of the video is that banks can basically loan as much as they would like provided the net sum of payouts to other bannks do not exceed the total central bank reserves. But how do the banks get their central bank reserves and cash in the first place? That is not explained in the video.
They have to give high quality assets to the central bank in exchange for central bank money. So that's why you can't say that money is created out of thin air. Positive Money omits this point in order to manipulate people.
Technically not true because your assets have to equal Liabilities + Stockholders equity. We bankers can't just create money out of the air. We move assets from the Cash line into the Loans to customers line in a journal entry. So yea, it is not a specific persons money, but it does come out of the same pot.
What about the value of the assets they call collateral? These can always be seized by force. So the banker's special relationship with military and police constitutes the true base of the money.
Creation of unlimited money gives them control of politicians. Control of politicians gives them control of financial laws and control of judges. Here in the USA, judges are required to authorize repossession of houses and property. After the judge signs-off, the cops come in...
@@widehotep9257 In the old empire model countries who owe us would be happy if we go under. And invaders are incentivized to raid our treasury. In our new empire of debt, with debt based money, the countries we owe want us to stay around to pay interest on the debt. And now invaders raid Ft. Knox to find only IOUs.
@@wresing I like your analogies to invaders and raiders! But I don't think we are talking about enemy countries. These are businessmen running the most profitable scam in the world. They wear nice suits with American Flag lapel pins, and their companies run friendly-looking commercials on TV.
Hi Positive Money team, This is a great video but I have a question if you don't mind - 12:25 we talk about Barclays, in order to confirm the transfer of owing $10k to Lloyds, places funds into the reserve account operating under the BOE. Does this mean that these banks have so called "proxy" reserve accounts held by the BOE in order to confirm transactions during the day? I mean, does LLoyds have access to Barclays reserve account details at BOE to show that they have in fact paid the $10k owing? Therefore, Lloyds are comfortable with this and can wait for X days to have the transfer to the Lloyds bank eventually? Am I understanding this correctly?
What about the interest that the bank gets for lending money, where and how is that put on the balance sheet? In the example I see 10.000 on the asset and 10.000 on the liability side, what about the interest/profit?
Walter, I was intrigued by your comment so I did some research on bank accounting. I'll use Bank of America's 2004 10-K filing as an example: www.sec.gov/Archives/edgar/data/70858/000119312505039878/d10k.htm#tx44593_3 When a loan is created by the bank, this video explains how the amount of the loan is added as an asset to the balance sheet, and the amount in the depositor's account is added as a liability to the balance sheet. You can see these line items for BoA as "Loans" under assets and "Deposits" under liabilities. When a bank receives interest income during repayment of the loan, the interest income is recorded as revenue, an asset, and a corresponding increase in retained earnings is recorded, part of the shareholder's equity. For BoA, the income is likely placed into the Cash account and the Retained earnings account on their balance sheet. An accounting explanation can also be found here which helped me understand it: www.accountingcoach.com/blog/revenue-balance-sheet
This is Bill Still's argument (Secret of Oz) which has merit. Progressives should consider monetary reform more closely. Many of these MR initiatives (including Positive Money) have a distinct conservative view of government.... which is fine, but a progressive view is really what's necessary IMO
Maybe you guys should set up reserve ratios then, wouldn't that help contain the cash being created. In fact, more control over the growth of money would occur even if banks create and lend first without obtaining any real cash because they still have to fulfill their ratios eventually.
The Bank of England and the treasury are nationally owned, by the people. They have the power to create money and in fact do create a small portion of the total money supply in the form of physical cash and coin (less than 3%). They could create all the money they need to fund the government and yet they borrow money at interest from the banksters, and THAT is the real tragedy here.
+D eez The current economic system is run by debt. The money that is paid to creditors is often in the form of government bonds which simply guarantees that the government will pay the debt in the future. The profit that the creditors get is acquired through debt payments. Countries which can't pay (or refuse to pay) their debts are referred to as going bankrupt, or defaulting on their debt (sovereign default). For individuals, debts are paid through your labour (or by giving away your wealth: land, car, or anything that is of value to your creditor). All you have to do is to pay your creditor upfront or to make arrangements on making small regular payments to them (the mortgage plus interest) on the loan that you took. Obviously, individuals go bankrupt once they can no longer (or refuse to) pay their debt.
ScholarGnome I don't think you understand my question. Where does the money, that has been created by ???(Private business?)???, that is to be paid towards the Interest charges, on top of any money that is created, come from? or Is money, to be paid back to cover the interest, created? Or is INTEREST the trick to enslave people, & keep people working, and working, because money to cover the interest is not being created, and more and more work is required to pay off interest + principal.? What a shit show this all is. These huge debts that exist will never be able to be paid off.
D eez You answered your own question. Remember that wealth is different from income (but income also creates wealth). Now, individuals typically pay their debts through income. If you buy a house, you most likely loan it from a bank. That bank does not have that amount of money to begin with. It operates because you believe that the financial system is legitimate and that you are afraid to go to jail (this is the fiat system). Hence you make your debt payments on time. There are better videos about this, but money (in the current economic system) is created literally out of nothing. That "creation" is the job of the banks (they lend money to individuals who need them). The job of the central bank (Federal Reserve in the US) is to control the interest rate upon which bank loans appreciate or depreciate in value. They control the money supply (by increasing the interest rate, making people more reluctant to loan; or by decreasing it, making people more likely to loan). In a nutshell, the more new money that is "created", the more it devalues the currency in circulation (this is called inflation). The only way this is countered is either by decreasing the money supply or by making the economy more productive (through more debt). The gist of it is that since people are not being paid enough, or that their wages haven't kept up with inflation (the rate at which their money's worth is depreciating). This means that they would have to work harder and longer to pay off their debts which originally took less time and less efforts in the past. This is the reason why most debts, mortgages, etc. are never going to be paid off simply because of this unfair system.
Income inequality comes into play here since the wealthy can basically create money out of money, through speculative investments, etc. The system itself is rigged. They tell you to simply work your ass off, that the reason you're suffering is because you're lazy, etc. That is simply blaming the victim. Common individuals are the victims here. Note that income hasn't really grown since the 1980s for most of us. This means that most of the economic growth (driven by consumption and debt) are being given to those who controls the banking sectors and to those who make money out of somebody else's labour. This is also the reason why taxation of consumption and wealth is imperative since it is, in a way, a re-distributive system. It is fair to the extent that it gives services to everyone in society which would have otherwise been impossible to obtain. Sure, some people would say that taxation is always bad, but they neglect the fact that the reason taxation is bad today is because (on top of the loan payments you make on your house) you are also have to pay property taxes. This is under the presumption that you are wealthy in the first place. Taxation today is stupid and this is something that needs to be changed.
que impide que en una corrida bancaria el banco solo imprima de la nada dinero para saldar sus deudas y en el caso de balance entre bancos ,la misma situacion si un banco le debe a otro solo tiene que imprimir mas dinero..ya por ultimo no es fraccional por que guarde una fraccion de lo depositado es fraccional por que usan un coeficiente para que la masa monetaria no crezca hasta el infinito
What money IS, or what is might be? This video is not incorrect. I am not sold on the Positive Money plan for the UK, but that is not what this video says. Don't assume too much. I'm very aware of alternative views in this area. To say that money currently isn't debt is to deny the facts... unless you have a real rebuttal?
