in the real world this is done on a scale of billiion of dollars eg: FED prints $10,000,000 therefore you can say in a way this is an infinite money supply increase because that money will go to various banks and whatever project is funded those workers will go to there bank and so on... In Sal World you can say this is an increase in wealth if everyone was smart with money... but in the real world you FRB benefits the banks and the top tier wealthy.
He says "As long as the investments are good investments," but what percentage of investments truly produce more wealth than they borrow? Just because an investment doesn't default doesn't necessarily mean that it produced as much wealth as it borrowed. This guy has a huge blind spot.
Oh, now I know that the point is not about there's too much money supply,the point is if the growing of real wealth can catch up with the money supply, it depends on those investments are good or bad.
In the past,I only look at the money supply and I always think there's are bubbles and bubbles,but now I realize that I never consider the real wealth.
Thank you for your amazing lesson, I love it so much!
this just makes wealth distribution more skewed in the favor of those who are able to obtain money first. who can do that, people with wealth...No wonder the "1%" are being rebelled against. the little guy is being shoved down further and further by the system that prides itself on "freedom and liberty for all" fractional banking seems to mean "freedom and liberty for THE CREATORS OF MONEY" it makes me sick.
they seem to suffer because after the money has been "disbursed" to the economy, things are going to cost more. and since their salaries dont rise, they are paying a greater portion of their salary for goods that were cheaper before these great "investments". Only the first few hands that touch this money truly benefit. It seems very criminal to me
the issue that seems to come up with this fractional banking, is the issue of an indirect tax on those who have nothing to do with these investments, and whose income does not grow with the money supply growth. more money in the economy, causes inflation. those who obtain the new dollars, can keep up with inflation...how about those who dont see any new money? (salaries, or anyone who receives an annuity or who simply isnt paid porportionaltely)
that's right synague of satan, i've just exposed your guyzes ULTIMATE SECRET in 1 comment. no wonder you guyz want this SOPA shit(internet censorship for video like these IRONY) and GMO(God move over-poison the masses). if I could join you i would, but im not white, or jewish (no chance for that). I guess I'll just have to move to some remote wilderness, while you steal, murder, and destroy humanity for your global conquest, or perhaps ill find the secret of telomeres (eternal life).. nuff said
hey you can't really blame them, i'd do the same thing if i were in their place. just knowing how rich i am and could become, the power i'd have, would give myself a self boner. By passing this tradition of deception down from generation to generation and bribing those (as much money as it takes-or assassination) who discover the secret of my admirable, wonderful wealth in the game of life and making new friends (disguised as sociable) to make it seem that i'm friendly and not a lone evil fox.
Isn't this creation of "real"money only creating inflation? Im just learning about finance, but if money that does not have any backing in physical goods (gold and silver) is moving around the economy then prices can go higher.
Are these 'apples' representing the GDP of that economy? I am assuming as apples represent wealth (goods and services) and GDP is a measure of productivity of goods and services.
Khanacademy is technically correct, but he gives us the assumption that the loans would not exist under free banking, and hence the economy would be stagnant otherwise. Don't be so easily duped. Loans still would exist without fractional reserve banking, though not quite as many because depositors would face reality and have to restrict their present consumption to make the investment
Another major omission is not everything inflates simultaneously, which is the cause of miscalculated loans.
Communism looks good on paper, too... In the real world, power-hungry Jews hold on to the money, or give it to their friends... Unless you are Illuminati, FRB will be responsible for you starving to death. Y'all better make sure you're prepared, because when shit goes down, you will die if you believe the mainstream.
Thank you for making this video! I want to point out - the whole system is entirely dependent on the banks having perfect lending practices; if there is ever mal-investment, it creates bubbles in the economy when the borrowers do not pay back their loans. This system of banking is immoral because no bank is perfect in its lending practices. Make no mistake: FRB is theft - the gold cannot be exclusively owned simultaneously by the borrowers and depositors. That is impossible.
@metalguitar311 You point out that FRB is immoral for the reason given and I agree with you. But how do you then expand the economy and create wealth/deflation without this system in place?
@mikek241 One point of disagreement from me. In a free banking system, you can still lend out that 900 pieces, but the lender's account SHOULD be 100 pieces after that. Likewise, the workers can deposit the 900 pieces, and the bank can lend out 810, but the workers accounts SHOULD be 90 after that.
You make it sound like these lendings suddenly wouldn't exist without FRB. They still would and the economy would still grow. Not as fast since lenders would be somewhat more scarce, but more stable.
@ssgurgs9 ...Right, so basically, there needs to be consent from the lenders that their deposits are being lent out for a specified period of time. Basically just like with any investment the risk is built in and needs to be taken into account.
I guess the problem with FRB is that it pyramids debt, while giving the assurance to its depositors that their savings are all there. You make a good point, the economy would still grow, just without the volatility of booms and busts.
This video demonstrates how the people who received the loans have actually stolen the wealth from the people who are not on this graph but had the gold before.
the reality is that pyramid keeps on going up and up and up.... return of investment takes time. But when people needs money, lets say there's a big event took place... that pyramid is not going to hold. Because the taller it goes the thinner it would be.
@chrstsldr Since the real estate was overvalued, it would mean that the actual wealth goes down (I think). But there's still the same number of gold pieces. So what you end up with is inflation (same number of gold pieces, but less wealth). In the real world there are a lot more factors that come into play, but in this diagram, that's how it would probably look.
You are incorrect about the definition of M1. It includes M0, and therefore would be 3,710. Also, you are incorrect about gold not having intrinsic value. You can make it into jewelry, put in fillings, use it in electronics, etc. It also represents a store of wealth. A miner and minter had to put labor into extracting and minting it into a coin. Paper money takes much less labor. I applaud your effort, but you need to learn more about sound-money principles.
Going back to the example here and the 2710M for 1000apples, the loan on 'new money NOT backed by savings' would be the same as stopping looking for berries when you may not have saved enough to be able to afford your project.
For more detail you can go to Huerta de Soto's videos (there are some in Spanish) but using one simple example he used:
Suppose you are in an island and your life support are some "berries" you costly collect from high up in the trees.
Your investment is save enough berries to stop collecting them for a few days so you have time to prepare/build a long stick/handle to get the berries easily.
NO you can't ASSUME that investments take ZERO time to complete. That is precisely the point.
Even if the investments take ONE year to complete (and succeed, imagine that it was a failure...) people will start to spend as if they were already 2719M1 but there are just 1000apples, as nahsirah pointed out. The "knock on that happens" and he/she thinks is a good thing is what will bring up the problem.
The 2,710G pieces Do Not exist! You kept saying 'IF' sir. 'IF' the investments/borrowers are able to pay back what they initially borrowed (plus more.. maybe). So suppose these projects take a year to build; iz the bank really going to tell people that it holds 2,710G in current wealth during that year? What if one borrower defaults on the loan? Both? What if while the money iz loaned out the Farmers come to make a withdrawal?... And they want more than 10%? What does the Bank of Saul do?
The concept of interest makes the system bankrupt by design. There is never enough money to pay the loans back to the bank. The interest can only be drawn from other loans made. Stopping the creation of loans will result in deflation and a destruction of the total money supply. The only solutions i can foresee is either no interest (not realistic) or profit-sharing between lender and borrower!
Watch money as debt and The Money Masters and you will find out.
@frankknopers watch salmon khans videos on banking not that conspiracy theory bullshit. i contacted the guy who made money masters(he has a youtube channel as well) and he still hasn't told me where he got his sources from on a supposedly massive loan, which I was able to actually check out in the banks financial statements. watch the video before this so you understand fractional reserve banking fully, lender and borrowers both get paid interest. just see the bigger picture!
