This model or rather an equivalent version of this was taught at my “money and banking course” at university. Professor Richard Werner showed that this model is rejected empirically in all countries he investigated. I was taught so many models based on nonsense postulates at university that I feel I should claim to be reimbursed for most of my M.A. Economics tuition fees.
Dear Tim, Can you make a video about what CFA is all about and the benefits of getting one? (Also, how it impact employment at most major banks, or how long CFA needs to take be completed...) It's a very professional qualification, and I think your video on all things financial really has motivated me to take up CFA. Regards.
Promissory notes added to banks assets- loan created on liability side. The loan liability amount is then classed as a loan to the bank from the debtor as there is no legal concept of a 'deposit'. That is how 97% of currency is created. FR banking along with the 'intermediary' theory does not exist.
Hey Tim, Like your videos, but perhaps you should revisit this one, as it seems that the current monetary theory has moved away from the money multiplier one. It's now said that loans create deposits.
As a beginner's guide it's fine - all my Goldman Sachs and JP Morgan students were happy with it as an introduction. Prof Richard Warner is good but in fairness he's aiming at a different audience.
Yes, this process is wrong. The actual proces is simple, think of bank balance sheet. Granting a loan creates both an asset and a liability for the borrower and the bank. The loan is an asset for the bank and a liability for the borrower and the deposit (created at the same time with that loan) is an asset for the borrower and a liability for the bank. That is, banks create the money that they lend under the promise that It will be repaid back. When this debt is cancelled out the money disapears. This is the legal way of accounting for these transactions. There are also some regulatory requirements that obligue banks to hold a minimum amount of reserves as a proportion of their assets. In the past these reserves constrained the money creation process such that the result was something somehow similar to the process described here. Nevertheless, nowadays almost every Central Bank is commited to supply as many reserves as banks request to accomodate their lending. First banks lend, then they borrow these reserves from other banks or from the CB itself. That is, reserves do not constrain lending. There are plenty of academic papers where this is explained. But the old/unrealistic model is still taught in schools all around the world. Don't be surprised if you find economists explaining wrongly this idea.
@@pabloserrano1706 So as you explain, we see that the situation with FIAT money is even worse, reserves do not matter anymore. Now any amount of money can be created out of nothing. I wonder why if we tout the society that we have freedom and bla bla bla, why just the banks, why cant anybody create credit for anybody? Yeah right, we would end up creating nothing of a value, like we do these days, we only create hyperinflation.
that throughout the years helped us to have and be the society that we are right now. Yes, we are not in the best time of our life but if the loans or banks didn't exist probably we couldn't have this conversation via internet. And as the other guy said, is a risk for both the bank and the lender.
martlayton is correct. All £100 would go to the central reserve and the bank would lend up to £900. Your example is only seen in naive text books, the real world is significantly different in a way which is crucial for a proper explanation of credit creation. See /watch?v=O0wA6SbsHg8 at 9:50 (The reserve requirement for the UK is currently zero, typically its 1% rather than 10%).
Tip? No such thing as debt free money not even in MPE, because the *exchange* or act of redeeming money for property makes money a debt upon any exchange? No exchange no debt period. However money doesn't have to necessarily represent a debt in an exchange, it can likewise represent received entitlement or represent ones own wealth by the act of giving up property or represented value in an exchange. No loans or borrowing in MPE but there is a debt to paydown & rightfully retire the principal.
I like how this guy blithely describes this process with all its official terminologies as if it couldn't be a more natural and valid process. If I sign ten IOUs to loan out the same ten dollars to ten diffent people, I would go to jail. I don't think the arresting officer or judge would be impressed if I tried to explain that I was "generating" credit or that "money is a fluid concept."