Not really "the mood of bankers", it is self-regulated as any industry. If we lend too much, people can't repay and we bakers loose money (returns), if we lend too little we do not have enough returns. So all the bankers are trying to find a sweet spot :)
Please explain where central bank reserves come from? If I'm a new high street bank that just opened up, please help visualise my central bank account?
If you want to create a bank, you have to pony up the dough up front. Think $100,000 (buys a share of the central bank?). Have to be certified in accounting or something, and have filled out 500 conflicting documents. Worth it though.
Regarding the statement around 5:10, doesn't the multiplier only determine the outer boundary of how much money can be created in the economy? Just because the central bank expands with its reserves doesn't mean banks must lend more.
Can someone with some actual knowledge on the subject answer this question for me? We are told that the reason the government cannot print its way out of debt is because it would cause runaway inflation. My question is - who regulates this? Meaning, if they were to print billions, who would know when the population is so large that the average person would not even know that the government doubled or tripled its printing output? I can imagine a small town where they trade with gold and someone (such as Mansa Musa) comes through and spends so much gold that the average person sees an increase in gold in his town and everyone has more spending power then the value of gold goes down. But on a global scale (or at least in the US or UK), who would even notice? Thank you to anyone who can explain this to me.
Well in the end the central banks can print whatever they like. But or should one write BUT, our current money is just an IOY and that means you never can print yourself out of debts. Because all our fiat-money are just debts. So you the central bank does print more money it just generates even more debts. The only way out is abolishing the fiat-money and use "real" money. Or notes on real money this has worked for ages, and you can see easily since the abolishment of money, the instability of the financial system has grown exponentiallly And exponential growth is doomed to fail, And that's our problem these days. Just imagine the USA needs around 25 - 30 % new debts every year for the current budget. And how dangerous exponential growth is to see easily. Fact: Under Obama in this 8 years the US doubled there debts, The US is nearing 20 trillions of debts. Just imagine a interest rate of just 5% and they would have to pay 1 trillion of interest every year. Compare that with the budget and you get an idea on how deep the trouble really is.
Because you don't know what it will be. Depending on the contract there may be cancellation fees, he could repay it faster or later than scheduled, etc.
Agreed. There are 2 crimes the banks commit. 1) The local bank steals the principal an * alleged borrower * creates before the book entry, pretending, then, to loan principal only as if it was the banks principal to loan out in the beginning. 2) As a result the bank, then, steals a further sum of principal by charged interest on what is a * falsified debt * only as if the bank gave up or risked consideration of its own commensurable or equal to the *alleged loan* or debt it falsifies to itself
Well, I went to his website and I will return there for study, but at first glace I found this: "Social Security" could be (desirably) eliminated by making savings mandatory ..." Privatization of pensions and other social welfare objectives is not in my interest, nor in the interest of the general population. Still, I will look past that issue for more substantial ideas.
3:43: Awesome video, but one error in a detail at 3:43 : The base money is not created by the government but by the central bank. And the central bank is NOT an entity of the government, but independent (at least officially/legally)!! More precisely, both the private banks' electronic bank deposites at the central bank as well as the cash generation is controlled by the central bank. The coin (royal mint) is maybe indeed created by the government for historical reasons, but that is a neglibible fraction of the overall base money.
There are two sides to every loan created by a banker. The lender and the borrower. To say imply that it's only the banker that is controlling the amount of newly created loans is a bit misleading. The banker needs a borrower.
+petethedrummer The problem is, they have no borrower, hence no reserve ratio. They're the cash borrower. They type the money into your account as "bank deposits". I see it as being a huge cash loan, ensuring there's too much cash in the economy, and too few ways to earn to repay the cash to the bank. The austerity trap.
Excellent! I'm one of the many that have just begun to realize what a sham this whole banking system is, after sitting comfortably for 30 years of adult life my main frustration is, why wasn't I told about this earlier!
@@artjomaltenhof9691 The credit emitted by banks doesn't come from economic savings. They lend credit and encourage investment, but that investment isn't backed up by a proportional increase in consumer spending, thus creating an imbalance between investors and consumers and ultimately creating bubbles that convert our economy into a endless cycle of inflations and recessions. It is just momentary wealth until the system collapses, again and again...
Well no, the bank of england could have much control if there would not be the fractional reserve system. And there would be even more control if the bank accoutns would not be just a credit to the bank and if if would be a treated as a criminal undertaking if hte bank lends money from the accont holders without asking. So state, central banks and banks in that form and with that support for each other are the problem.
Sovereign government does in effect not borrow money! Please take that in. Take your time, really. Compromising your freedom and independence makes you unworthy of it. Please take your time to take that in also.
the money that the bank types in Robert account when he makes a loan could not possible be just numbers,. because Robert might spend that money and the bank should send the money to other banks. And it cannot send money that don't exist. This is miss - information. The money are already in the system. There is a limit to how much money the banks loan to people and is determined by deposits and banks equity.
You can easily check that your wrong. Of course there are only numbers in computers, you can even find out how much legal tender money is issued by the central banks, just look into their balance sheets. If the central banks wants more bank notes, he just prints them and the can add as many zeroes as they like The trillion dollar note is in no way a limit, the highest nominal value on any legal tendern note was around: 100.000.000.000.000 Mark, Hundert Billionen Mark, 15.2.1924 And another thing one should not. A central bank can not go bankrupt. It's completly impossible. They can issue notes in whatever height and they can "survive" with no capital at all. The whole central banking system is just on giant crime.
@@FDominicus there is a limit to the central bank reserve, checked by media, public entities (congress, etc), and ratings companies (eg Moody's). If rating goes down, the investors run to convert USD or GBP to another currency. Self-regulates. This didn't really exist in post ww1 Germany, and moodys downgraded Zimbabwe greatly. Zimbabwe not even listed anymore. Lowest rating I could find was CCC. Switzerland is Aaa.
bounds. when people buy bonds there is no reserve. so now that investors are scared the banks has more control because people more money into banks and buy less bonds and paid down debt.
If central bank reserves are created by the Bank of England, how come they are used by commercial banks to make payments to each other? Who do they belong to? I'm in the dark.
This video somehow costantly makes you think that electronic money are somehow worse than physical money. But they are not :D. "It is easy in computer to create billions" well Mint can just make one coin and write it worth 100Billion as easy. There is no difference. Money in current economy are not covered by any physical thing, electronic or "paper"
Surely the Interest Rate set by the Bank of England is the fundamental influencing factor in the "mood of the banks", therefore the Commercial banks are not in control of the money in the economy in the way described in this video? Maybe I've missed something, but this article seems to backup my assertion : www.bankofengland.co.uk/monetarypolicy/Pages/how.aspx
It's not actually that simple. The amount of money multiplier is determined not by bankers mood, but by investor mood. Banks create a lot of loans, but they need cash to settle with other banks. So they package these loans into bundles and sell them or switch for cash in REPO. But, if investors don't want to buy these loans or won't switch them for cash in REPO, then banks can't issue new loans, as they will run out of reserves and go bust
Its investors and speculatirs that create demand for treasury bills...it backs their leveraged trades ..say in the case of international commdity markets 20:1 But treasruy bills are used to swap the credit inflation tempirarily off the books of banks who ecchange deposits for treasury bills..this facilitates govt spending andnredistribution of credot inflation across space and time.. Say london deposits are exchanged for treasury bills..and govt can spend in say liverpool or govt projects .. The govt also controls its inflation after borrowing to spend ..by collecting taxes to zero out the money it spent.. The banks with the treasury bills can lend it to hedge funds or uae it thenselves to play the commodity , eurodollar and stock market ...this is why it is cheaper for a chinese company making lead batteries to buy from a london supplier on the london exchange than on the chinese exchange.. Western countires especially US and UK have rhese mchanisms to temporaritly export credit inflation ..from domestic shores ..and ensures third world commodity supply ..
