Colonel Gaddafi was the greatest and, by far, the most effective humanitarian who ever lived. The Great Man Made River alone will save millions of lives (and that's why the Nato Nazis bombed it.) Gaddafi's plan for an African central bank, free of Rothschild \ Bilderberg ownership, would have freed Africa from the horror of the IMF and World Bank, and the Gold Dinar would have freed Africa from the Fractional Reserve system, thus saving millions of lives.
Your logic or understanding in this is missing and important aspect of banking today. You forgot to mention Mr. Clean.(FDIC) So when the bank of Aeon Flux makes "risky" loans that can't be repaid and the reserves are depleted Mr. Clean comes in and does what he is made to do and cleans up the banks mess. He "bails out the bank" and allows the bank to pay back its depositors. So now, where does Mr. Clean get this money? From the government(FED) which are loans basically from the taxpayer.
Your logic or understanding in this is missing and important aspect of banking today. You forgot to mention Mr. Clean.(FDIC) So when the bank of Aeon Flux makes "risky" loans that can't be repaid and the reserves are depleted Mr. Clean comes in and does what he is made to do and cleans up the banks mess. He "bails out the bank" and allows the bank to pay back its depositors. So now, where does Mr. Clean get this money? From the government(FED) which are loans basically from the taxpayer
Your logic or understanding in this is missing and important aspect of banking today. You forgot to mention Mr. Clean.(FDIC) So when the bank of Aeon Flux makes "risky" loans that can't be repaid and the reserves are depleted Mr. Clean comes in and does what he is supposed to do and cleans up the banks mess. He "bails out the bank" and allows the bank to pay back its depositors. So now, where does Mr. Clean get this money? From the government(FED) which are loans basically from the taxpayer
Nice video. However, please change your voice modulation a bit. Why? Because you are hitting some frequencies to which the human body may be physiologically sensitive. I cannot get a quarter of the way through without literally feeling like I am about to vomit. Nope, I'm not sick. The modulation is almost unbearable in its intensity.
what if instead of holding 10 cents in reserve and loaning out 90 cents, the bank chose to hold the whole dollar in reserve and then loan out 9 dollars?
I recently read a transcript of a telephone conversation with a Mr. Ron Supinski, of the Public Information Department of the San Francisco Federal Reserve Bank.
Mr. Supinski states that $7 can be created from every $1 deposited in a fed member bank.
The multiplier effect doesn't create money; however, banks create credit lines to businesses and search for reserves later. Those who believe that the money supply is endogenous make this argument.
What I don't understand are those who argue that debt defaults will cause the dollar to rally. But is there any money destroyed during a default? To me, a default on debt means party A won't pay party B anymore. How do defaults on debt affect the purchasing power of the dollar?
Money supply is endogenously determined. The way the 21st century banking system runs is different than it did fifty years ago. This is something Austrians and Neoclassicals cannot seem to figure out.
There are a plethora of reasons as to why debt-default causes deflation. The best one is that debt default makes credit harder to come by and therefore money harder to come by because bankers will be reluctant to lend. The money supply will contract.
Bear in mind that regardless of whether or not a debt is defaulted on (not repaid) by the borrower, the money that was borrowed entered the system - it was spent. Therefore, it has increased the money supply and will eventually wind up deposited again. Meanwhile, the original deposit which was referenced as "reserves" for this loan remains a 100% "liability" to the bank - meaning that it can be withdrawn completely by its depositor at any time, upon demand.
Demand for goods and services affects the purchasing power of the dollar. When credit flows freely, more people feel capable of purchasing more stuff, and prices rise in response to this increased demand. When people perceive that they are buried in debt, and barely able to pay their ordinary bills, and may lose their homes, demand (especially for non-essential goods and services) decreases, and so prices fall, thereby temporarily increasing the purchasing power of the dollar.
If you study that Principle of Multiple Deposit Creation chart carefully, you will see that the very first deposit consists of the proceeds from the Fed's purchase of Gov't debt - a T-Bill. Then 90% of that deposit is lent out, and the proceeds of that loan are deposited in another bank, from which 90% of THAT deposit is lent out, and spent on something, and then deposited in another bank by the person whose goods were purchased with it, and then 90% of that amount is lent out, and so forth.