It is unfortunately a completely wrong explanation. In the following video Prof Richard Werner director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton; who has held numerous positions in Japan's finance sector institutions as well as working as chief economist at Jardine Fleming Securities (Asia) Ltd, give the true explanation. /watch?v=wDHSUgA29Ls
You are basing your point in the fact that banks don't get hurt when you don't pay back your debt and as you can see with all the financial crisis going on around the globe that it's not like that. Second, remember that all your hard work came with money from the bank meaning that if you didn't get that loan you wouldn't have the need to complain about your hard work being taken by the bank and third, you are failing to see why we have this system in the first place and all the advantage
Cool Vid. But when you put in a bank account 100k USD...the bank keep only 10% and use the 90% to give that money to someone else for a loan....so basically create virtual money...the little problem is that when you ask a loan of 90K...and you wanna pay back that loan in 20 years...since the bank interest is 5% every year....you will pay back 180K....at the end bank make loan with just a click on a computer...but you spit blod to re-pay your debt to a the bank...this is a LEGAL CRIME!!!
To borrow the deposited money wouldn't be a crime. The crime is that this money remains still available for the depositor and the bank has created and borrowed 90% of the deposited sum. So arise the additional, brand new money in the system which is to pay back with interest by a person who took that loan from the bank.
A real bank would put the whole £100 into its central reserves and use that as the base from which to create more money through its lending. It wouldn't limit itself to 10% either. In reality, the only cap on a bank's ability to create new money is its own confidence in its self.
A good many bank officers make rather serious mistakes that cause their banks to lose net worth, become insolvent and close their doors. If ALL banks were in a position to simply create money out of thin air, then we would not experience the periodic banking crises that have occurred over the centuries. Banks must manage a variety of risks beyond credit risk. They must manage interest rate risk, duration risk (matching of maturity of assets against liabilities), portfolio risk of holding assets that may lose value over time, such as bonds or fixed rate mortgage loans. And, of course their is regulatory risk of changes in reserve requirements imposed by various levels of banking authorities. Banks are not exempt from double-entry bookkeeping. When a loan is made, the bank's cash on hand is diminished (unless the bank goes out into the credit markets to raise the cash to lend to its customer). The real "wild card" in the banking sector is the legal authority of the central bank to create currency balances out of thin air and lend these created balances to the national government at interest. If the central bank also has this authority with respect to providing liquidity to its member banks, then this combination of powers makes the economic system is very vulnerable to inflationary risk. And, in any other part of the economy these actions would be defined as criminal fraud.
Banks creating money out of thin air unrestricted would definitely not hinder the great depression. It would rather lead to asset bubbles and inflation. This assertion of your seems rather strange. Sure you didn't bite your tongue?
+Bob “Bobsiken” Olsemann I admit, this seems like a strange comment to make. Which is riskier, 20,000 banks each needing to convince depositors and others that it's bank notes will hold their value, or a central bank system empowered to issue legal tender currency backed by nothing? Even Greenspan at one point acknowledged that the period of "wildcat" banking was far less wild than proponents of a central bank system had claimed. That said, I would rather see the world return to the deposit bank model that was the Bank of Amsterdam of the 17th century.
Not how today's banks are working. None of them need any reserve in order to lend the money, the reserve is never touched. It is a hangover from the Gold standard and totally unnecessary in the money creation procedure. the procedure is thus : Your bank create s the money "as is" without any need for anything BUT your status in paying it back to the bank even though the bank has not lent any money it had beforehand. Banks have the license to create money out of nothing as an accounting procedure. They create the money , you then sign that money to them as a security in your signature that allows them to take possession of that money which they created out of nothing. This man is missleading you .