I like how you described the fractional reserve system in these videos..But this "devaluation" scenario could easily be flipped the other way because your just assuming the irrigation and factory are increasing apple production by 100%.What if the new buildings only produced half more apples than the '1000 to 2000' grow you said they would.(1000 to 1500 and then 1500 to 2000 {MORE REALISTIC}.There would be 2000 apples to the 2710 "gold pieces,"therefor creating INFLATION which is happening today
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to be removed from bank accounts in order to purchase the goods required to MAKE those investments profitable. Thus demolishing your idea that more money can be spent then was actually ever held by those banks. I cannot take 100% of money from my friends, keeping only 10% and loaning out the rest and expect to keep my legs intact when they come back looking for it. Especially if those people I loaned to went bankrupt (ie had no purchasers) The banks are lending money they don't have.
Your video's are so well laid out and explained I just wish you knew what you were talking about. I was with you 100% until you failed to realize that this process does create massive inflation when you remove it from your vacuum example and place it into the real world. Simply explained, for those investments to produce capital outside of your vacuum they require people to actually purchase the goods. Now assuming most people place most of their assets in the banking system, money will have
firstly before i start asking my question, I wanted to say that your videos are great, easy to understand, and are really helping me out! Keep up the good work :)
What i wanted to ask is that the (in real life), who makes the initial 'deposit' (M0)?
Does this represent the higher-powered money that banks borrow from the central bank at the given base rate? i.e. some money is kept in reserves and the rest is lent out to borrowers?
The interest comes from the wealth created from their project, if they couldn't get enough back from their project they shouldn't have borrowed and the bank shouldn't have lent the money.
It's worth noting that the multiplier effect exists in full reserve banking as well. The only difference is that the depositors cannot withdraw their money from the bank until it's been paid back by the borrowers (if their money has, indeed been lent out).
I notice that there is no mention of the money supply's effect upon the rate of interest, as well as the distortions that this will cause on the capital structure's line of investment versus the actual ability of the economy to consume such products from the result of the increased capital investment. The capital structure was increased far beyond the ability of the consumers to consume the resultant products of such an increase (due to lack of savings), thus a crash is inevitable.
Wondering why we are talking with Gold, gold standard has been taken off in 1930's domestically and in 1974 internationally in Us. What is the difference between money and credit? Banks create credit out of nothing. See Zarlenga's extensive research on process of money creation and history/myth of money. Ask whether money is a private commodity or public service? we can have debt-free public banking and treasury issueing our money instead of commercial banks profiting out of people's ignorance.
@00iam Zarlenga left out completely the coordination of the capital structure with regard to interest, as well as its relation to the actual cash holdings (savings) of the consumer. Simply taking the counterfeiting power from the central banks and handing it over to the treasury does not negate the detrimental effects that increases of the money supply have on the prices of capital goods, the diminishing marginal utility of money, nor the lack of savings to consume these future goods.
Wondering why we are talking with Gold, gold standard has been taken off in 1930's domestically and in 1974 internationally in Us. What is the difference between money and credit? Banks create credit out of nothing. See Zarlenga's extensive research on process of money creation and history/myth of money.
The problem with fractional reserve banking is the 'I' or interest obligation it creates. where is that money supposed to come from? employers can only pay workers the total of the principal amount borrowed, and in turn employees can only purchase the amount of goods equal to the principal they were paid. However, there is still this 'interest' obligation to the bank, for this system to work, then the employees would have to borrow and pay interest. and the cycle continues...
The system doesn't work, and we all know it, and it will kill us all. Problem being that if anyone tries to create change and influence people they can be paid to shut up, or killed and others paid to cover it up. The system itself is used to protect the people who control it. It makes me feel sad, we could have so much more.
@jackass77780 He is not defending the corrupt scheme, he is simply explaining how it is supposed to work "IN THEORY"; why are you so quick to judge? He has a video explaining the causes of the economic collapse you should look it up.
@InToonamIsLegacy It is very easy to become conspiratory after watching certain videos on the internet. It is important that you fact check everything, and think critically about the cases presented, as well as to consider other possible logical implications on the subject. Given your last comment, I am inclined to end our conversation here because it has a tendency to spiral into negative exchanges. I suggest watch this video at your convenience if you may /watch?v=eUB4j0n2UDU
The problem with this system is that the economy has to continuously grow at an exponential rate in order for it to be sustainable. Eventually you are going to run into some physical limits and when you do.. total disaster.
The problem is that if too many people come up and ask for their money at once it creates a bank run. Things happen or some people may just decide to remove their money at the same time. Those projects take a long period of time to complete while you only have 1000 G total in the bank and you have lent out over 2.5 times that much.
It may be temporary or permanent. NOT all investments pay off, and when the credit expansion is too big (as it has been lately) then investments are doomed to fail because of the credit expansion itself. The market makes people discover there are not enough resouces for all projects to success at the same time. Prices of resources and workforce go up, then interest rates and then the collapse!
It may be temporary or permanent. NOT all investments pay off, and when the credit expansion is to big (as it has been lately) then investments are doomed to fail because of the credit expansion itself. The market makes people discover there are not enought resoures for all projects to success at the same time. Prices os resources and workforce go up, then interest rates and then the collapse!
What happens if the farmer gets pissed that he isnt making as much money per apple and decides to store his apples till he gets a better price but in the mean time the apples rot?
Also, does the fact that pretty much everyone on the planet recognises gold as money not give it an inherent value?
Nice video, it explains the multiplier effect well and you also inadvertently explain how we came to the GFC. When you say that as long as the bank is investing in projects that create wealth, not money, then the system works. Sure there will be ups and downs but for the most part it is a reasonably stable system. However, what happens when banks start investing in options and derivatives. These don't produce wealth, only money, and therefore the system will crash time and again.
give me the 1:10 power + the the interest and i will be rich.....this is a parasite system,,,,,it used to be called usury , now it is not only legal, but the keynes idiots think its good.....
@mpeg3universe .....Right on couldnt have said it better, parasites being the bankers who dont lend out their own capital, but other people's ... fukin criminal these bastards..heres an idea how bout you lend out your own capital mr bankster instead of using the "multiplier effect" or leverage. then when you have selected a good capitalist project it will bring back real money from a project then you can can keep your earned proffits insted of collecting money off of the principal of OPM!!!!!
i dont know if anyone corrected you yet but when you wrote over the 90G thinking it was 900 it was orignially 90G and you mistook the G as a 0 otherwise great vidoes
Your wrong because now that the apples are worth less the farmers will make less money and have too many damn apples. If they cant sell their extra apples then they can't pay the extra workers they needed to harvest the apples. This system is based on the hope all goes well with the apple farmers. We dont live in a perfect world and apples might not grow every season. If the Bankers draw from their extra money to pay the workers and the bank has loaned it all out then the bankers dead meat.
The creation of more money IS the inflation. More Federal Reserve Notes the same amount of goods drives prices up because of scarcity. Without the creation of more fiat currency prices would be driven up only as a result of more gold flooding into a particular market BUT the value of gold would remain the same but the VALUE of the products in that market would increase. The value of the medium of exchange would remain the same. Not so with printing more paper FRNs.
That's true.. better couldnt have been explained. Pumping money into the system which is that the Feds having doing during the crisis only produces inflation, and devalutes the dollar, and in each devaluation we are more a and more. A horrible tale.
That's true.. better couldnt have been explained. Pumping money into the system which is that the Feds having doing during the crisis only produces inflation, and devalutes the dollar, and in each devaluation we are more a and more porr. A horrible tale.
That's true.. better couldnt have been explained. Pumping money into the system which is that the Feds having doing during the crisis only produces inflation, and devalutes the dollar, and in each devaluation we are more a and more poor. A horrible tale.
WHY WE ARE IN SO MUCH DEBT is another good video. It provides one of the simplest, clearest explanations yet of our monetary system. Highly recommended.
This is not correct. Fractional Reserve plants the seed for the Recession cycles itself automatically.
The difference is that new money is created BEFORE the investment actually creates the new WEALTH, BECAUSE INVESTMENTS AREN'T BACKED BY REAL SAVINGS!
That is VERY IMPORTANT, if the irrigation system and the factory takes 1 year to complete during the year you ALREADY have 2710M1 but only a WEALTH of 1000apples a year.
This is not correct. Fractional Reserve plants the seed for the Recession cycles itself automatically.