Strange logic here. When paying your rent you use your electronic bank account. There you have "CENTRAL BANK RESERVES" a kind of electronic cash. But to have CENTRAL BANK RESERVES you need to be a bank and have an account at the Bank Of England. So in this case you MUST be a bank with an account at the BoE in order to pay your rent. CHECK THIS IN THE FIRST 2 (TWO) MINUTES OF THE EXPLANATION !!! At 0:45 your electronic money is "CENTRAL BANK RESERVES" and at 2:12 the same money in your electronic bank account is... "DEPOSITS". At 02:50 "cash is created by the government" WRONG !!! The government sponsors the bankers by printing notes certifying the agreement called "money". Pfff I 'm done here, got to stop. Too much Bravo Sierra. The producer of this non-sense needs a thorough re-schooling on money.
lastugro how can be only 13% of world money made by papers and coins i thought that to exsist some money electronicly in one account shoulld exsist fisicly also, hahaha hope you understood :P
I understand why you do not understand.You think money has a material nature. Money is an agreement, nothing more. The papernotes or the coins are a CONFIRMATION of money (agreement). The are NOT money itself. The electronic confirmation is for "electronic" money. Got it?
+ShadowLegendxxx The banks will have to give the money in the form of paper or coins to the people asking for it and having the right to ask for. If there will be not enough... they might have to print more, design notes with higher denominations (the $ 1,000,000 bill or the $ 1,000,000,000 bill?) or just cut checks out of the goodol' checkbook.
+ShadowLegendxxx if everyone asked to take their money out of the bank at the same time ( in the form of real paper money) this would be known as a run on the bank. There is not enough money in existance for everyone to get paid. There is only a small percentage available because the same money is re-lent over and over again electronically. The answer to your question is that there would be global economic collapse. The money does not actually exist. Banks create it out of thin air when a loan is created and charge you money for borrowing something they created out of nothing. They then use the money that you got from the loan and put into your account to loan to someone else. This happens over and over and the imaginary money bubble gets bigger and bigger. Until it bursts.
Yeah money is created like that so what...? money is just a social contract money it self is nothing by virtual agreement, we use fiat money because we wont be barting around trading producst and services for another products or services... so if you work as clown for kids party will you go to the supermarket and made a little show to the cashier to pay for the grocery?
You are wrong, We use fiat money because we are forced to. What would be your problem if we simply would use silver or gold as men did for tens of thousands of years? An no it has absolutly nothing to do with bartering. Gold and silver have been money and will be mone even if all he fiat-money will be gone. The only thing that will change that is if we'll be able to cheaply generate gold of silver as we like. But this is yet not possible But it's absolutly easy for any central bank to issue a note with as many zeroes as they like
hold on, so there's no reserve ratio? I'm pretty sure there is. My lecturer told me that before the financial crisis UK banks had a reserve ratio of 2%
It may be, but you certainly don't have a monopoly on the truth here "buddy". Too bad too, since I would consider what you actually have to say sans the attitude. I am leery of zealotry and extremism in general. "Usury" was outlawed by the Catholic church for a thousand years, so I don't think that issue alone is the real problem. I do understand that P =/= P + I, but actual solutions should be presented.. and actual criticisms should be made here, not simply chest beating and flag waiving
I would start with the function of an Oblate Spheroid... which describes the turd that is MPE. And that really IS the issue I have with it... the function of currency. Premise #1 of your "perfect plan" is just stupid. Citizenship is voluntary. The function of money is what? That's where you fail.
Few comments. Minute 4.55 - Why banks start panic? Panic isn't good. Banks always should be 100% stable. Minute 6.55 - Why Robert have to pay interest rate? This isn't good.(This is major mistake in system). My proposition is - cancel intrest rate for any kind of credit. That simplyfy the system. Banks don't have to earn money this way, becouse they can create almost unlimited amount digital money. Just manipulating in databases.(Add zero on account in decimal, or in low level in hexadecimal change values of bytes from 00000000 to FFFFFFFF.) Bank as a company should have account in own banking system to create money to pay wages for his own employee and maintain. Bank in this system never can be bankrupt. Do you understand? Greetz for All and peace on the world.
Sylwester Bogusiak What is the consequence to the economy if instead of earning money on loans, the banking system merely creates new money to fund itself? Do you believe this has no consequence?
No... no merely, because that ruin ours economy. Banks create brand new money when they make loan. Yes? So... they could create 5% more money to fund itself when they make loan. Bank still will be earning money when is giving a loan but little bit different way. When customer ask for credit 1000 euro - bank create 5% more - 1050 euro to give 1000 euro to customer and 50 euro to pay wages for his own workers and bills. Simple change and customers and banks should be more happy, because no more usury. That should protect also banks from bankrupcy. In opposite to PM I would like to give more power to commercial banks for mini loans. English saying "it's in the bag" should be "it's in the bank". But of course I agree idea of Sovereign electronic money and this new comitee. We need transform Our monetary system and we must do it painlessly. Our world could be better if we have no money at all. Look at the Venus Project www.thevenusproject.com/en/ Sorry - english is my second language.
Sylwester Bogusiak How does lending ruin the economy? Banks do not create new money when they make loans, no more when you lend money to me, you create new money. You need to understand the mechanics of lending and saving as you have conceptual errors. Again, why is simply creating a loan for 1050, but only giving 1000 in money any different from making a loan with an interest rate that makes repayment 1050? No matter which way you establish the loan, the borrower needs to repay 1050. All you have done is what is called "front loaded" the loan, that is, the bank gets it interest all up front, instead of distributed throughout the loan term. It does not prevent banks from going bankrupt as the borrower still needs to repay. Your answer to your make believe problem does not solve anything. As long as you wish to maintain a monopoly on money creation, you will continue as you do today suffer the defects of monopolies - ever increasing costs of the good with ever decreasing quality of the good. Just because it is money does not mean the defects of monopolies magically disappear. Venus project is nonsense. It is a bunch of economic idiots trying to marry a Peter Pan story to the fantasy of Star Trek.
You're using the word "money" really loosely here. Once you properly define "money", you discover that banks do not create "money" out of thin air.. When a customer deposits $100 and the bank lends $90 out of that, you don't magically have $190 in total "money", you still just have $100. It doesn't matter that the first customer thinks he has $100 in his account, in reality he only has $10 left in there, and cannot spend the entire $100 until the second customer pays back his loan. The total amount of "money" in the economy is not dependent on what number shows up in your checking account when you log in online, that's just how much the bank owes you. Total "money" in the economy is what there's actually there to spend, in this case, $100 the entire time.