HOW MOST OF OUR MONEY IS REALLY CREATED (Stuff they did not teach us in High School) How 97% of our money is really created in the United States Step 1 - Customer comes into commercial bank. He wants to buy a new car, so he needs a loan. Step 2 - Customer signs promissory note, for $30,000. @ 4% interest for five years. Step 3 - An account was created under the customer's name with $30,000. in digital entries. THE BANK TREATED THE PROMISSORY NOTE EXACTLY AS CASH MONEY AND ALL THEY ARE DOING IS EXCHANGING IT FROM PROMISSORY NOTE TO ENDOGENOUS "MONEY". A) The "money" (digital entries) did not come from deposits. B) They did not come from central bank reserves. D) The "money" did not exist until after the promissory note was signed. This is brand new money. E) The "money" is now part of the money aggregate. Step 4 debtor buys car with check issued by the BUYER BANK. Step 5 Dealer deposits check in SELLER BANK. SELLER BANK clears check from BUYER BANK using the account and digital entries entered previously (see Step 3). Step 6 When the loan is paid off, either through insurance after Notice of Default, or by debtor, the promissory note is destroyed. Fulfillment voids its value. Monetary aggregates is now minus $30,000.00. This is why money contracts in a recession. The great depression is also known as the great contraction. Here are some of the top commercial banks in the USA: J.P.Morgan Chase & Co Bank of America Wells Fargo Citigroup Goldman Sachs Group Morgan Stanley U.S. Bancorp Bank of New York Mellon PNC Financial Services Capital One HSBC North America Holdings TD Group US Holding
You could have said that in less words. Try this: ALL MONEY IS CREATED WHEN BANKS ISSUE LOANS. BANKS CHARGE INTEREST FOR LOANING SOMETHING THEY NEVER HAD.
@@widehotep9257 You left out how they use the promissory note. The promissory note shows that the bank never promises anything. All they say is "VALUE RECEIVED".
@@se7ensnakes I am glad you are trying to spread the word in comment sections! But keep it short and simple if you want people to read what you are saying. 99.9% of people think the gov creates all money, and banks loan out deposits.
@@widehotep9257 I understand what you are saying but I am trying to provide information on how to succeed in the court system. It took me a long time to know what I know so far. But there is a lot of unanswered questions.
@@se7ensnakes Awesome! I wasn't criticizing your info or efforts, both of which deserve praise. Have you found anyone who has had success in court? There were some promising cases shortly after the great recession began, especially people demanding "SHOW ME THE NOTE!" Lots of hype that the foreclosures were illegal, etc., etc. I never heard if anyone had success. I doubt it because the courts are a huge part of perpetuating the debt-enslavement scam.
How can interest payment to a bank ever be justified under this system? Additionally how can they ever have rightful claim to the principal (the 'loan' amount)? Banks do not give up commensurable consideration when making 'loans'. How can a bank lend money into existence? A consequence of this system is the money issued in to circulation through 'loans' (plus the reserve left over in the bank) is insufficient to pay back the principal AND THE INTEREST? Can anyone else see how this system is terminal in nature? Interest can only be paid through further borrowing, which will incur unjustified interest (the bank has risked nothing of it's own when making the faux loan) and thus the amount of interest owed increases. Interest is mathematically impossible to pay back and over time will eventually cause monetary collapse.
And if it was in fact all paid back there would be no money in the economy so i guess it's a good thing; the question should not be where the money comes from but who it is loaned to and for what purposes! If it's productive and leads to the creation of goods then it's useful but if it isn't then it's detrimental in line with the scope of the fruitless lending.
is a crime because as i said...for the bank..to create that money is just a click on a computer...so.. no effort at all...for you...you have to work hard for more than 20 years...thats the crime...the give you money that dont exist... but they take your money that you save with a lot of sacrifice
how is it a crime? Banks are a business, its not set up as a charity, would you be willing to give someone 90k of your money without any return? Interest isn't guaranteed either. In a perfect world a person wouldn't need to borrow money to buy a home or a car, they'd save for it but not everyone can save 90k to buy a home, it would take forever, its an investment both ways. You have a choice to not put the 100k in the bank, and the choice not to borrow the 90k as well.
The interest fee plays the role of seigniorage since money is 100% free. There is no cost involved in creating money(banknotes). Scarcity and interest rates are the only way of attributing value to it. Think of it as if you have to pay a 7% interest loan for a car with the money you earned by buildings roofs, 7% of your work(it's not really 7% because not all your money goes to make that payment, but if you earn 500$ and with interest you pay 500$ then yes you worked 7% of your time for the lender) is going to the lender(the Bank). The simplistic explanation would be that the Central Bank creates money for free, lends it to the bank at 2% and the Bank lends it to you at 7%. Now after 5 years you paid your car. The car is worth only 2/10th of the purchase value you sell it for peanuts and you want to buy a new one. Once again the concept starts all over again. We accept this system because it keeps working. But it's also a very simple explanation.