The difference if that new money is created BEFORE the investment actually creates the new WEALTH, BECAUSE INVESTMENTS AREN'T BACKED BY REAL SAVINGS!
That is VERY IMPORTANT, if the irrigation system and the factory takes 1 year to complete during the year you ALREADY have 2710M1 but only a WEALTH of 1000apples a year.
This is not correct. Franctional Reserve plants the seed for the reccession cycles itself automatically.
The difference if that new money is created BEFORE the investment actually creates the new WEALTH, BECAUSE INVESTMENTS AREN'T BACKED BY REAL SAVINGS!
That is VERY IMPORTANT, if the irrigation system and the factory takes 1 year to complete during the year you ALREADY have 2710M1 but only a WEALTH of 1000apples a year.
@josvazg Not to mention that a perpetual, ever expanding debt will lead to an extreme need of money and, in return, wealth if you are to maintain or improve on the value of your currency. Perhaps not so coincidentally actual wealth is also a nation's only option to pay off it's loan once it has defaulted, which it inevitably will when it has to pay back principal + loan with only principal.
One only has to look at current Greece to see the end result, the country is literally being carved up.
@josvazg i think you're taking a few things out of context. it's a generalization. not everything in the world is that intertwined and dependent on the next.
No, IT REALLY is that simple. Investing is a RISK.
If you spent previously saved capital then your investment can succeed or fail:
- If it succeed, great you improved the level or wealth.
- If not, you just lost some savings, but hey, that was money you didn't need to keep on living as you were up to that moment. Keep on saving and better luck next time.
But if you spent MONEY NOT SAVED BEFORE, you better succeed, cause otherwise you will be forcing leaving standards down!
@josvazg You're also not considering the percentage of risk. That was an issue that brought the recession down this 2008, that loans were irresponsable and investments wern't giving back money through morgages. The world isn't a perfect sittuation.
IDK about the whole Fed. Res. planting seeds for recessions. the only way they could do that is if they downgraded the policy to make lending much simpler. Seems a bit complicated but I suppose it's always a possibiliy, but I highly doubt it.
On the contrary, RISK is very important, as I explained before, investing ON SAVINGs is the way to go, BUT fractional reserve banking allows you to CHEAT and invest WITHOUT SAVINGS.
The Fed and ECB and all central banks are fixing by political agenda mostly the interest rates for new money.
That prices tales you whether people prefer to save or consume, if investing is cheap or expensive, etc.
Risk is also contained in that price. It interest rates are low it means that you get more money easily investing on the long run. In that scenario savings should be high (and consumption relatively low) as many savers are competing to get interest from their savings and are forced to lower "the price" (the interest)
@Zander101084 When the Fed and other central banks, that sustain the Fractional Reserve Banking, start to manipulate the price of money, the interest rates it can lead to false signals like the ones we had:
Low interest rates WITH Low savings and high consumption. The perfect recipe to start long run investments like real state, that are doom to fail, as there is NO enough savings to finish them.
Sooner or later labour and basic resources will go up, and investments WILL fail and lower wealth.
@josvazg you are missing the knock on that happens during construction of the plant ie.. building materials, steel, crane hire, consumption by workers ie. lunch at site
All activity generated MUST be backed UP with previous savings, if not problems arise sooner or later.
Cause we did not stop consume so that all that extra activity can take place, sooner or later it is detected that the new projects are MORE expensive it was thought they will be and they will be less valued that expected, loans can't be repayed and banks collapse...
@josvazg I don't get your point. You can assume that the investments in Salman's example complete immediately. Suppose the investments take 1 year to complete, what is the impact of having 2710 M1 and 1000 apples in the first year?
@josvazg exactly....what happens is that he is trying to simplify a system too much,perhaps try to make the video's longer in order to demonstrate to the fully that there is no closed circuit on banking,
That is NOT an example of fractional reserve banking. If the people were to withdrawal their money at once it would simply create a run on the bank. In your example NO money is created. The money in circulation has remained the same.
@dellwon Most certainly not true. Money is created, The Monetary amount of money M1 has changed. M1 consists of physical money and the direct withdrawable accounts. So yes money has been created.
Something that's not addressed is the price of other goods within the economy. Although this system reduces the price of apples, by debasing the money supply from 1000 to 2710, the price of oranges would increase if the new productive capacity didn't increase the output of oranges proportionally.
In reality, FRB is the root cause of inflation.
Also, with gold you CANNOT have FRB because there would be a run on the bank. Unfortunately, you can never have a level playing field with FRB.
@79eXistenZ Wait, so the price of oranges would increase as the price of apples decrease....so does that mean that the price increase of oranges would be greater than the decrease in price of apples? Is that what causes the inflation? Also, why can you not have FRB with gold...why can't gold represent money? Is it because gold cannot be created?
@79eXistenZ then people will eat less oranges and eat more apples, since apples are becoming cheaper and oranges more expensive. the fall in oranges demand will cause the price of oranges not to rise that quickly. but on the whole people will still consume more because it is easier to produce so many apples.
@79eXistenZ It would debase other products like oranges if the productivity capacity didn't increase, but an increasing price signals for more production and in a perfectly competitive world, the supply would increase so the purchasing power is the same again.
In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks.
And just for correction, the "10%" is taken from the reserve, but the remaining reserve is not actually deducted for a loan, that loan money is created from nothing. The reserve is untouched. The money that is created "borrows" the value of the reserve money, therefore devaluing that value. That is why they HAVE to add interest to the loan. Get it?
In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks. **continued
In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks.
In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks.
Hi. You said: " 2710 g (M1) represent real wealth IF those industries will produce EVENTUALY..." So , why dont you state clearly that actually 2710 does not represent real wealth? It will , only if....but actually, it is not...right?
that's the thing right? you wouldn't want to produce more apples because apples end up costing less per apple. you wouldn't want to ensure that the loans you make are "good". you just want to loan out as much as possible no matter how TOXIC it is, because you want to make more on interest. The promise is that if you multiply money, you make more wealth, to multiply money you seek to make profit, but it is infinitely easier to make more profit, by consolidating wealth, or worse screwing with it.
at texas tech university in rawls college of business money m1 is cash coin travelers checks, and checking account deposits and m2 is m1 and savings deposits, money market mutual funds, time deposits and other deposits ; and another term interchangeable with your gold pieces would be call it currency, m1
The total amount of Money Supply M1 that can be created is 10,000G. This is the result of the geometric series. 1000+0.9*1000+0.9^2*1000..... etc. The result is 1/(1-0.9)*1000G = 10,000G
that's retarded, if the investment doesn't pay ALL pay for its failing. It's more appropriate if those involved with the expansion worked for free (invested their labor) (they will of course collect when/if their investment spawn revenues in some future), if it then fails it's those who made the investment who pay, NOT ALL. Also, the banks don't lend those gold-coins for free, but that's another story (... and not a good one...)
@Iamfatbrain you dumbfuck, the FEE associated with the banks lending those "gold coins" is called a "finance charge" and is equivalent to the interest percent charged on the loaned amount lol cockbird jesus have you ever gotten a loan?
@kwak76, You are correct. That's why he specified if it's a "real investment". A properly functioning bank looks for collateral and assured payback, not just a promise of a good idea.
And if the government borrows trillions of dollars which it then "invests" in bad loans and spending and cannot pay back to the bank (fed), then the money supply increases dramatically as does inflation. So what's our solution? Borrow more of course until it's impossible to even pay the interest on the loans.. and then what? I'm sure we'll find out in the next 10 years or so.
@One5thOfWhiskey i do believe that officials took what they thought was the best action to keep our entire modern world afloat. i think the fallout from these actions will have less impact that the fallout from what otherwise would have occurred. civilization is a constant work in progress.
For the first example doesn't the 900 turn into 1800 for the bank? If the borrower has a credit of 900 and pays workers 900 then there are really two deposits of 900 just for the first loan coming out of the original 1000
All this video proves is that the banks lie to the people and the government allows it. If I deposit 900g in your account then you loan out 810g of my money to someone else and tell me I have 900g in my account then you are lying to me. That is criminal and allows the bankers to get rich off our money and lie to our face and get away with it. We need to tear down this system.