***** Because of the reasons I stated in my original comment. He only addresses this issue in one of his last videos, and uses a horrendous logical fallacy to do so. The argument I posted above can be summarized as "Banks do not create money. Banks create credit". His response to it can be summarized as "Bank credit is backed by governments. Money is backed by governments. Bank credit is money.". You can literally find people on UA-cam comments making jokes with that same logical form. For example: "Angela Merkel speaks German. Adolf Hitler spoke German. Angela Merkel is Adolf Hitler.". Yep, completely ridiculous, but that's actually the type of argument he responded with.
first of all your comment is full of shit. the $100 that exists in the economy is the total money but IT ABSOLUTELY IS NOT the total purchasing power. It can be used INDEFINETLY many times to purchase goods - as long as it keeps circulating, and is destroyed only when the loan is repayed. This goes for the "bank created" segment of the money supply
Probably the most important 20 mins on youtube. No wonder it has so few views.
Exactly. The golden ones are the ones with real wisdom have low views.
One of the best videos I ever saw on UA-cam.
+Arun Joshi
I totally agree with you. Most useful video ever.
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ua-cam.com/video/iiKr-i022mY/v-deo.html ......... The Progressive Growth of the Money Supply Principle (year 2013) tells us the exact quantity of new money the economy needs to works correctly, driving us to the Wicksell interest rate or natural interest. This principle will force central banks to change monetary policy.
1. No sovereign government should ever BORROW money.
2. No one must be allowed to CREATE new money except an independent branch of the government responsible to the people. The absolute worst case scenario is to put this power in the hands of private corporations responsible to their shareholders (as it is now).
3. New money entering the economy must be spent into existence on productive things! Last resort for creating new money is to LEND cash to banks for the banks to then lend out.
The banking system is truly more complex than simply paying for something the same way as we all do. This fascinating discussion should help more people to understand just how the banks pay each other, and make money from their transactions.
Cryptocurrency isn't debt.
This was an EXCEPTIONAL presentation.
I didn't fully understand the inter bank settlement and RTGS as the justification for Fractional Reserve Banking. That makes MUCH more sense!
Excited for part 4.
This is so well explained. Thank you for this.
Thank you for debunking fractional reserve banking
6:21
1.) Customer signs loan contract
2.) Bank types numbers into a new account for customers
1.) customer signs a promissory obligation/note
2.) bank copies that note and gives it back to you on their paper
Money creation can be summarized in fourteen words: "ALL MONEY IS CREATED OUT OF THIN AIR WHEN PRIVATELY-OWNED BANKS ISSUE LOANS."
The best documentary about money!! And I have seen a lot! Perfect! Thank you,
I also wanted to know that if giving a loan is a simple as imputing some numbers into an account for a customer then accounting wise what are they debiting to credit the loan account? Where is the double entry? are they debiting an empty account? (Like I said before I would be grateful for any explanation, I want to use your work as a source and want to cover my bases)
Read Richard Werner’s paper ‘Can banks individually create money out of nothing?’. It’s all laid out there. And yes the accounting is that simple: loan assets go up by loan amount and then they create the deposit on the liability side. Balance sheet lengthened and money created.
A clear and concise explanation of the money-go-round. Thanks.
A must watch video
Thank you ....fantastic explanation of an inherently complicated system . Most are oblivious ...As I was too
In our system where currency is issued as debt with interest due, the additional currency needed to repay the principal plus interest must itself be borrowed then repaid with interest due, and so on, and so on. The result by design is all wealth eventually accrues to the issuer.
Try Monopoly where the initial $1,500 is borrowed and must be repaid with interest. The bank wins every time.
No State shall; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.
Professor Richard Werner has being telling exactly about all these subjects since 1990s. Just see his videos.
... And people still don't get it
Your information has helped me so much! I enjoy these videos.
It would be much easier if you simply say pretty simple and fascinating truth. Money is money, and interbank liquidity is interbank liquidity. It’s two different “markets”, that should be separated. Once you get there, it’s all just way easier to understand and explain :)
Oh jeez, electronic money is just numbers, yes, and paper money is just paper. It is still a medium of exchange weather it is seashells, paper or ones and zeroes.
But when we had the gold standard there was only so much gold so it would hold value. Yes money is just numbers but creating money on computers makes it go down in value while your wages don't go up to match it. Take that to the extreme and your money becomes worthless - that's the point. it's one big empty promise which could collapse. Where as Gold which money used to be measured against will never be worth nothing as a finite, limited number, cannot be man made asset. To put it another way, if money grew on trees, it would be worth the same as leaves.
It's bad 'weather' !!
There could have been good 'whether' !! :-)
Money is not only the medium of exchange. It is also store and measure of value. Inflation caused by monetary expansion distorts short-run measurements and long-run storaging.
No problem if banks would not allowed to create money out of thin aur in credit creation process.
In the UK there is no required reserve as stated but most banks do have a reserve.
Such a good explanation of such a difficult to understand concept
Impressive how major C.H. Douglas deductions on how banks operate were this accurate almost 100 years ago, the man was a Tesla of his time for economics, really worth it researching his ideas
At 5.50, only partly. It also depends on the demand for credit from businesses and consumers. The reasons QE has not resulted in a lot of inflation or money creation post GFC has been mainly that there has been limited demand for credit, not a lack of supply/willingness of banks to lend.
i guess that explains why surveys are held regarding the confidence of the countrys population in the general economy. is there a relationship between the confidence of the population and the amount of money the banks will tend to lend?
good point
Where is the deflation in the numbers? Household debt is back to record levels, the S&P is trading rich and housing bubbles are afoot in many world economies. China is trading 9 trillion in WMPs and US housing prices are higher than ever. There is no deflation and there was no deleveraging according to the Fed Z.1. How is it deflationary to bail out banks and massive government spending? Japan has barely even had deflation.
Ive come up with the idea the to explain fractional reserve banking you don't start with someone making a deposit, rather you start with a new bank with 0 deposits and some capital, using the capital of the owner then the bank can immediately begin to lend money, plus the interest they charge the bank will increase its capital, deposits are just a collateral due to the safekeeping service and transfers that everyone needs that off course allows them to have cheap money necessary only if people default or delay in payments
So it looks to me as if we are creating money from our own signature on a piece of paper known as a contract. We give this " asset " to the bank who then monetise it and in return type some numbers in a computer and pay this money back to us, in the form of a few numbers typed into a computer but claim they just lent something which is actualy our own money back to us? We then go out and spend our own money but eventually give all of it to an organisation called " a Bank " On top of that we pay for this service???
That sir is Fraud or have I misunderstood something about this process?
😂🤣 No u didn't miss anything
We should all create our own central banks.
Best videos I have seen on the topic. Thank you.
Thankyou for the video. Amazing content.
Looking forward to part 4.
this is an amazing channel. wow.
This is somewhat true, for people who are denying this. This is why in Economics there is M0/M1 money supply or an M4 money supply. M4 money supply includes money created by banks by issuing loans. This is usually 5-6 times the amount of M0 or M1 money.
Fantastic video.
Ps also there is a difference between "demand" in the economy and money. The extension of credit by banks boosts aggregate demand, but does not add to the money stock in net terms, as the loan needs to be funded by a depositor, which is a sort or "anti money" that contras the credit creation. If depositors ask for their money back, the bank needs to call in loans to repay depositors, and the multipier goes into reverse.
'as the loan needs to be funded by a depositor'
loans create deposits though. well according to MMT and the BOE.
what am i missing here?
15:20 - 15:45
Can anyone explain it more. I did not understand this small part.
Severe Revenge - it's just the difference between all the transactions made in a day for each bank.
Money supply "isn't determined by reserve ratio but by the confidence of banks". I'd be willing to be the more liquidity on their ledger the more "confident" they are, preserving the correlation.