The money multiply approach promoted in this video has now been discredited and is not how banks function at all. Please dont accept this as being correct, it's not.
Neither has ever belonged to "the people." As Smith says, the purpose of the state is to protect the rich from the poor. What he doesn't say is how this is done. Through the police and military. A good book that touches on the subject is Debt: The First 5000 Years
This is marvellous stuff, but Professor Richard Werner went to a bank with a BBC film unit. He withdrew loaned money and asked the bank where the money came from? They answered, “the money was endogenously created.” The money comes from within the system. Money is debt! When debt is payed off it disappears back into the system. Not knowing this is why the UK economy is in so much trouble! This is known by other economists as well.
It really would be quite hard to make video that gets this topic more wrong. How is it possible for an organisation called Moneyweek to put out such nonsense?!
Best explains the Credit Creation Theory of banks. Thank you🤠
This model or rather an equivalent version of this was taught at my “money and banking course” at university. Professor Richard Werner showed that this model is rejected empirically in all countries he investigated. I was taught so many models based on nonsense postulates at university that I feel I should claim to be reimbursed for most of my M.A. Economics tuition fees.
You definitely should be.
Dear Tim,
Can you make a video about what CFA is all about and the benefits of getting one? (Also, how it impact employment at most major banks, or how long CFA needs to take be completed...) It's a very professional qualification, and I think your video on all things financial really has motivated me to take up CFA. Regards.
Tim has jst always dne the best explainn,spot on...
martlayton - not sure I agree. The open market operations of the Treasury/Fed do keep a lid on pure money supply expansion.
Promissory notes added to banks assets- loan created on liability side. The loan liability amount is then classed as a loan to the bank from the debtor as there is no legal concept of a 'deposit'. That is how 97% of currency is created. FR banking along with the 'intermediary' theory does not exist.
Hey Tim,
Like your videos, but perhaps you should revisit this one, as it seems that the current monetary theory has moved away from the money multiplier one. It's now said that loans create deposits.
We agree to disagree - let's leave it at that.
Great video but I still really don't get it. Is there a book that can teach me this?
As a beginner's guide it's fine - all my Goldman Sachs and JP Morgan students were happy with it as an introduction. Prof Richard Warner is good but in fairness he's aiming at a different audience.
With all due respect sir the credit doesn't exist without it's members signature!
Wrong. We don't have frb and the money multiplier is a myth.
Please update your information.
jagiles could you please explain?
Yes, this process is wrong. The actual proces is simple, think of bank balance sheet. Granting a loan creates both an asset and a liability for the borrower and the bank. The loan is an asset for the bank and a liability for the borrower and the deposit (created at the same time with that loan) is an asset for the borrower and a liability for the bank. That is, banks create the money that they lend under the promise that It will be repaid back. When this debt is cancelled out the money disapears. This is the legal way of accounting for these transactions.
There are also some regulatory requirements that obligue banks to hold a minimum amount of reserves as a proportion of their assets. In the past these reserves constrained the money creation process such that the result was something somehow similar to the process described here. Nevertheless, nowadays almost every Central Bank is commited to supply as many reserves as banks request to accomodate their lending. First banks lend, then they borrow these reserves from other banks or from the CB itself. That is, reserves do not constrain lending.
There are plenty of academic papers where this is explained. But the old/unrealistic model is still taught in schools all around the world. Don't be surprised if you find economists explaining wrongly this idea.
@@pabloserrano1706 So as you explain, we see that the situation with FIAT money is even worse, reserves do not matter anymore. Now any amount of money can be created out of nothing. I wonder why if we tout the society that we have freedom and bla bla bla, why just the banks, why cant anybody create credit for anybody? Yeah right, we would end up creating nothing of a value, like we do these days, we only create hyperinflation.