This video is bs...if I didn't have a life & only a 500 character limit I would tear it apart-one big error of many is that gold is finite keeps system in check/fed printing money is infinite and out of control = recession, depression, or complete collapse. Neat fact Fed owns 5.127 trillion of gov bonds as of sep2009- they print money out of nothing and lend it to gov at 4.5-5% int so about 239b free money to private bankers running this whole *ucked up scheme via every cent of tax payers money
This video is bs...if I didn't have a life & only a 500 character limit I would tear it apart-one big error of many is that gold is finite keeps system in check/fed printing money is infinite and out of control = recession, depression, or complete collapse. Neat fact Fed owns 5.127 trillion of gov bonds as of sep2009- they print money out of nothing and lend it to gov at 4.5-5% int so about 239b to private bankers running this whole *ucked up scheme via every cent of tax payer's money
Yeah, I love these videos, but this one kinda made me do a double take a few times. If apples are "wealth", then so is gold. Both can be, and are consumed, both require energy to produce. Both are factors of production. If you just increase the money supply with some trivial book keeping and a *fractional* amount of labour, then it doesn't represent wealth, even if it's taken as such by the borrowers, and lenders who send this "money" off to buy resources, and hope for the best.
Surely if you asked everyone how much money they thought they had, you'd have to include money OWED as well. AS far as I can see this would have a negative effect and would bring the value back to the same as M0,
Please correct me where I'm wrong, but I thought $1000 in deposits under the fractional reserve system with a participating bank would allow $10,000 in new loans, $9,000 of which is created out of thin air via book entry.
@i4Truth i believe you are right, eventually the total amount loaned out is a product of the initial deposit multiplied by 100 times the interest rate on the loans. I believe the multiplier effect would be less if people did not continue to deposit their money in banks. Also, changing interest rates on loans changes the equations as well. I think finance is badass.
alright! lets do it this way. lets ignore the other things for a time being. he said himself, this is a very very positive example of FRS. but very very very very risky at the same time too. what if the investments aren't that productive? what if the investments aren't productive at all? this will create havoc. it'll be so brutal then. the concept of creating money out of thin air is very shaky. actually my point of view is, the current economy should be shifted to a real wealth economy system.
i agree with the first three videos, but this one has a problem... where does the revenue n the cost of materials come in - u only mentioned paying workers - this is flawed bcos there has to be more than 1000 G in order for this to properly work - this is way too simple and thus misleading...
i could see this working on a small scale with local currency, keeping the money circulating in the local economy, investing it in worthwhile, sustainable endeavors.
People just have to give a little time learning about this subjects. Ops, realize that there are an immense amount of people that truly dose not have the time to do it. The General Population is in the ands of the ones
also what if everyone was to run to the bank and ask for there money who gets the money? first come first serve ?
iamryko 1 day ago
in the real world this is done on a scale of billiion of dollars eg: FED prints $10,000,000 therefore you can say in a way this is an infinite money supply increase because that money will go to various banks and whatever project is funded those workers will go to there bank and so on... In Sal World you can say this is an increase in wealth if everyone was smart with money... but in the real world you FRB benefits the banks and the top tier wealthy.
iamryko 1 day ago
Debt based economy. Next please.....
nonlocality83 3 weeks ago
He says "As long as the investments are good investments," but what percentage of investments truly produce more wealth than they borrow? Just because an investment doesn't default doesn't necessarily mean that it produced as much wealth as it borrowed. This guy has a huge blind spot.
Luckilius 3 weeks ago
Oh, now I know that the point is not about there's too much money supply,the point is if the growing of real wealth can catch up with the money supply, it depends on those investments are good or bad.
In the past,I only look at the money supply and I always think there's are bubbles and bubbles,but now I realize that I never consider the real wealth.
Thank you for your amazing lesson, I love it so much!
dadac123 3 weeks ago
Holy shit this guy does a lot of repeating himself....
blubbaditty 4 weeks ago
this just makes wealth distribution more skewed in the favor of those who are able to obtain money first. who can do that, people with wealth...No wonder the "1%" are being rebelled against. the little guy is being shoved down further and further by the system that prides itself on "freedom and liberty for all" fractional banking seems to mean "freedom and liberty for THE CREATORS OF MONEY" it makes me sick.
smallisbeautiful26 1 month ago
they seem to suffer because after the money has been "disbursed" to the economy, things are going to cost more. and since their salaries dont rise, they are paying a greater portion of their salary for goods that were cheaper before these great "investments". Only the first few hands that touch this money truly benefit. It seems very criminal to me
smallisbeautiful26 1 month ago
the issue that seems to come up with this fractional banking, is the issue of an indirect tax on those who have nothing to do with these investments, and whose income does not grow with the money supply growth. more money in the economy, causes inflation. those who obtain the new dollars, can keep up with inflation...how about those who dont see any new money? (salaries, or anyone who receives an annuity or who simply isnt paid porportionaltely)
smallisbeautiful26 1 month ago
that's right synague of satan, i've just exposed your guyzes ULTIMATE SECRET in 1 comment. no wonder you guyz want this SOPA shit(internet censorship for video like these IRONY) and GMO(God move over-poison the masses). if I could join you i would, but im not white, or jewish (no chance for that). I guess I'll just have to move to some remote wilderness, while you steal, murder, and destroy humanity for your global conquest, or perhaps ill find the secret of telomeres (eternal life).. nuff said
crazyhipster545 1 month ago
hey you can't really blame them, i'd do the same thing if i were in their place. just knowing how rich i am and could become, the power i'd have, would give myself a self boner. By passing this tradition of deception down from generation to generation and bribing those (as much money as it takes-or assassination) who discover the secret of my admirable, wonderful wealth in the game of life and making new friends (disguised as sociable) to make it seem that i'm friendly and not a lone evil fox.
crazyhipster545 1 month ago
FRACTIONAL BANKING SYSTEM is corrupt, immoral and dishonest.
saul4002 1 month ago
to say that money creation leads to deflation is ABSURD.
saul4002 1 month ago
Isn't this creation of "real"money only creating inflation? Im just learning about finance, but if money that does not have any backing in physical goods (gold and silver) is moving around the economy then prices can go higher.
PsychedelicKiller93 1 month ago
Are these 'apples' representing the GDP of that economy? I am assuming as apples represent wealth (goods and services) and GDP is a measure of productivity of goods and services.
romansjw 1 month ago
Khanacademy is technically correct, but he gives us the assumption that the loans would not exist under free banking, and hence the economy would be stagnant otherwise. Don't be so easily duped. Loans still would exist without fractional reserve banking, though not quite as many because depositors would face reality and have to restrict their present consumption to make the investment
Another major omission is not everything inflates simultaneously, which is the cause of miscalculated loans.
ssgurgs9 1 month ago
This is the first time I actually understand how money works
goauld88 1 month ago
@goauld88 same here, maybe thats why they want SOPA?
crazyhipster545 1 month ago
@crazyhipster545 hell, i bet my soul their reading this right now.
crazyhipster545 1 month ago
@crazyhipster545 this planet is an amusing place.
crazyhipster545 1 month ago
I have an exam tommorrow and suddenly i have found a great teacher in you.
indubitablesb 1 month ago
Communism looks good on paper, too... In the real world, power-hungry Jews hold on to the money, or give it to their friends... Unless you are Illuminati, FRB will be responsible for you starving to death. Y'all better make sure you're prepared, because when shit goes down, you will die if you believe the mainstream.