"Legally speaking the money in your account isn't really money at all". And what law is that you're referring to?
Law of common sense. There are many cases of peoples balancea displaying trillions of dollars by mistake, and when banks fix that mistake, it's not theft, as the balance number is not money, it only turns to money when you cash it out or transfer to another bank
What I don't get is... those 10.000 pounds, you say they're just being created but, aren't they just part of the central bank reserves of the Barclays account? Aka money that the central bank owes Barclays?
Is that why balance sheets are not show in the public register of companies? Only balance sheets from companies that are NOT banks are being shown.
Hello,I have a question : I don't understand when you state that they hasn't been a reserve ratio for years? Do you have evidence for this? (I am doing a paper on the relevancy of banks today and this is a genuine question, I want to understand)
In US, it's absolutely 0% from 2020.
You may find prof. Werner research interesting also some UA-cam channels like money and macro(which I don't fully trust) explain why reserve ratio doesn't limit credit creation (rendering fractional reserve theory outdated). To my understanding as long as the lenders are somewhat creditworthy the bank will create the loan, the smokescreen is that we don't really know how much money is created by the bank and how much belongs to savers or deposits.
Banks are limited by their capital - they need to have enough capital or reserves to settle interbank payments each day otherwise they need to borrow reserves from other banks or the CB. They’re also limited in how much they create based on how many credit worthy borrowers come in. They don’t just create money out of nothing as that nothing or deposit is connected to a loan, expected reserve balances, and fulfillment of capital requirement. Money multiplier isn’t real post-gold either.
This is an excellent video which clearly explains the exact process on which our entire economy depends. Positive Money and New Economics Foundation are the ONLY organisations to have actually researched every single legal document in the UK to establish the facts in these videos - they are totally and completely irrefutable.
There is however one minor typo I should point out to the editors - at 09:07: the phrase "commercial bank money" - commercial is spelt wrong. That aside, fantastic video.
Power has always been concentrated in th few in any large society, I think it's better in the hands of hard working bankers than in corrupt politicians or in the past Nobility.
You want the governments and our money in the hands of bankers? They don't have our interest in their minds. At least governments need to get our vote so sure it they'll spend the money more in our interest?
Eye opening. Is this applicable only to the UK?
If banks don't lend you their own money but instead just create it out of nothing then why do they care if you default on the loan?
is that a serious question??
If you went default, the bank would lose money.
When you create a bank acc and give some deposits, bank creates virtual money that appears on your account.
So your real money will go somewhere by a loan from someone, and your virtual money will go another way while you use it.
So there are 2 different ways of money, but in the end, virtual must meet real money and be destroyed into thin air, since you withdraw your money from your bank (your cash get back in your hand, and your number on your acc turn 0).
But remember someone that lent your money? If they went default, you wouldnt get back your money, but it s not your business, thats the banks fault, they must pay it back for you aka losing thier own money.
In conclusion, bank will lose money when someone go default.
Banks don't lend money they just created out of thin air, they lend money they get from customer deposits. That's why they care if you default on the loan, because then they can't give their customers their money when they decide to withdraw from their checking accounts. This video is complete b.s.
That is simply wrong. I'm to lazy to explain someone a fractional reserve system. Just look another video here and even if you go to universities you will learn that the fractional reserver system makes it possible to lend much mor thane really is available.
Now the videos to look for are money as debt. But Marcos probably does not have look into them.
Why does the government accept anything other than its own money as taxes? Why isn't that distinction drawn? That's the distinction between a stock or a contract and a dollar bill, one can pay taxes, another can't.
Its vague to differentiate the electronic reserves and the other electronic money. Its just numbers in computers either way
The "mood swings" of bankers do not really swing. The bankers are always in the same mood. Greed.
Yes, the total amount of money can keep expanding without limit when there is no reserve ratio. But that's exactly what the money multiplier model says: if the reserve ratio is zero, the multiplier is infinite. So... how does all this contradict the money multiplier model?
mikedd56 It's not trying to make it seem like we should all be so alarmed because it's done electronically, it's saying we should be alarmed because A) This is how the system actually works and this is not taught in universities and B) That the BANKS have the majority of the control over the flow of money in the system and NOT the government. Electronic banking is fantastic, but the point is that banks utilise this to create non exsistent money that unsettles the economy.
I cannot speak for all universities but I can speak for mine and it does teach exactly that
So the point of the video is that banks can basically loan as much as they would like provided the net sum of payouts to other bannks do not exceed the total central bank reserves. But how do the banks get their central bank reserves and cash in the first place? That is not explained in the video.
They have to give high quality assets to the central bank in exchange for central bank money. So that's why you can't say that money is created out of thin air. Positive Money omits this point in order to manipulate people.
Technically not true because your assets have to equal Liabilities + Stockholders equity. We bankers can't just create money out of the air. We move assets from the Cash line into the Loans to customers line in a journal entry. So yea, it is not a specific persons money, but it does come out of the same pot.
What about the value of the assets they call collateral? These can always be seized by force. So the banker's special relationship with military and police constitutes the true base of the money.
Creation of unlimited money gives them control of politicians. Control of politicians gives them control of financial laws and control of judges. Here in the USA, judges are required to authorize repossession of houses and property. After the judge signs-off, the cops come in...
@@widehotep9257 In the old empire model countries who owe us would be happy if we go under. And invaders are incentivized to raid our treasury. In our new empire of debt, with debt based money, the countries we owe want us to stay around to pay interest on the debt. And now invaders raid Ft. Knox to find only IOUs.
@@wresing I like your analogies to invaders and raiders! But I don't think we are talking about enemy countries. These are businessmen running the most profitable scam in the world. They wear nice suits with American Flag lapel pins, and their companies run friendly-looking commercials on TV.
The other side is Liabilities and Stockholders equity. A=L+SE
Hi Positive Money team,
This is a great video but I have a question if you don't mind - 12:25 we talk about Barclays, in order to confirm the transfer of owing $10k to Lloyds, places funds into the reserve account operating under the BOE. Does this mean that these banks have so called "proxy" reserve accounts held by the BOE in order to confirm transactions during the day? I mean, does LLoyds have access to Barclays reserve account details at BOE to show that they have in fact paid the $10k owing? Therefore, Lloyds are comfortable with this and can wait for X days to have the transfer to the Lloyds bank eventually? Am I understanding this correctly?
Hurshy Kalsi - they are all separate accounts. Similar to customers accounts at a high street bank.
What about the interest that the bank gets for lending money, where and how is that put on the balance sheet?
In the example I see 10.000 on the asset and 10.000 on the liability side, what about the interest/profit?
Walter, I was intrigued by your comment so I did some research on bank accounting. I'll use Bank of America's 2004 10-K filing as an example: www.sec.gov/Archives/edgar/data/70858/000119312505039878/d10k.htm#tx44593_3
When a loan is created by the bank, this video explains how the amount of the loan is added as an asset to the balance sheet, and the amount in the depositor's account is added as a liability to the balance sheet. You can see these line items for BoA as "Loans" under assets and "Deposits" under liabilities.
When a bank receives interest income during repayment of the loan, the interest income is recorded as revenue, an asset, and a corresponding increase in retained earnings is recorded, part of the shareholder's equity. For BoA, the income is likely placed into the Cash account and the Retained earnings account on their balance sheet.