Think about that chart carefully - you will hopefully realize that an additional $90,000 was added to the nations's money supply, having been created out of nothing. This additional spending power drives prices relentlessly upward over time, robbing anyone on a fixed income, and decreasing the value of our savings.
That chart shows you that the original $10K "reserves" is never reduced, PLUS the vapor money loans predicated upon it remain a part of the money supply.
And it's a load of bullocks that only works in a apriori/hypothetical world view (i.e. Austrian Economics.) Reserve ratios have little to nothing to do with how large the money supply is. Private banks create the money out of thin air then try to get the money to cover their reserves later. It's just like the status quo, tons of "printing" done by the Fed, but we are not seeing inflation. Why? Because it's all being held in excess reserves.
I can create my own bank too. My reserves are USD. I now lend out my own funny money. The funny money says that my bank will on demand pay up in $ the amount stated. As long as people trust my funny money enough for me to not blow my reserves I can lend out indefinite amounts of money.
I think you should look at M0, M1, M2, and M3 money supplies and the economic (neoclassical) definition of money, then it will become obvious to you as to how money is created.
They count the claim as money. (I know what you meant, but they do not count the debt as "as a store of value", just being a bit nit picky here.)
Assuming you are making interest off of Joe, you are making use of that $15 dollars at the same time that Joe is carrying it in his pocket. Thus, the use of the $15 in cash is spread out through $30 of money, because of this, the value of the cash has gone down. We have inflation.
You need to accept the fact that claims are as good as cash. It's like when I use a check at walmart. I do not give walmart cash. What walmart gets is a claim to my bank account. They will eventually get cash from that claim, but until they do, that claim is used as if it were cash. Essentially, the claim is money. Fractional reserve has no effect on cash, but it increases claims. Claims are money.
I'll make a video about this. The inflationary effects of claims are momentary and negligible. It's not even worth mentioning.
At any rate, the fact that something like a check can cause a brief period (day/week) of possible inflation, is simply a matter of convenience. All a check does, is save people the trouble of going to the bank. It's not some kind of inflationary scheme. It just saves people from making an extra trip.
This is sort of tangential to the discussion but do you think the generation of new money might be useful to a functioning economy given that new wealth is always being created through profit?
To my knowledge, real money expansion (that the Fed does) creates misallocation of resources/malinvestment. The Fed is essentially taking money from one person, and giving it to another. The Fed has no basis upon which to direct the flow of capital. This is why central planning always fails. There's no price system or anything that could guide their decision (other than political or personal interests).
Currency is only a means to facilitate the transfer of wealth. Currency is not wealth. I borrow $1 from the bank. I buy a candy bar for $1. The shop puts $1 in the bank as a deposit. I eat the candy bar, I refuse to payback the bank. I basically steal the candy bar from the shop by using the bank.
Money does not disappear, wealth disappears. The bank has to cover the bad debt, cost of being a bad bank. If the bank fails to cover the bad debt, then you will have less wealth.
Yes, in a good economy. But in this US economy, the bank just prints the money to cover the bad debt. The Federal Reserve is now printing money to cover the bad debt of the US government. They justify this because they feel all Americans are at fault so printing the money, stealing, is their way of making Americans pay for the bad debt. Except the government alone is responsible, not the people.
The Fed can certainly bail out a bank that goes goes bankrupt. I don't deny this. That however, is totally different (new money created by the fed in order to bail out a bank) is entirely different from the supposed "multiplier effect", where money is supposedly created through the practice of lending, every time the bank makes a loan.
If the 1$ deposit is loaned out again and again, at 20% Reserve Rate, until the bank has the whole 1$ in reserve its balance sheet would read 5$ liabilities (deposits by customers) 4$ assets (loans out) + 1$ reserves. Those 5$ are being used as real money, so the money supply has expanded. 4$ of commercial bank money has been created and is in the economy until all debts are paid back (which cant be done when interest is taken to account).
So you are right no new physical money (notes) is being created (unless the bank loans from to the Central Bank against its assets) but Money is not only Federal Reserve notes its debt.
If both Mrs. Powerbar and Mr Black Pepper and all the other depositors wanted there money back wouldnt it cause problems or if the debtors default on there loans? Is that what causes a bank to fail?