AnonTheWindCriesMary 2 months ago
if you're the only bank and you're economy created more apples there's still only 1000 gold pieces to purchase those apples.
chad071981 2 months ago
Thank you for making this video! I want to point out - the whole system is entirely dependent on the banks having perfect lending practices; if there is ever mal-investment, it creates bubbles in the economy when the borrowers do not pay back their loans. This system of banking is immoral because no bank is perfect in its lending practices. Make no mistake: FRB is theft - the gold cannot be exclusively owned simultaneously by the borrowers and depositors. That is impossible.
metalguitar311 2 months ago 7
@metalguitar311 You point out that FRB is immoral for the reason given and I agree with you. But how do you then expand the economy and create wealth/deflation without this system in place?
mikek241 2 months ago
@mikek241 One point of disagreement from me. In a free banking system, you can still lend out that 900 pieces, but the lender's account SHOULD be 100 pieces after that. Likewise, the workers can deposit the 900 pieces, and the bank can lend out 810, but the workers accounts SHOULD be 90 after that.
You make it sound like these lendings suddenly wouldn't exist without FRB. They still would and the economy would still grow. Not as fast since lenders would be somewhat more scarce, but more stable.
ssgurgs9 1 month ago
@ssgurgs9 ...Right, so basically, there needs to be consent from the lenders that their deposits are being lent out for a specified period of time. Basically just like with any investment the risk is built in and needs to be taken into account.
I guess the problem with FRB is that it pyramids debt, while giving the assurance to its depositors that their savings are all there. You make a good point, the economy would still grow, just without the volatility of booms and busts.
mikek241 1 month ago
This video demonstrates how the people who received the loans have actually stolen the wealth from the people who are not on this graph but had the gold before.
LasagnaSurfer 2 months ago
'Irritation canal' at 0.33... :-) That's what you feel after taking a bad dump...
'It will probably make you live happier if you realize this difference' (9.35) Nice said!
Pettenderk 3 months ago
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Adriaan1950 3 months ago
the reality is that pyramid keeps on going up and up and up.... return of investment takes time. But when people needs money, lets say there's a big event took place... that pyramid is not going to hold. Because the taller it goes the thinner it would be.
Melki 3 months ago
Any body know the software that Khan uses for illustrating in these videos?
TheCapitalistdog 3 months ago
what does the diagram look like when the created money is being spent on overvalued real estate rather than productive industry?
chrstsldr 3 months ago
@chrstsldr Since the real estate was overvalued, it would mean that the actual wealth goes down (I think). But there's still the same number of gold pieces. So what you end up with is inflation (same number of gold pieces, but less wealth). In the real world there are a lot more factors that come into play, but in this diagram, that's how it would probably look.
Chaaarge 3 months ago
You are incorrect about the definition of M1. It includes M0, and therefore would be 3,710. Also, you are incorrect about gold not having intrinsic value. You can make it into jewelry, put in fillings, use it in electronics, etc. It also represents a store of wealth. A miner and minter had to put labor into extracting and minting it into a coin. Paper money takes much less labor. I applaud your effort, but you need to learn more about sound-money principles.
ForbiddenStallion 3 months ago
A negative interest money system creates paradise on earth:
youtube.com/watch?v=7kk6fplyLTI
Adriaan1950 3 months ago
Wouldn't it be nice if real world investments were as good as your example.
HigherPlanes 3 months ago 13
Going back to the example here and the 2710M for 1000apples, the loan on 'new money NOT backed by savings' would be the same as stopping looking for berries when you may not have saved enough to be able to afford your project.
josvazg 4 months ago
@Anduy
For more detail you can go to Huerta de Soto's videos (there are some in Spanish) but using one simple example he used:
Suppose you are in an island and your life support are some "berries" you costly collect from high up in the trees.
Your investment is save enough berries to stop collecting them for a few days so you have time to prepare/build a long stick/handle to get the berries easily.
josvazg 4 months ago
@Anduy
NO you can't ASSUME that investments take ZERO time to complete. That is precisely the point.
Even if the investments take ONE year to complete (and succeed, imagine that it was a failure...) people will start to spend as if they were already 2719M1 but there are just 1000apples, as nahsirah pointed out. The "knock on that happens" and he/she thinks is a good thing is what will bring up the problem.
josvazg 4 months ago
The 2,710G pieces Do Not exist! You kept saying 'IF' sir. 'IF' the investments/borrowers are able to pay back what they initially borrowed (plus more.. maybe). So suppose these projects take a year to build; iz the bank really going to tell people that it holds 2,710G in current wealth during that year? What if one borrower defaults on the loan? Both? What if while the money iz loaned out the Farmers come to make a withdrawal?... And they want more than 10%? What does the Bank of Saul do?
LyfeIzLike 5 months ago
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dervish2173 5 months ago in playlist Banking and Money
The concept of interest makes the system bankrupt by design. There is never enough money to pay the loans back to the bank. The interest can only be drawn from other loans made. Stopping the creation of loans will result in deflation and a destruction of the total money supply. The only solutions i can foresee is either no interest (not realistic) or profit-sharing between lender and borrower!
Watch money as debt and The Money Masters and you will find out.
frankknopers 5 months ago
@frankknopers watch salmon khans videos on banking not that conspiracy theory bullshit. i contacted the guy who made money masters(he has a youtube channel as well) and he still hasn't told me where he got his sources from on a supposedly massive loan, which I was able to actually check out in the banks financial statements. watch the video before this so you understand fractional reserve banking fully, lender and borrowers both get paid interest. just see the bigger picture!
chillercm 5 months ago
I like how you described the fractional reserve system in these videos..But this "devaluation" scenario could easily be flipped the other way because your just assuming the irrigation and factory are increasing apple production by 100%.What if the new buildings only produced half more apples than the '1000 to 2000' grow you said they would.(1000 to 1500 and then 1500 to 2000 {MORE REALISTIC}.There would be 2000 apples to the 2710 "gold pieces,"therefor creating INFLATION which is happening today
Lyonfloww 6 months ago
SAL YOU ARE SO SMART
BakaDemi 6 months ago
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AshleyChatman11 6 months ago in playlist Banking and Money
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xyoursohotx14 6 months ago
Is there a reason that M1=e*M0 as the formula continues? Is this related to exponential decay?
Lemong12 6 months ago
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kj293 6 months ago in playlist Banking and Money
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niinja2 6 months ago
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niinja2 6 months ago
The biggest public campaign has started demanding a banking system that works FOR society and not against it. Visit POSITIVEMONEY website and JOIN the CAMPAIGN! ...and spread the word.
PositiveMoneyUK 6 months ago
to be removed from bank accounts in order to purchase the goods required to MAKE those investments profitable. Thus demolishing your idea that more money can be spent then was actually ever held by those banks. I cannot take 100% of money from my friends, keeping only 10% and loaning out the rest and expect to keep my legs intact when they come back looking for it. Especially if those people I loaned to went bankrupt (ie had no purchasers) The banks are lending money they don't have.
nogdog21 7 months ago
Your video's are so well laid out and explained I just wish you knew what you were talking about. I was with you 100% until you failed to realize that this process does create massive inflation when you remove it from your vacuum example and place it into the real world. Simply explained, for those investments to produce capital outside of your vacuum they require people to actually purchase the goods. Now assuming most people place most of their assets in the banking system, money will have
nogdog21 7 months ago
Hi,
firstly before i start asking my question, I wanted to say that your videos are great, easy to understand, and are really helping me out! Keep up the good work :)
What i wanted to ask is that the (in real life), who makes the initial 'deposit' (M0)?
Does this represent the higher-powered money that banks borrow from the central bank at the given base rate? i.e. some money is kept in reserves and the rest is lent out to borrowers?
Kind regards and thank you in advance!!!
markus12591 7 months ago
Exactly!
We are now suffering the consequences from this multiplier effect brought to us by Fiat Money + Fractional Reserve Banking.
But still Keynesians and Governments still try to convince us that that kind of stealing from peoples pockets it's alright!
josvazg 8 months ago
A really nice video that you made.
Except that it is basically completely wrong.
It is interesting that basically your economy produces gold as if it was paper money...
gogov85 8 months ago
If you add "interest" into the equation, how do you expect the ditch builders to pay back the interest on their loans?