An accounting explanation can also be found here which helped me understand it: www.accountingcoach.com/blog/revenue-balance-sheet
This is Bill Still's argument (Secret of Oz) which has merit. Progressives should consider monetary reform more closely. Many of these MR initiatives (including Positive Money) have a distinct conservative view of government.... which is fine, but a progressive view is really what's necessary IMO
because the loan contract is considered an asset to the bank it can type money in the persons account... what?
Zlatan Ibrahimovic - where did you think it came from?
rightly said
Maybe you guys should set up reserve ratios then, wouldn't that help contain the cash being created. In fact, more control over the growth of money would occur even if banks create and lend first without obtaining any real cash because they still have to fulfill their ratios eventually.
The Bank of England and the treasury are nationally owned, by the people. They have the power to create money and in fact do create a small portion of the total money supply in the form of physical cash and coin (less than 3%). They could create all the money they need to fund the government and yet they borrow money at interest from the banksters, and THAT is the real tragedy here.
The money of mortgages is transfeerd to the building industry and so enters the real economy.
Where does the money that is to be paid towards interest on the Loan come from?
+D eez The current economic system is run by debt. The money that is paid to creditors is often in the form of government bonds which simply guarantees that the government will pay the debt in the future. The profit that the creditors get is acquired through debt payments. Countries which can't pay (or refuse to pay) their debts are referred to as going bankrupt, or defaulting on their debt (sovereign default).
For individuals, debts are paid through your labour (or by giving away your wealth: land, car, or anything that is of value to your creditor). All you have to do is to pay your creditor upfront or to make arrangements on making small regular payments to them (the mortgage plus interest) on the loan that you took. Obviously, individuals go bankrupt once they can no longer (or refuse to) pay their debt.
ScholarGnome I don't think you understand my question. Where does the money, that has been created by ???(Private business?)???, that is to be paid towards the Interest charges, on top of any money that is created, come from?
or
Is money, to be paid back to cover the interest, created? Or is INTEREST the trick to enslave people, & keep people working, and working, because money to cover the interest is not being created, and more and more work is required to pay off interest + principal.?
What a shit show this all is. These huge debts that exist will never be able to be paid off.
D eez You answered your own question. Remember that wealth is different from income (but income also creates wealth). Now, individuals typically pay their debts through income. If you buy a house, you most likely loan it from a bank. That bank does not have that amount of money to begin with. It operates because you believe that the financial system is legitimate and that you are afraid to go to jail (this is the fiat system). Hence you make your debt payments on time.
There are better videos about this, but money (in the current economic system) is created literally out of nothing. That "creation" is the job of the banks (they lend money to individuals who need them). The job of the central bank (Federal Reserve in the US) is to control the interest rate upon which bank loans appreciate or depreciate in value. They control the money supply (by increasing the interest rate, making people more reluctant to loan; or by decreasing it, making people more likely to loan). In a nutshell, the more new money that is "created", the more it devalues the currency in circulation (this is called inflation). The only way this is countered is either by decreasing the money supply or by making the economy more productive (through more debt).
The gist of it is that since people are not being paid enough, or that their wages haven't kept up with inflation (the rate at which their money's worth is depreciating). This means that they would have to work harder and longer to pay off their debts which originally took less time and less efforts in the past. This is the reason why most debts, mortgages, etc. are never going to be paid off simply because of this unfair system.
Income inequality comes into play here since the wealthy can basically create money out of money, through speculative investments, etc. The system itself is rigged. They tell you to simply work your ass off, that the reason you're suffering is because you're lazy, etc. That is simply blaming the victim. Common individuals are the victims here. Note that income hasn't really grown since the 1980s for most of us. This means that most of the economic growth (driven by consumption and debt) are being given to those who controls the banking sectors and to those who make money out of somebody else's labour.
This is also the reason why taxation of consumption and wealth is imperative since it is, in a way, a re-distributive system. It is fair to the extent that it gives services to everyone in society which would have otherwise been impossible to obtain. Sure, some people would say that taxation is always bad, but they neglect the fact that the reason taxation is bad today is because (on top of the loan payments you make on your house) you are also have to pay property taxes. This is under the presumption that you are wealthy in the first place. Taxation today is stupid and this is something that needs to be changed.
que impide que en una corrida bancaria el banco solo imprima de la nada dinero para saldar sus deudas y en el caso de balance entre bancos ,la misma situacion si un banco le debe a otro solo tiene que imprimir mas dinero..ya por ultimo no es fraccional por que guarde una fraccion de lo depositado es fraccional por que usan un coeficiente para que la masa monetaria no crezca hasta el infinito
could you elaborate when you say 'mood swing'? Isn't it the central bank interest rate that determines this 'mood'?
What about the Bradury Pound .
Why pay roberts bill with central bank reserves Why not just transfer roberts account money from his account?
Thank you, I will check him out.
This is too difficult for me. Let's do particle physics next time.
What money IS, or what is might be? This video is not incorrect. I am not sold on the Positive Money plan for the UK, but that is not what this video says. Don't assume too much. I'm very aware of alternative views in this area. To say that money currently isn't debt is to deny the facts... unless you have a real rebuttal?
Not really "the mood of bankers", it is self-regulated as any industry. If we lend too much, people can't repay and we bakers loose money (returns), if we lend too little we do not have enough returns. So all the bankers are trying to find a sweet spot :)
Please explain where central bank reserves come from? If I'm a new high street bank that just opened up, please help visualise my central bank account?
See www.cnbc.com/id/100497710 . Includes example of bank starting from scratch. US based so includes reserve requirement.
If you want to create a bank, you have to pony up the dough up front. Think $100,000 (buys a share of the central bank?). Have to be certified in accounting or something, and have filled out 500 conflicting documents. Worth it though.
What software did you guys use to make this?
Regarding the statement around 5:10, doesn't the multiplier only determine the outer boundary of how much money can be created in the economy? Just because the central bank expands with its reserves doesn't mean banks must lend more.
Can someone with some actual knowledge on the subject answer this question for me? We are told that the reason the government cannot print its way out of debt is because it would cause runaway inflation. My question is - who regulates this? Meaning, if they were to print billions, who would know when the population is so large that the average person would not even know that the government doubled or tripled its printing output?
I can imagine a small town where they trade with gold and someone (such as Mansa Musa) comes through and spends so much gold that the average person sees an increase in gold in his town and everyone has more spending power then the value of gold goes down. But on a global scale (or at least in the US or UK), who would even notice? Thank you to anyone who can explain this to me.
Well in the end the central banks can print whatever they like. But or should one write BUT, our current money is just an IOY and that means you never can print yourself out of debts. Because all our fiat-money are just debts.
So you the central bank does print more money it just generates even more debts.
The only way out is abolishing the fiat-money and use "real" money. Or notes on real money this has worked for ages, and you can see easily since the abolishment of money, the instability of the financial system has grown exponentiallly And exponential growth is doomed to fail, And that's our problem these days.
Just imagine the USA needs around 25 - 30 % new debts every year for the current budget. And how dangerous exponential growth is to see easily.
Fact: Under Obama in this 8 years the US doubled there debts, The US is nearing 20 trillions of debts. Just imagine a interest rate of just 5% and they would have to pay 1 trillion of interest every year. Compare that with the budget and you get an idea on how deep the trouble really is.
there is something wrong in this explanation! Why havent you shown roberts interests+10000 punds as an asset on the balance sheet?
