Banking 9: More on Reserve Ratios (Bad sound)

[Wisdomhunting]

Hi everyone, I do not really get how Reserve requirements work. It is 10 per cent is it meant that I need to keep 10 percent of the total liabilities which is 300GP? but, this would only work in the case where we are sure that the person would not withdrawn all money right away, am I right?

Because if loan borrowed are to be withdrawn right away, which is gold in this case. The bank would not have enough gold to pay the person. even if it kept the within the 10per cent.

[MrPEDOCTOR]

Its really bad sound,. lol

[Pettenderk]

It always confused me, the phrase explaining 'liquid': 'If someone asks for their gold, the bank is able to give it to them.' Better would be: 'A bank is 'liquid' as long as its Reserve is EVEN or HIGHER to the Reserve Ratio Requirement.'

[joeshmoeb]

Hi, in this example, if the loans are good and are paid back over time, what does the bank get? The band does not get more "gold pieces" because it only opened a checking account as the reserve requirement allowed right? How does the bank actually increase its gold reserve to increase its loan making in the future?

[r2sj]

Good job Sal! Very useful for the current financial situation around the world.

[ChulaKirby]

I dont quite understand. I can see if someone deposited their money and I created a demand deposit for them, they are not going to come back tomorrow and want all of it back. So 10% reserve would be okay. But if I made a loan and then a demand deposit for them, the odds that they would write a check for the whole amount is almost guaranteed. And then the new check holder's bank would want that whole amount and 10% reserve wouldnt be enough. In reality are they just making a bunch of little

[ChulaKirby]

loans? at the same time they are getting deposits? I guess what I am asking is this......Is it an assumption that the new holder of the check or bank notes is actually re depositing their funds in my bank?

[LimeZYX]

how can you lend out checking accounts representing 2900 gold pieces when you only have 300 gold pieces in actuality? thanks for the vids, btw.

[PredominateOne]

Natives had it right you can't own land, everybody shares it. We need freedom like in the venus project.

[PredominateOne]

Why gold Luigi? It is already majorly in the hands of the rich and can be used to divide even more. It is not plentiful enough for even all Americans to have a fair share. Why do you think bank notes caught on? I do agree though. the whole Idea of making wealth justifying making money out of nothing is rediculous when applied on a global scale (not a made up world where resources can continually be brought in to give the bank unlimited "leverage" over us). Natives had it all right, you can't ow

[dapo4u]

ALL I CAN SEE FROM THIS IS:

GOVERNMENTS SHOULD RUN THE BANK AND NOT OTHERWISE.

MONEY CREATION IS TOO MUCH OF A POWER TO BE ENTRUSTED WITH PRIVATE BANKERS... IT IS THE DIVINE RIGHTS OF EVERY MAN AND WOMAN AND THAT POWER SHOULD ONLY BE USED FOR THE GOOD OF HUMANITY NOT FOR THE PRIVATE MONEY-MAKING INTERESTS OF A FEW.

[parklinkin52]

@dapo4u calm the fuck down

[Epicdemicz]

where is he get the 2700gp to lend out??

[dalcde]

I see people being confused here. At the beginning, the bank has 300 GP and can only lend out 270 GP. You think that's the end of the story, but it is not. That 270 can be re-deposited into the bank and the bank can lend out 243 GP. That is still not the end of the story. The 243 GP can be re-deposited into the bank and the bank can lend of 90% of that again. If we keep doing this, the bank can have at most 2400 GP loan, if my maths work out. (continued at next comment)

[dalcde]

(I just realised that the number above should be 2700 GP instead of 2400 GP) That is well known as printing money. No money is physically printed, but M1 increases. In this example, the money (paper money) is physically printed, and that complex process doesn't have to occur. They represent GP, or wealth, like paper money in the real world represents wealth.

[dalcde]

I meant to say "the number below" instead of "the number above" in the beginning of the previous comment.

[nalcow]

This is the fractional reserve system works.. the reality is that banks are able to create money from 'thin' air.. and if they fail.. we the people rescue them. I'd love if I were banker.

[onixz100]

Can someone clear this up for me:

I understand that the reserve ratio is 10%, so he can only lend out so much that his reserves constitute 10% of what is lent (300 of 3000), but how was he able to issue a $900 loan at the beginning when his actual reserves were only 300$ (200 from capital, 100 deposits)? Previous examples this money came from M1 or imagined wealth, but there is no imagined wealth in this example, only M0 actual gold. Are we assuming this M1 was created, he just omitted it?

[smartcardia]

see this what confuses me khanacademy - i thot u cud only loan out 10% of 300 GP which is 270 GP, can u or anybody PLEASE clarify this, i really need help w this

PS - i thot in ur other banking reserve u used the same logic as i m doing on this post but in banking 8 & 9 video, it seems that u have diff definitions, thanks again!!

[DUCATI1098100]

Two thumbs up!!! Very educational...Thanks for posting. Surprise so few have seen this...no wonder education is dropping in this country.

[Luigi84289]

@DUCATI1098100 This isn't taught in America. I had to learn it all myself.

[Pantz104]

What about high-powered money?

[idazeferina]

maybe I should listen to the further lessons to find the answer, so excuse me for being impatient with the question:

When the bank gives a loan and accordingly issues Notes/Checks ... don't people who have an investment capital start spending it, and usually spend ALL of it for their expenses and not only 10%?

When bank gives me a mortgage, very next day I go and spend it all by paying the owner.

Where that money comes from when bank has only 10% of reserves?

[Evulmeh]

You don't pay him with the money that the bank owes you.

what the bank merely does is transfer it owing you X amount (x being what you loaned) to the owner of the house.

checking accounts are basically an "I owe you"

[Myrkul1029]

the answer to idazeferina's question is in video 6

[BigPurple121]

So if an asset becomes worth less than the loan given out and the depreciation is more than the amount remaining on the reserve ratio, you're in trouble.

[jackuy12345]

good job

[pjblabla]

You have done an excellent job in diffrentiating solvency from liquidity

that's the problem in the current financial crisis - people thought banks were not liquid - however, the problem was much graver - most banks were not solvent

[nalcow]

@pjblabla that's in part true.. the real problem is the federal reserve pumping money into the system to buy us goverment debt and destroy it. This means to print money as there is no need that money to be supported by something (i.e. gold in the past), the federal reserve may print the mone they want to solve goverment debt. So the most money flowed into the system, the money holders were tempted to create strange derivatives as the ones backed up by mortages,.

[Luigi84289]

@pjblabla We need to get out of this debt and stop using notes. Notes are not scarce so they don't make a good standard. They have no value. You have to have a scarce medium that people value and can be broken down indefinitely that's why gold has always been what people naturally gravitate towards in most civilizations. There have been exception like China which valued jade more but for the most part Gold has always been the most popular choice because it doesn't age and is malleable.

[PredominateOne]

@Luigi84289 \/ \/ \/

[melaiphanat]

i really like this i learned alot

[jgposner]

Where is this documented? I want to write something up on this but even though you are a good source I would like to reference the law or regulation itself. Who made this law or regulation? Congress? A committee? Does the Fed set the reserve ratio or someone else?

[tiger12220]

Still confused...but ill keep watching

[dallenchao]

Sal, just wondering if you write out your scripts before producing the vids?

[smallbighorn]

where is 8?