StealThisIdentity 9 months ago
@StealThisIdentity
-
The interest comes from the wealth created from their project, if they couldn't get enough back from their project they shouldn't have borrowed and the bank shouldn't have lent the money.
TheSkepticalIdealist 8 months ago
@TheSkepticalIdealist Thanks
StealThisIdentity 8 months ago
It's worth noting that the multiplier effect exists in full reserve banking as well. The only difference is that the depositors cannot withdraw their money from the bank until it's been paid back by the borrowers (if their money has, indeed been lent out).
DNAutics 9 months ago
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DNAutics 9 months ago
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DNAutics 9 months ago
I notice that there is no mention of the money supply's effect upon the rate of interest, as well as the distortions that this will cause on the capital structure's line of investment versus the actual ability of the economy to consume such products from the result of the increased capital investment. The capital structure was increased far beyond the ability of the consumers to consume the resultant products of such an increase (due to lack of savings), thus a crash is inevitable.
synestheticmonotony 9 months ago
Wondering why we are talking with Gold, gold standard has been taken off in 1930's domestically and in 1974 internationally in Us. What is the difference between money and credit? Banks create credit out of nothing. See Zarlenga's extensive research on process of money creation and history/myth of money. Ask whether money is a private commodity or public service? we can have debt-free public banking and treasury issueing our money instead of commercial banks profiting out of people's ignorance.
00iam 10 months ago
@00iam Zarlenga left out completely the coordination of the capital structure with regard to interest, as well as its relation to the actual cash holdings (savings) of the consumer. Simply taking the counterfeiting power from the central banks and handing it over to the treasury does not negate the detrimental effects that increases of the money supply have on the prices of capital goods, the diminishing marginal utility of money, nor the lack of savings to consume these future goods.
synestheticmonotony 9 months ago
Wondering why we are talking with Gold, gold standard has been taken off in 1930's domestically and in 1974 internationally in Us. What is the difference between money and credit? Banks create credit out of nothing. See Zarlenga's extensive research on process of money creation and history/myth of money.
00iam 10 months ago
I'm still going to mug you... I want your brain.
elijohua 10 months ago
The problem with fractional reserve banking is the 'I' or interest obligation it creates. where is that money supposed to come from? employers can only pay workers the total of the principal amount borrowed, and in turn employees can only purchase the amount of goods equal to the principal they were paid. However, there is still this 'interest' obligation to the bank, for this system to work, then the employees would have to borrow and pay interest. and the cycle continues...
10scgomes 11 months ago
i love sal's reveiew and expand teaching technique. inspiring
arseneremy 11 months ago
The system doesn't work, and we all know it, and it will kill us all. Problem being that if anyone tries to create change and influence people they can be paid to shut up, or killed and others paid to cover it up. The system itself is used to protect the people who control it. It makes me feel sad, we could have so much more.
1484dan 11 months ago
wow such a smart guy defending this corrupt scheme
jackass77780 11 months ago
@jackass77780 He is not defending the corrupt scheme, he is simply explaining how it is supposed to work "IN THEORY"; why are you so quick to judge? He has a video explaining the causes of the economic collapse you should look it up.
esiosan 11 months ago
@esiosan because he's helped by bill gates
InToonamIsLegacy 10 months ago
@InToonamIsLegacy so? Isn't Bill Gates amongst the biggest philanthropists of all time? What's your "beef"?
esiosan 10 months ago
@esiosan so are the rothchilds, he also supports population reduction. That's enough stink.
InToonamIsLegacy 10 months ago
@InToonamIsLegacy It is very easy to become conspiratory after watching certain videos on the internet. It is important that you fact check everything, and think critically about the cases presented, as well as to consider other possible logical implications on the subject. Given your last comment, I am inclined to end our conversation here because it has a tendency to spiral into negative exchanges. I suggest watch this video at your convenience if you may /watch?v=eUB4j0n2UDU
Regards
esiosan 10 months ago
10:50 "Pie of Apples Bigger" Apple Pie mmmm
ps2onboard 11 months ago
an apple is now worth less so the farmer is making less money. but the bank made a profit by creating wealth. seems unfair
Ianmcl0889 1 year ago
The problem with this system is that the economy has to continuously grow at an exponential rate in order for it to be sustainable. Eventually you are going to run into some physical limits and when you do.. total disaster.
jam454 1 year ago
Wrong
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madonakuse 1 year ago
The problem is that if too many people come up and ask for their money at once it creates a bank run. Things happen or some people may just decide to remove their money at the same time. Those projects take a long period of time to complete while you only have 1000 G total in the bank and you have lent out over 2.5 times that much.
Luigi84289 1 year ago
It may be temporary or permanent. NOT all investments pay off, and when the credit expansion is too big (as it has been lately) then investments are doomed to fail because of the credit expansion itself. The market makes people discover there are not enough resouces for all projects to success at the same time. Prices of resources and workforce go up, then interest rates and then the collapse!
josvazg 1 year ago
It may be temporary or permanent. NOT all investments pay off, and when the credit expansion is to big (as it has been lately) then investments are doomed to fail because of the credit expansion itself. The market makes people discover there are not enought resoures for all projects to success at the same time. Prices os resources and workforce go up, then interest rates and then the collapse!
josvazg 1 year ago
What happens if the farmer gets pissed that he isnt making as much money per apple and decides to store his apples till he gets a better price but in the mean time the apples rot?
Also, does the fact that pretty much everyone on the planet recognises gold as money not give it an inherent value?
jimberkt 1 year ago
Hey Sal,
Nice video, it explains the multiplier effect well and you also inadvertently explain how we came to the GFC. When you say that as long as the bank is investing in projects that create wealth, not money, then the system works. Sure there will be ups and downs but for the most part it is a reasonably stable system. However, what happens when banks start investing in options and derivatives. These don't produce wealth, only money, and therefore the system will crash time and again.
matthewdunbaris 1 year ago
@matthewdunbaris You make a very good point.
bad4ever2001 1 year ago
I'm reading a book about apple farming. The guy goes from being an obstetrics doctor to an apple farmer, and he likes apple farming better.
Mostly b/c his mentor taught him to be an abortionist along w/ showing him how to deliver babies.
It's called 'The Cider House Rules.'
vickiormindyb 1 year ago
....an educated and eloquent idiot...
give me the 1:10 power + the the interest and i will be rich.....this is a parasite system,,,,,it used to be called usury , now it is not only legal, but the keynes idiots think its good.....
this looks good but use your brain for once....
mpeg3universe 1 year ago
@mpeg3universe .....Right on couldnt have said it better, parasites being the bankers who dont lend out their own capital, but other people's ... fukin criminal these bastards..heres an idea how bout you lend out your own capital mr bankster instead of using the "multiplier effect" or leverage. then when you have selected a good capitalist project it will bring back real money from a project then you can can keep your earned proffits insted of collecting money off of the principal of OPM!!!!!
Shebadad 1 year ago
i think sal sounds a little bit like obama
monivalinsky 1 year ago
i dont know if anyone corrected you yet but when you wrote over the 90G thinking it was 900 it was orignially 90G and you mistook the G as a 0 otherwise great vidoes
twosideddeth 1 year ago
so you lent out 900gold to the irrigation project...where on the diagram does it show the 900g that they paid back? Incuding or excluding interest.
kvn89 1 year ago
@kvn89 he doesnt show interest paid on money lent to the bank or money gained from loans to project to simplify the situation
twosideddeth 1 year ago
Your wrong because now that the apples are worth less the farmers will make less money and have too many damn apples. If they cant sell their extra apples then they can't pay the extra workers they needed to harvest the apples. This system is based on the hope all goes well with the apple farmers. We dont live in a perfect world and apples might not grow every season. If the Bankers draw from their extra money to pay the workers and the bank has loaned it all out then the bankers dead meat.
jayjasonbird 1 year ago
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LALakers1120 1 year ago
The creation of more money IS the inflation. More Federal Reserve Notes the same amount of goods drives prices up because of scarcity. Without the creation of more fiat currency prices would be driven up only as a result of more gold flooding into a particular market BUT the value of gold would remain the same but the VALUE of the products in that market would increase. The value of the medium of exchange would remain the same. Not so with printing more paper FRNs.
sambking 1 year ago
That's true.. better couldnt have been explained. Pumping money into the system which is that the Feds having doing during the crisis only produces inflation, and devalutes the dollar, and in each devaluation we are more a and more. A horrible tale.
nalcow 1 year ago
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That's true.. better couldnt have been explained. Pumping money into the system which is that the Feds having doing during the crisis only produces inflation, and devalutes the dollar, and in each devaluation we are more a and more porr. A horrible tale.
nalcow 1 year ago
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That's true.. better couldnt have been explained. Pumping money into the system which is that the Feds having doing during the crisis only produces inflation, and devalutes the dollar, and in each devaluation we are more a and more poor. A horrible tale.
nalcow 1 year ago
It's the Interest. The interest is the problem.
kermitcintronsucks 1 year ago
WHY WE ARE IN SO MUCH DEBT is another good video. It provides one of the simplest, clearest explanations yet of our monetary system. Highly recommended.