Because you don't know what it will be. Depending on the contract there may be cancellation fees, he could repay it faster or later than scheduled, etc.
Agreed.
There are 2 crimes the banks commit.
1) The local bank steals the principal an * alleged borrower * creates before the book entry, pretending, then, to loan principal only as if it was the banks principal to loan out in the beginning.
2) As a result the bank, then, steals a further sum of principal by charged interest on what is a * falsified debt * only as if the bank gave up or risked consideration of its own commensurable or equal to the *alleged loan* or debt it falsifies to itself
Not Every Country follows not having a reserve ratio
Well, I went to his website and I will return there for study, but at first glace I found this: "Social Security" could be (desirably) eliminated by making savings mandatory ..." Privatization of pensions and other social welfare objectives is not in my interest, nor in the interest of the general population. Still, I will look past that issue for more substantial ideas.
0:35 that's factually incorrect because some have legit businesses where they follow legal guidelines & They don't Counterfeit
3:43: Awesome video, but one error in a detail at 3:43 : The base money is not created by the government but by the central bank. And the central bank is NOT an entity of the government, but independent (at least officially/legally)!!
More precisely, both the private banks' electronic bank deposites at the central bank as well as the cash generation is controlled by the central bank. The coin (royal mint) is maybe indeed created by the government for historical reasons, but that is a neglibible fraction of the overall base money.
The Bank of england is solely a creation of government. The 1694 BOE Act, to be precise.
There are two sides to every loan created by a banker. The lender and the borrower. To say imply that it's only the banker that is controlling the amount of newly created loans is a bit misleading. The banker needs a borrower.
+petethedrummer The problem is, they have no borrower, hence no reserve ratio. They're the cash borrower. They type the money into your account as "bank deposits". I see it as being a huge cash loan, ensuring there's too much cash in the economy, and too few ways to earn to repay the cash to the bank. The austerity trap.
Excellent! I'm one of the many that have just begun to realize what a sham this whole banking system is, after sitting comfortably for 30 years of adult life my main frustration is, why wasn't I told about this earlier!
Why is it a shame? It works very efficiently and it has brought us plenty of wealth.
@@artjomaltenhof9691 define "we"
@@jackpipe68 We=people in US and Europe and other developed countries. Where do you leave? Are you poor?
@@artjomaltenhof9691 The credit emitted by banks doesn't come from economic savings. They lend credit and encourage investment, but that investment isn't backed up by a proportional increase in consumer spending, thus creating an imbalance between investors and consumers and ultimately creating bubbles that convert our economy into a endless cycle of inflations and recessions.
It is just momentary wealth until the system collapses, again and again...
@@MatrixPermutation If you believe that there is an imbalance, why don't you short the stocks or bonds and get easily rich?
Well no, the bank of england could have much control if there would not be the fractional reserve system.
And there would be even more control if the bank accoutns would not be just a credit to the bank and if if would be a treated as a criminal undertaking if hte bank lends money from the accont holders without asking.
So state, central banks and banks in that form and with that support for each other are the problem.
Yes, it's all just a matter of policy. Aka choice.
Sovereign government does in effect not borrow money! Please take that in. Take your time, really. Compromising your freedom and independence makes you unworthy of it. Please take your time to take that in also.
the money that the bank types in Robert account when he makes a loan could not possible be just numbers,. because Robert might spend that money and the bank should send the money to other banks. And it cannot send money that don't exist. This is miss - information. The money are already in the system. There is a limit to how much money the banks loan to people and is determined by deposits and banks equity.
How do you know this?
You can easily check that your wrong. Of course there are only numbers in computers, you can even find out how much legal tender money is issued by the central banks, just look into their balance sheets.
If the central banks wants more bank notes, he just prints them and the can add as many zeroes as they like The trillion dollar note is in no way a limit, the highest nominal value on any legal tendern note was around:
100.000.000.000.000 Mark, Hundert Billionen Mark, 15.2.1924
And another thing one should not. A central bank can not go bankrupt. It's completly impossible. They can issue notes in whatever height and they can "survive" with no capital at all. The whole central banking system is just on giant crime.
@@FDominicus there is a limit to the central bank reserve, checked by media, public entities (congress, etc), and ratings companies (eg Moody's). If rating goes down, the investors run to convert USD or GBP to another currency. Self-regulates. This didn't really exist in post ww1 Germany, and moodys downgraded Zimbabwe greatly. Zimbabwe not even listed anymore. Lowest rating I could find was CCC. Switzerland is Aaa.
bounds. when people buy bonds there is no reserve. so now that investors are scared the banks has more control because people more money into banks and buy less bonds and paid down debt.
IS THIS STILL RELEVANT TODAY OR HAS IT CHANGED?!!!!!!!!!!
If central bank reserves are created by the Bank of England, how come they are used by commercial banks to make payments to each other? Who do they belong to? I'm in the dark.
This video somehow costantly makes you think that electronic money are somehow worse than physical money. But they are not :D. "It is easy in computer to create billions" well Mint can just make one coin and write it worth 100Billion as easy. There is no difference. Money in current economy are not covered by any physical thing, electronic or "paper"
Surely the Interest Rate set by the Bank of England is the fundamental influencing factor in the "mood of the banks", therefore the Commercial banks are not in control of the money in the economy in the way described in this video? Maybe I've missed something, but this article seems to backup my assertion : www.bankofengland.co.uk/monetarypolicy/Pages/how.aspx
So how do we get our own bank, that would F**& them up, we could buy assets with no money
No, you can't. You'd need a lot of reserves for that
There still is reserve ratios in most countries in the world ranging from 1% to 30%.
In most banks in the US it is still 10%
It's not actually that simple. The amount of money multiplier is determined not by bankers mood, but by investor mood. Banks create a lot of loans, but they need cash to settle with other banks. So they package these loans into bundles and sell them or switch for cash in REPO. But, if investors don't want to buy these loans or won't switch them for cash in REPO, then banks can't issue new loans, as they will run out of reserves and go bust
Its investors and speculatirs that create demand for treasury bills...it backs their leveraged trades ..say in the case of international commdity markets 20:1
But treasruy bills are used to swap the credit inflation tempirarily off the books of banks who ecchange deposits for treasury bills..this facilitates govt spending andnredistribution of credot inflation across space and time..
Say london deposits are exchanged for treasury bills..and govt can spend in say liverpool or govt projects ..
The govt also controls its inflation after borrowing to spend ..by collecting taxes to zero out the money it spent..
The banks with the treasury bills can lend it to hedge funds or uae it thenselves to play the commodity , eurodollar and stock market ...this is why it is cheaper for a chinese company making lead batteries to buy from a london supplier on the london exchange than on the chinese exchange..
Western countires especially US and UK have rhese mchanisms to temporaritly export credit inflation ..from domestic shores ..and ensures third world commodity supply ..
Just imagine if kids were educated about relevant things in the real world.
Strange logic here. When paying your rent you use your electronic bank account. There you have "CENTRAL BANK RESERVES" a kind of electronic cash. But to have CENTRAL BANK RESERVES you need to be a bank and have an account at the Bank Of England. So in this case you MUST be a bank with an account at the BoE in order to pay your rent. CHECK THIS IN THE FIRST 2 (TWO) MINUTES OF THE EXPLANATION !!!
At 0:45 your electronic money is "CENTRAL BANK RESERVES" and at 2:12 the same money in your electronic bank account is... "DEPOSITS".