So how do they make money if they hold back 10% then lend it out, they end up with the same amount of money in circulation, no one is paying interest.
Great video, thanks for putting it up
that throughout the years helped us to have and be the society that we are right now. Yes, we are not in the best time of our life but if the loans or banks didn't exist probably we couldn't have this conversation via internet. And as the other guy said, is a risk for both the bank and the lender.
martlayton is correct. All £100 would go to the central reserve and the bank would lend up to £900. Your example is only seen in naive text books, the real world is significantly different in a way which is crucial for a proper explanation of credit creation.
See /watch?v=O0wA6SbsHg8 at 9:50
(The reserve requirement for the UK is currently zero, typically its 1% rather than 10%).
Tip? No such thing as debt free money not even in MPE, because the *exchange* or act of redeeming money for property makes money a debt upon any exchange? No exchange no debt period. However money doesn't have to necessarily represent a debt in an exchange, it can likewise represent received entitlement or represent ones own wealth by the act of giving up property or represented value in an exchange. No loans or borrowing in MPE but there is a debt to paydown & rightfully retire the principal.
I like how this guy blithely describes this process with all its official terminologies as if it couldn't be a more natural and valid process. If I sign ten IOUs to loan out the same ten dollars to ten diffent people, I would go to jail. I don't think the arresting officer or judge would be impressed if I tried to explain that I was "generating" credit or that "money is a fluid concept."
please correct me if i am wrong, a shark gave starting 100p to this little fellow?
It is unfortunately a completely wrong explanation. In the following video Prof Richard Werner director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton; who has held numerous positions in Japan's finance sector institutions as well as working as chief economist at Jardine Fleming Securities (Asia) Ltd, give the true explanation.
/watch?v=wDHSUgA29Ls
You are basing your point in the fact that banks don't get hurt when you don't pay back your debt and as you can see with all the financial crisis going on around the globe that it's not like that. Second, remember that all your hard work came with money from the bank meaning that if you didn't get that loan you wouldn't have the need to complain about your hard work being taken by the bank and third, you are failing to see why we have this system in the first place and all the advantage
Wrong. There's no fractional reserve. Banks create money out of nothing . See banking101 or Richard Werner
Cool Vid. But when you put in a bank account 100k USD...the bank keep only 10% and use the 90% to give that money to someone else for a loan....so basically create virtual money...the little problem is that when you ask a loan of 90K...and you wanna pay back that loan in 20 years...since the bank interest is 5% every year....you will pay back 180K....at the end bank make loan with just a click on a computer...but you spit blod to re-pay your debt to a the bank...this is a LEGAL CRIME!!!
To borrow the deposited money wouldn't be a crime. The crime is that this money remains still available for the depositor and the bank has created and borrowed 90% of the deposited sum. So arise the additional, brand new money in the system which is to pay back with interest by a person who took that loan from the bank.
A real bank would put the whole £100 into its central reserves and use that as the base from which to create more money through its lending. It wouldn't limit itself to 10% either. In reality, the only cap on a bank's ability to create new money is its own confidence in its self.
This should be called "How Do Banks Get Away With Fraud?"
You are awesome. Thanks.
Very nice
A good many bank officers make rather serious mistakes that cause their banks to lose net worth, become insolvent and close their doors. If ALL banks were in a position to simply create money out of thin air, then we would not experience the periodic banking crises that have occurred over the centuries. Banks must manage a variety of risks beyond credit risk. They must manage interest rate risk, duration risk (matching of maturity of assets against liabilities), portfolio risk of holding assets that may lose value over time, such as bonds or fixed rate mortgage loans. And, of course their is regulatory risk of changes in reserve requirements imposed by various levels of banking authorities. Banks are not exempt from double-entry bookkeeping. When a loan is made, the bank's cash on hand is diminished (unless the bank goes out into the credit markets to raise the cash to lend to its customer).