SilentNoMorePubs 1 year ago
So can the wealth in gold ever exceed 9000g?
Keyguya 1 year ago
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This is not correct. Fractional Reserve plants the seed for the Recession cycles itself automatically.
The difference is that new money is created BEFORE the investment actually creates the new WEALTH, BECAUSE INVESTMENTS AREN'T BACKED BY REAL SAVINGS!
That is VERY IMPORTANT, if the irrigation system and the factory takes 1 year to complete during the year you ALREADY have 2710M1 but only a WEALTH of 1000apples a year.
josvazg 1 year ago
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This is not correct. Fractional Reserve plants the seed for the Recession cycles itself automatically.
The difference if that new money is created BEFORE the investment actually creates the new WEALTH, BECAUSE INVESTMENTS AREN'T BACKED BY REAL SAVINGS!
That is VERY IMPORTANT, if the irrigation system and the factory takes 1 year to complete during the year you ALREADY have 2710M1 but only a WEALTH of 1000apples a year.
josvazg 1 year ago
This is not correct. Franctional Reserve plants the seed for the reccession cycles itself automatically.
The difference if that new money is created BEFORE the investment actually creates the new WEALTH, BECAUSE INVESTMENTS AREN'T BACKED BY REAL SAVINGS!
That is VERY IMPORTANT, if the irrigation system and the factory takes 1 year to complete during the year you ALREADY have 2710M1 but only a WEALTH of 1000apples a year.
josvazg 1 year ago 19
So? That's only a temporary situation until the loan starts paying off.
rufsketch1 1 year ago
@josvazg I agree. He makes a conclusion way to soon. He just took a random positive efficiency factor and ignored the factor of time.
Koenraedus 10 months ago
@josvazg Not to mention that a perpetual, ever expanding debt will lead to an extreme need of money and, in return, wealth if you are to maintain or improve on the value of your currency. Perhaps not so coincidentally actual wealth is also a nation's only option to pay off it's loan once it has defaulted, which it inevitably will when it has to pay back principal + loan with only principal.
One only has to look at current Greece to see the end result, the country is literally being carved up.
PresAndrewJackson 8 months ago
@PresAndrewJackson meant 'interest' instead of 'loan'.
PresAndrewJackson 8 months ago
@josvazg i think you're taking a few things out of context. it's a generalization. not everything in the world is that intertwined and dependent on the next.
Zander101084 5 months ago
@Zander101084
No, IT REALLY is that simple. Investing is a RISK.
If you spent previously saved capital then your investment can succeed or fail:
- If it succeed, great you improved the level or wealth.
- If not, you just lost some savings, but hey, that was money you didn't need to keep on living as you were up to that moment. Keep on saving and better luck next time.
But if you spent MONEY NOT SAVED BEFORE, you better succeed, cause otherwise you will be forcing leaving standards down!
josvazg 5 months ago
@josvazg You're also not considering the percentage of risk. That was an issue that brought the recession down this 2008, that loans were irresponsable and investments wern't giving back money through morgages. The world isn't a perfect sittuation.
IDK about the whole Fed. Res. planting seeds for recessions. the only way they could do that is if they downgraded the policy to make lending much simpler. Seems a bit complicated but I suppose it's always a possibiliy, but I highly doubt it.
Zander101084 5 months ago
@Zander101084
On the contrary, RISK is very important, as I explained before, investing ON SAVINGs is the way to go, BUT fractional reserve banking allows you to CHEAT and invest WITHOUT SAVINGS.
The Fed and ECB and all central banks are fixing by political agenda mostly the interest rates for new money.
THAT IS the origin of all disasters.
Interest rates are a very important market price.
josvazg 5 months ago
@Zander101084
That prices tales you whether people prefer to save or consume, if investing is cheap or expensive, etc.
Risk is also contained in that price. It interest rates are low it means that you get more money easily investing on the long run. In that scenario savings should be high (and consumption relatively low) as many savers are competing to get interest from their savings and are forced to lower "the price" (the interest)
josvazg 5 months ago
@Zander101084 When the Fed and other central banks, that sustain the Fractional Reserve Banking, start to manipulate the price of money, the interest rates it can lead to false signals like the ones we had:
Low interest rates WITH Low savings and high consumption. The perfect recipe to start long run investments like real state, that are doom to fail, as there is NO enough savings to finish them.
Sooner or later labour and basic resources will go up, and investments WILL fail and lower wealth.
josvazg 5 months ago
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nahsirah 4 months ago
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nahsirah 4 months ago
@josvazg you are missing the knock on that happens during construction of the plant ie.. building materials, steel, crane hire, consumption by workers ie. lunch at site
nahsirah 4 months ago
@nahsirah
Not at all.
All activity generated MUST be backed UP with previous savings, if not problems arise sooner or later.
Cause we did not stop consume so that all that extra activity can take place, sooner or later it is detected that the new projects are MORE expensive it was thought they will be and they will be less valued that expected, loans can't be repayed and banks collapse...
josvazg 4 months ago
@josvazg I don't get your point. You can assume that the investments in Salman's example complete immediately. Suppose the investments take 1 year to complete, what is the impact of having 2710 M1 and 1000 apples in the first year?
Anduy 4 months ago
@josvazg exactly....what happens is that he is trying to simplify a system too much,perhaps try to make the video's longer in order to demonstrate to the fully that there is no closed circuit on banking,
WilliamNaville 3 months ago
That is NOT an example of fractional reserve banking. If the people were to withdrawal their money at once it would simply create a run on the bank. In your example NO money is created. The money in circulation has remained the same.
dellwon 1 year ago
@dellwon Most certainly not true. Money is created, The Monetary amount of money M1 has changed. M1 consists of physical money and the direct withdrawable accounts. So yes money has been created.
ludoludo77 1 year ago
good vid.
KhmerD0g 1 year ago
I am so gonna mug Sal!
Taowhr 1 year ago
Something that's not addressed is the price of other goods within the economy. Although this system reduces the price of apples, by debasing the money supply from 1000 to 2710, the price of oranges would increase if the new productive capacity didn't increase the output of oranges proportionally.
In reality, FRB is the root cause of inflation.
Also, with gold you CANNOT have FRB because there would be a run on the bank. Unfortunately, you can never have a level playing field with FRB.
79eXistenZ 1 year ago 13
@79eXistenZ Wait, so the price of oranges would increase as the price of apples decrease....so does that mean that the price increase of oranges would be greater than the decrease in price of apples? Is that what causes the inflation? Also, why can you not have FRB with gold...why can't gold represent money? Is it because gold cannot be created?