At 02:50 "cash is created by the government" WRONG !!! The government sponsors the bankers by printing notes certifying the agreement called "money".
Pfff I 'm done here, got to stop. Too much Bravo Sierra. The producer of this non-sense needs a thorough re-schooling on money.
lastugro how can be only 13% of world money made by papers and coins i thought that to exsist some money electronicly in one account shoulld exsist fisicly also, hahaha hope you understood :P
I understand why you do not understand.You think money has a material nature. Money is an agreement, nothing more. The papernotes or the coins are a CONFIRMATION of money (agreement). The are NOT money itself. The electronic confirmation is for "electronic" money. Got it?
lastugro@gmail.com so if 87% of money is on bank acounts what if all world wanted to make all there moneys in bank accounts , into cash?
+ShadowLegendxxx The banks will have to give the money in the form of paper or coins to the people asking for it and having the right to ask for. If there will be not enough... they might have to print more, design notes with higher denominations (the $ 1,000,000 bill or the $ 1,000,000,000 bill?) or just cut checks out of the goodol' checkbook.
+ShadowLegendxxx if everyone asked to take their money out of the bank at the same time ( in the form of real paper money) this would be known as a run on the bank. There is not enough money in existance for everyone to get paid. There is only a small percentage available because the same money is re-lent over and over again electronically. The answer to your question is that there would be global economic collapse. The money does not actually exist. Banks create it out of thin air when a loan is created and charge you money for borrowing something they created out of nothing. They then use the money that you got from the loan and put into your account to loan to someone else. This happens over and over and the imaginary money bubble gets bigger and bigger. Until it bursts.
I think this current system is partly built on top of blind faith and trust. :-P
Yeah money is created like that so what...? money is just a social contract money it self is nothing by virtual agreement, we use fiat money because we wont be barting around trading producst and services for another products or services... so if you work as clown for kids party will you go to the supermarket and made a little show to the cashier to pay for the grocery?
You are wrong, We use fiat money because we are forced to. What would be your problem if we simply would use silver or gold as men did for tens of thousands of years? An no it has absolutly nothing to do with bartering. Gold and silver have been money and will be mone even if all he fiat-money will be gone. The only thing that will change that is if we'll be able to cheaply generate gold of silver as we like. But this is yet not possible But it's absolutly easy for any central bank to issue a note with as many zeroes as they like
hold on, so there's no reserve ratio? I'm pretty sure there is. My lecturer told me that before the financial crisis UK banks had a reserve ratio of 2%
It may be, but you certainly don't have a monopoly on the truth here "buddy". Too bad too, since I would consider what you actually have to say sans the attitude. I am leery of zealotry and extremism in general. "Usury" was outlawed by the Catholic church for a thousand years, so I don't think that issue alone is the real problem. I do understand that P =/= P + I, but actual solutions should be presented.. and actual criticisms should be made here, not simply chest beating and flag waiving
I would start with the function of an Oblate Spheroid... which describes the turd that is MPE. And that really IS the issue I have with it... the function of currency. Premise #1 of your "perfect plan" is just stupid. Citizenship is voluntary. The function of money is what? That's where you fail.
we are all doomed...triple face palm
Few comments.
Minute 4.55 - Why banks start panic? Panic isn't good. Banks always should be 100% stable.
Minute 6.55 - Why Robert have to pay interest rate? This isn't good.(This is major mistake in system). My proposition is - cancel intrest rate for any kind of credit. That simplyfy the system. Banks don't have to earn money this way, becouse they can create almost unlimited amount digital money. Just manipulating in databases.(Add zero on account in decimal, or in low level in hexadecimal change values of bytes from 00000000 to FFFFFFFF.)
Bank as a company should have account in own banking system to create money to pay wages for his own employee and maintain. Bank in this system never can be bankrupt.
Do you understand?
Greetz for All and peace on the world.
That might be ideal but what about profit? If you say banks won't profit the what would be the incentive to keep it going?
Sylwester Bogusiak What is the consequence to the economy if instead of earning money on loans, the banking system merely creates new money to fund itself? Do you believe this has no consequence?
No... no merely, because that ruin ours economy. Banks create brand new money when they make loan. Yes? So... they could create 5% more money to fund itself when they make loan. Bank still will be earning money when is giving a loan but little bit different way. When customer ask for credit 1000 euro - bank create 5% more - 1050 euro to give 1000 euro to customer and 50 euro to pay wages for his own workers and bills. Simple change and customers and banks should be more happy, because no more usury. That should protect also banks from bankrupcy. In opposite to PM I would like to give more power to commercial banks for mini loans. English saying "it's in the bag" should be "it's in the bank". But of course I agree idea of Sovereign electronic money and this new comitee. We need transform Our monetary system and we must do it painlessly.
Our world could be better if we have no money at all. Look at the Venus Project www.thevenusproject.com/en/
Sorry - english is my second language.
And how do you propose new money be put into the system?
Sylwester Bogusiak How does lending ruin the economy?
Banks do not create new money when they make loans, no more when you lend money to me, you create new money. You need to understand the mechanics of lending and saving as you have conceptual errors.
Again, why is simply creating a loan for 1050, but only giving 1000 in money any different from making a loan with an interest rate that makes repayment 1050? No matter which way you establish the loan, the borrower needs to repay 1050. All you have done is what is called "front loaded" the loan, that is, the bank gets it interest all up front, instead of distributed throughout the loan term. It does not prevent banks from going bankrupt as the borrower still needs to repay.
Your answer to your make believe problem does not solve anything. As long as you wish to maintain a monopoly on money creation, you will continue as you do today suffer the defects of monopolies - ever increasing costs of the good with ever decreasing quality of the good. Just because it is money does not mean the defects of monopolies magically disappear.
Venus project is nonsense. It is a bunch of economic idiots trying to marry a Peter Pan story to the fantasy of Star Trek.
You're using the word "money" really loosely here. Once you properly define "money", you discover that banks do not create "money" out of thin air.. When a customer deposits $100 and the bank lends $90 out of that, you don't magically have $190 in total "money", you still just have $100. It doesn't matter that the first customer thinks he has $100 in his account, in reality he only has $10 left in there, and cannot spend the entire $100 until the second customer pays back his loan. The total amount of "money" in the economy is not dependent on what number shows up in your checking account when you log in online, that's just how much the bank owes you. Total "money" in the economy is what there's actually there to spend, in this case, $100 the entire time.
***** I did. And it's more of the same nonsense.
***** Because of the reasons I stated in my original comment. He only addresses this issue in one of his last videos, and uses a horrendous logical fallacy to do so. The argument I posted above can be summarized as "Banks do not create money. Banks create credit". His response to it can be summarized as "Bank credit is backed by governments. Money is backed by governments. Bank credit is money.". You can literally find people on UA-cam comments making jokes with that same logical form. For example: "Angela Merkel speaks German. Adolf Hitler spoke German. Angela Merkel is Adolf Hitler.". Yep, completely ridiculous, but that's actually the type of argument he responded with.
nobody deposits anything. money is created when the loan is issued
Socrates of the rebellion Nope.
first of all your comment is full of shit. the $100 that exists in the economy is the total money but IT ABSOLUTELY IS NOT the total purchasing power. It can be used INDEFINETLY many times to purchase goods - as long as it keeps circulating, and is destroyed only when the loan is repayed. This goes for the "bank created" segment of the money supply