The real "wild card" in the banking sector is the legal authority of the central bank to create currency balances out of thin air and lend these created balances to the national government at interest. If the central bank also has this authority with respect to providing liquidity to its member banks, then this combination of powers makes the economic system is very vulnerable to inflationary risk. And, in any other part of the economy these actions would be defined as criminal fraud.
Banks creating money out of thin air unrestricted would definitely not hinder the great depression. It would rather lead to asset bubbles and inflation. This assertion of your seems rather strange. Sure you didn't bite your tongue?
+Bob “Bobsiken” Olsemann I admit, this seems like a strange comment to make. Which is riskier, 20,000 banks each needing to convince depositors and others that it's bank notes will hold their value, or a central bank system empowered to issue legal tender currency backed by nothing? Even Greenspan at one point acknowledged that the period of "wildcat" banking was far less wild than proponents of a central bank system had claimed. That said, I would rather see the world return to the deposit bank model that was the Bank of Amsterdam of the 17th century.
The reserve ratio does not put a cap on money creation. Read the first chapter of this: smashwords(dot)com/books/view/85595
The question is why doesn't Government create its own Money rather than borrow from PRIVATE BANKS @ interest.
Well said.
Not how today's banks are working. None of them need any reserve in order to lend the money, the reserve is never touched. It is a hangover from the Gold standard and totally unnecessary in the money creation procedure. the procedure is thus : Your bank create s the money "as is" without any need for anything BUT your status in paying it back to the bank even though the bank has not lent any money it had beforehand. Banks have the license to create money out of nothing as an accounting procedure. They create the money , you then sign that money to them as a security in your signature that allows them to take possession of that money which they created out of nothing. This man is missleading you .
HOW MOST OF OUR MONEY IS REALLY CREATED (Stuff they did not teach us in High School)
How 97% of our money is really created in the United States
Step 1 - Customer comes into commercial bank. He wants to buy a new car, so he needs a loan.
Step 2 - Customer signs promissory note, for $30,000. @ 4% interest for five years.
Step 3 - An account was created under the customer's name with $30,000. in digital entries. THE BANK TREATED THE PROMISSORY NOTE EXACTLY AS CASH MONEY AND ALL THEY ARE DOING IS EXCHANGING IT FROM PROMISSORY NOTE TO ENDOGENOUS "MONEY".
A) The "money" (digital entries) did not come from deposits.
B) They did not come from central bank reserves.
D) The "money" did not exist until after the promissory note was signed. This is brand new money.
E) The "money" is now part of the money aggregate.
Step 4 debtor buys car with check issued by the BUYER BANK.
Step 5 Dealer deposits check in SELLER BANK. SELLER BANK clears check from BUYER BANK using the account and digital entries entered previously (see Step 3).
Step 6 When the loan is paid off, either through insurance after Notice of Default, or by debtor, the promissory note is destroyed. Fulfillment voids its value. Monetary aggregates is now minus $30,000.00.
This is why money contracts in a recession. The great depression is also known as the great contraction.
Here are some of the top commercial banks in the USA:
J.P.Morgan Chase & Co
Bank of America
Wells Fargo
Citigroup
Goldman Sachs Group
Morgan Stanley
U.S. Bancorp
Bank of New York Mellon
PNC Financial Services
Capital One
HSBC North America Holdings
TD Group US Holding
You could have said that in less words. Try this: ALL MONEY IS CREATED WHEN BANKS ISSUE LOANS. BANKS CHARGE INTEREST FOR LOANING SOMETHING THEY NEVER HAD.
@@widehotep9257 You left out how they use the promissory note. The promissory note shows that the bank never promises anything. All they say is "VALUE RECEIVED".
@@se7ensnakes I am glad you are trying to spread the word in comment sections! But keep it short and simple if you want people to read what you are saying. 99.9% of people think the gov creates all money, and banks loan out deposits.
@@widehotep9257 I understand what you are saying but I am trying to provide information on how to succeed in the court system. It took me a long time to know what I know so far. But there is a lot of unanswered questions.