Gianluca06 1 year ago
@79eXistenZ then people will eat less oranges and eat more apples, since apples are becoming cheaper and oranges more expensive. the fall in oranges demand will cause the price of oranges not to rise that quickly. but on the whole people will still consume more because it is easier to produce so many apples.
dastechnoviking 8 months ago
@79eXistenZ It would debase other products like oranges if the productivity capacity didn't increase, but an increasing price signals for more production and in a perfectly competitive world, the supply would increase so the purchasing power is the same again.
drf7at1 3 months ago
fantastic;) please continue same video to explain more about inflation. how the government decides how much money to print and why.
propnash 1 year ago
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In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks.
fury350z 1 year ago
And just for correction, the "10%" is taken from the reserve, but the remaining reserve is not actually deducted for a loan, that loan money is created from nothing. The reserve is untouched. The money that is created "borrows" the value of the reserve money, therefore devaluing that value. That is why they HAVE to add interest to the loan. Get it?
fury350z 1 year ago 3
In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks. **continued
fury350z 1 year ago 3
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fury350z 1 year ago
This has been flagged as spam show
In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks.
fury350z 1 year ago
This has been flagged as spam show
In a perfect world where corruption and dishonesty did not exist, this could be possible. But the reality is, banks did not create Fractional Reserve Banking for the purpose of the above example. No! They created it for profit! This example is an over simplified version of how money is really created by the banks.
fury350z 1 year ago
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fury350z 1 year ago
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fury350z 1 year ago
There's another way to get FREE MONEY from a debit card ... legally. :)
DebitCardMillionaire 1 year ago
Hi. You said: " 2710 g (M1) represent real wealth IF those industries will produce EVENTUALY..." So , why dont you state clearly that actually 2710 does not represent real wealth? It will , only if....but actually, it is not...right?
gensisyan 1 year ago
that's the thing right? you wouldn't want to produce more apples because apples end up costing less per apple. you wouldn't want to ensure that the loans you make are "good". you just want to loan out as much as possible no matter how TOXIC it is, because you want to make more on interest. The promise is that if you multiply money, you make more wealth, to multiply money you seek to make profit, but it is infinitely easier to make more profit, by consolidating wealth, or worse screwing with it.
kzymeth 1 year ago
at texas tech university in rawls college of business money m1 is cash coin travelers checks, and checking account deposits and m2 is m1 and savings deposits, money market mutual funds, time deposits and other deposits ; and another term interchangeable with your gold pieces would be call it currency, m1
rbmaserang 1 year ago
The total amount of Money Supply M1 that can be created is 10,000G. This is the result of the geometric series. 1000+0.9*1000+0.9^2*1000..... etc. The result is 1/(1-0.9)*1000G = 10,000G
Slaughtermaster111 1 year ago
@Slaughtermaster111 one that that's important that we should also remember is AAAAHHHHHH BEES GIANT BEES!!!!!!!!!!!!!!!!!!!!!!!!
covingtonium 1 year ago
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Vanderbillion 1 year ago
bankers should be shot and gvt should produce money
MrMick73 1 year ago
@MrMick73 nay nay, we should all become bankers and take shots with the govt HARDY HAR HAR, TILT ONE BACK WITH ME DOG!!!
covingtonium 1 year ago
thank you!! helped out alot!
jcise 1 year ago
that's retarded, if the investment doesn't pay ALL pay for its failing. It's more appropriate if those involved with the expansion worked for free (invested their labor) (they will of course collect when/if their investment spawn revenues in some future), if it then fails it's those who made the investment who pay, NOT ALL. Also, the banks don't lend those gold-coins for free, but that's another story (... and not a good one...)
Iamfatbrain 1 year ago
@Iamfatbrain you dumbfuck, the FEE associated with the banks lending those "gold coins" is called a "finance charge" and is equivalent to the interest percent charged on the loaned amount lol cockbird jesus have you ever gotten a loan?
covingtonium 1 year ago
I think this only works if the investment pays off. If not that will cause a problem.
kwak76 1 year ago 2
@kwak76, You are correct. That's why he specified if it's a "real investment". A properly functioning bank looks for collateral and assured payback, not just a promise of a good idea.
notme222 1 year ago
@kwak76 mmmmmmmm yes precisely why credit ratings are so important
covingtonium 1 year ago
And if the government borrows trillions of dollars which it then "invests" in bad loans and spending and cannot pay back to the bank (fed), then the money supply increases dramatically as does inflation. So what's our solution? Borrow more of course until it's impossible to even pay the interest on the loans.. and then what? I'm sure we'll find out in the next 10 years or so.
One5thOfWhiskey 1 year ago
@One5thOfWhiskey i do believe that officials took what they thought was the best action to keep our entire modern world afloat. i think the fallout from these actions will have less impact that the fallout from what otherwise would have occurred. civilization is a constant work in progress.
covingtonium 1 year ago
For the first example doesn't the 900 turn into 1800 for the bank? If the borrower has a credit of 900 and pays workers 900 then there are really two deposits of 900 just for the first loan coming out of the original 1000
canaan1967 1 year ago
All this video proves is that the banks lie to the people and the government allows it. If I deposit 900g in your account then you loan out 810g of my money to someone else and tell me I have 900g in my account then you are lying to me. That is criminal and allows the bankers to get rich off our money and lie to our face and get away with it. We need to tear down this system.
manilaenglish 1 year ago
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This video is bs...if I didn't have a life & only a 500 character limit I would tear it apart-one big error of many is that gold is finite keeps system in check/fed printing money is infinite and out of control = recession, depression, or complete collapse. Neat fact Fed owns 5.127 trillion of gov bonds as of sep2009- they print money out of nothing and lend it to gov at 4.5-5% int so about 239b free money to private bankers running this whole *ucked up scheme via every cent of tax payers money
ramzysharif 1 year ago
This video is bs...if I didn't have a life & only a 500 character limit I would tear it apart-one big error of many is that gold is finite keeps system in check/fed printing money is infinite and out of control = recession, depression, or complete collapse. Neat fact Fed owns 5.127 trillion of gov bonds as of sep2009- they print money out of nothing and lend it to gov at 4.5-5% int so about 239b to private bankers running this whole *ucked up scheme via every cent of tax payer's money
ramzysharif 1 year ago
Yeah, I love these videos, but this one kinda made me do a double take a few times. If apples are "wealth", then so is gold. Both can be, and are consumed, both require energy to produce. Both are factors of production. If you just increase the money supply with some trivial book keeping and a *fractional* amount of labour, then it doesn't represent wealth, even if it's taken as such by the borrowers, and lenders who send this "money" off to buy resources, and hope for the best.
barleyLEGALdotCA 1 year ago
Surely if you asked everyone how much money they thought they had, you'd have to include money OWED as well. AS far as I can see this would have a negative effect and would bring the value back to the same as M0,
sharperguy 1 year ago
Please correct me where I'm wrong, but I thought $1000 in deposits under the fractional reserve system with a participating bank would allow $10,000 in new loans, $9,000 of which is created out of thin air via book entry.
i4Truth 2 years ago
@i4Truth i believe you are right, eventually the total amount loaned out is a product of the initial deposit multiplied by 100 times the interest rate on the loans. I believe the multiplier effect would be less if people did not continue to deposit their money in banks. Also, changing interest rates on loans changes the equations as well. I think finance is badass.
covingtonium 1 year ago
alright! lets do it this way. lets ignore the other things for a time being. he said himself, this is a very very positive example of FRS. but very very very very risky at the same time too. what if the investments aren't that productive? what if the investments aren't productive at all? this will create havoc. it'll be so brutal then. the concept of creating money out of thin air is very shaky. actually my point of view is, the current economy should be shifted to a real wealth economy system.
p4r4d1gm 2 years ago
sorry,
what happens to the cash when it is used to pay back loans?? does the bank keep that cash for itself??
biagiolembo 2 years ago
i agree with the first three videos, but this one has a problem... where does the revenue n the cost of materials come in - u only mentioned paying workers - this is flawed bcos there has to be more than 1000 G in order for this to properly work - this is way too simple and thus misleading...
smartcardia 2 years ago
i could see this working on a small scale with local currency, keeping the money circulating in the local economy, investing it in worthwhile, sustainable endeavors.
blahblahchachacha 2 years ago
People just have to give a little time learning about this subjects. Ops, realize that there are an immense amount of people that truly dose not have the time to do it. The General Population is in the ands of the ones