1) A bank wouldn't just lend out money unless they knew that it would be a secure investment (well, with a central bank backing them they can, but I'm talking about a free economy here). As long as all loans are returned the multiplier still makes sense.
2) There's no reason that the bank would have to lie about this. It can be perfectly understood by all the depositors that their money is being lent out.
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Colonel Gaddafi was the greatest and, by far, the most effective humanitarian who ever lived. The Great Man Made River alone will save millions of lives (and that's why the Nato Nazis bombed it.) Gaddafi's plan for an African central bank, free of Rothschild \ Bilderberg ownership, would have freed Africa from the horror of the IMF and World Bank, and the Gold Dinar would have freed Africa from the Fractional Reserve system, thus saving millions of lives.
davisoneill 3 months ago
I tried this at school and got my ass kicked.
BillWilliamsonSr 9 months ago
Your logic or understanding in this is missing and important aspect of banking today. You forgot to mention Mr. Clean.(FDIC) So when the bank of Aeon Flux makes "risky" loans that can't be repaid and the reserves are depleted Mr. Clean comes in and does what he is made to do and cleans up the banks mess. He "bails out the bank" and allows the bank to pay back its depositors. So now, where does Mr. Clean get this money? From the government(FED) which are loans basically from the taxpayer.
dpariet 10 months ago
Your logic or understanding in this is missing and important aspect of banking today. You forgot to mention Mr. Clean.(FDIC) So when the bank of Aeon Flux makes "risky" loans that can't be repaid and the reserves are depleted Mr. Clean comes in and does what he is made to do and cleans up the banks mess. He "bails out the bank" and allows the bank to pay back its depositors. So now, where does Mr. Clean get this money? From the government(FED) which are loans basically from the taxpayer
dpariet 10 months ago
Your logic or understanding in this is missing and important aspect of banking today. You forgot to mention Mr. Clean.(FDIC) So when the bank of Aeon Flux makes "risky" loans that can't be repaid and the reserves are depleted Mr. Clean comes in and does what he is supposed to do and cleans up the banks mess. He "bails out the bank" and allows the bank to pay back its depositors. So now, where does Mr. Clean get this money? From the government(FED) which are loans basically from the taxpayer
dpariet 10 months ago
Nice video. However, please change your voice modulation a bit. Why? Because you are hitting some frequencies to which the human body may be physiologically sensitive. I cannot get a quarter of the way through without literally feeling like I am about to vomit. Nope, I'm not sick. The modulation is almost unbearable in its intensity.
albinojones 1 year ago
what if instead of holding 10 cents in reserve and loaning out 90 cents, the bank chose to hold the whole dollar in reserve and then loan out 9 dollars?
TheUncleBastard 2 years ago
That's not how it works. That's a conspiracy theory.
"Reserve requirements are the PORTION OF DEPOSITS that banks may not lend and have to keep either on hand or on deposit at a Federal Reserve Bank"
D4Shawn 2 years ago
I recently read a transcript of a telephone conversation with a Mr. Ron Supinski, of the Public Information Department of the San Francisco Federal Reserve Bank.
Mr. Supinski states that $7 can be created from every $1 deposited in a fed member bank.
Google: Phone Call To The Fed Dan Benham
TheUncleBastard 2 years ago
If he were to actually explain the process, I'm sure I could easily explain flaws in his logic.
Most likely, this is the fallacy he's committing:
watch?v=Mi0xXmjnPgc
Like most people, he is confusing velocity with quantity.
It's actually a really obvious fallacy. I don't know why people have such a hard time understanding it.
D4Shawn 2 years ago
The multiplier effect doesn't create money; however, banks create credit lines to businesses and search for reserves later. Those who believe that the money supply is endogenous make this argument.
What I don't understand are those who argue that debt defaults will cause the dollar to rally. But is there any money destroyed during a default? To me, a default on debt means party A won't pay party B anymore. How do defaults on debt affect the purchasing power of the dollar?
luvbeingfree 2 years ago
Money supply is endogenously determined. The way the 21st century banking system runs is different than it did fifty years ago. This is something Austrians and Neoclassicals cannot seem to figure out.