@@se7ensnakes Awesome! I wasn't criticizing your info or efforts, both of which deserve praise. Have you found anyone who has had success in court? There were some promising cases shortly after the great recession began, especially people demanding "SHOW ME THE NOTE!" Lots of hype that the foreclosures were illegal, etc., etc. I never heard if anyone had success. I doubt it because the courts are a huge part of perpetuating the debt-enslavement scam.
How can interest payment to a bank ever be justified under this system? Additionally how can they ever have rightful claim to the principal (the 'loan' amount)? Banks do not give up commensurable consideration when making 'loans'. How can a bank lend money into existence?
A consequence of this system is the money issued in to circulation through 'loans' (plus the reserve left over in the bank) is insufficient to pay back the principal AND THE INTEREST? Can anyone else see how this system is terminal in nature?
Interest can only be paid through further borrowing, which will incur unjustified interest (the bank has risked nothing of it's own when making the faux loan) and thus the amount of interest owed increases. Interest is mathematically impossible to pay back and over time will eventually cause monetary collapse.
And if it was in fact all paid back there would be no money in the economy so i guess it's a good thing; the question should not be where the money comes from but who it is loaned to and for what purposes! If it's productive and leads to the creation of goods then it's useful but if it isn't then it's detrimental in line with the scope of the fruitless lending.
I feel like I'm learning from Jimmy Carr's much smarter brother. it's great!
banks create credit and what that means for your money.
is a crime because as i said...for the bank..to create that money is just a click on a computer...so.. no effort at all...for you...you have to work hard for more than 20 years...thats the crime...the give you money that dont exist... but they take your money that you save with a lot of sacrifice
how is it a crime? Banks are a business, its not set up as a charity, would you be willing to give someone 90k of your money without any return? Interest isn't guaranteed either. In a perfect world a person wouldn't need to borrow money to buy a home or a car, they'd save for it but not everyone can save 90k to buy a home, it would take forever, its an investment both ways. You have a choice to not put the 100k in the bank, and the choice not to borrow the 90k as well.
Lesson learnt
Out of thin air.
This person teaches. And teachers the wrong stuff.
there is no money multiplier...
The interest fee plays the role of seigniorage since money is 100% free. There is no cost involved in creating money(banknotes). Scarcity and interest rates are the only way of attributing value to it. Think of it as if you have to pay a 7% interest loan for a car with the money you earned by buildings roofs, 7% of your work(it's not really 7% because not all your money goes to make that payment, but if you earn 500$ and with interest you pay 500$ then yes you worked 7% of your time for the lender) is going to the lender(the Bank). The simplistic explanation would be that the Central Bank creates money for free, lends it to the bank at 2% and the Bank lends it to you at 7%. Now after 5 years you paid your car. The car is worth only 2/10th of the purchase value you sell it for peanuts and you want to buy a new one. Once again the concept starts all over again. We accept this system because it keeps working. But it's also a very simple explanation.
I understand, but nobody else does... gotta say it OVER & OVER & OVER & OVER & OVER & OVER & OVER... oh forget it...
The money multiply approach promoted in this video has now been discredited and is not how banks function at all. Please dont accept this as being correct, it's not.
Batman
wag1
Just bring the military and police back to the people. And they will give a fuck about who is printing this fucking money
Neither has ever belonged to "the people." As Smith says, the purpose of the state is to protect the rich from the poor. What he doesn't say is how this is done. Through the police and military.
A good book that touches on the subject is Debt: The First 5000 Years
You shouldn't be teaching that to students! It's very misleading. You do realise the fractional reserve rate for the UK has been zero since the 1980s?
This is marvellous stuff, but Professor Richard Werner went to a bank with a BBC film unit. He withdrew loaned money and asked the bank where the money came from? They answered, “the money was endogenously created.” The money comes from within the system. Money is debt! When debt is payed off it disappears back into the system. Not knowing this is why the UK economy is in so much trouble! This is known by other economists as well.
The biggest criminal scam in the world.
Textbook explanation but not reality.
It's basically fraud
It really would be quite hard to make video that gets this topic more wrong. How is it possible for an organisation called Moneyweek to put out such nonsense?!