There are a plethora of reasons as to why debt-default causes deflation. The best one is that debt default makes credit harder to come by and therefore money harder to come by because bankers will be reluctant to lend. The money supply will contract.
Minskyan 2 years ago
Bear in mind that regardless of whether or not a debt is defaulted on (not repaid) by the borrower, the money that was borrowed entered the system - it was spent. Therefore, it has increased the money supply and will eventually wind up deposited again. Meanwhile, the original deposit which was referenced as "reserves" for this loan remains a 100% "liability" to the bank - meaning that it can be withdrawn completely by its depositor at any time, upon demand.
HurricaneHeidi 2 years ago
Demand for goods and services affects the purchasing power of the dollar. When credit flows freely, more people feel capable of purchasing more stuff, and prices rise in response to this increased demand. When people perceive that they are buried in debt, and barely able to pay their ordinary bills, and may lose their homes, demand (especially for non-essential goods and services) decreases, and so prices fall, thereby temporarily increasing the purchasing power of the dollar.
HurricaneHeidi 2 years ago
This chart posted by the Fed illustrates what they, themselves, refer to as "Deposit Creation":
federalreserveeducation (.) org / fed101_html / policy / frtoday_depositCreation (.) pdf
HurricaneHeidi 2 years ago
If you study that Principle of Multiple Deposit Creation chart carefully, you will see that the very first deposit consists of the proceeds from the Fed's purchase of Gov't debt - a T-Bill. Then 90% of that deposit is lent out, and the proceeds of that loan are deposited in another bank, from which 90% of THAT deposit is lent out, and spent on something, and then deposited in another bank by the person whose goods were purchased with it, and then 90% of that amount is lent out, and so forth.
HurricaneHeidi 2 years ago
Think about that chart carefully - you will hopefully realize that an additional $90,000 was added to the nations's money supply, having been created out of nothing. This additional spending power drives prices relentlessly upward over time, robbing anyone on a fixed income, and decreasing the value of our savings.
That chart shows you that the original $10K "reserves" is never reduced, PLUS the vapor money loans predicated upon it remain a part of the money supply.
The 'ol shell and pea game
HurricaneHeidi 2 years ago
And it's a load of bullocks that only works in a apriori/hypothetical world view (i.e. Austrian Economics.) Reserve ratios have little to nothing to do with how large the money supply is. Private banks create the money out of thin air then try to get the money to cover their reserves later. It's just like the status quo, tons of "printing" done by the Fed, but we are not seeing inflation. Why? Because it's all being held in excess reserves.
Minskyan 2 years ago
This is wrong.. check out wikipedia on fractional reserve banking, clearly explains multiplier effect...
nwejq 2 years ago
I can create my own bank too. My reserves are USD. I now lend out my own funny money. The funny money says that my bank will on demand pay up in $ the amount stated. As long as people trust my funny money enough for me to not blow my reserves I can lend out indefinite amounts of money.
swdmn 2 years ago
I think you should look at M0, M1, M2, and M3 money supplies and the economic (neoclassical) definition of money, then it will become obvious to you as to how money is created.
KruZer7 2 years ago
They're counting debt as money.
If Joe has $20, and owes me $15, they are saying that that makes $35 all together, since debt is a form of money.
D4Shawn 2 years ago
They count the claim as money. (I know what you meant, but they do not count the debt as "as a store of value", just being a bit nit picky here.)
Assuming you are making interest off of Joe, you are making use of that $15 dollars at the same time that Joe is carrying it in his pocket. Thus, the use of the $15 in cash is spread out through $30 of money, because of this, the value of the cash has gone down. We have inflation.
KruZer7 2 years ago
You need to accept the fact that claims are as good as cash. It's like when I use a check at walmart. I do not give walmart cash. What walmart gets is a claim to my bank account. They will eventually get cash from that claim, but until they do, that claim is used as if it were cash. Essentially, the claim is money. Fractional reserve has no effect on cash, but it increases claims. Claims are money.
KruZer7 2 years ago 2
I'll make a video about this. The inflationary effects of claims are momentary and negligible. It's not even worth mentioning.
At any rate, the fact that something like a check can cause a brief period (day/week) of possible inflation, is simply a matter of convenience. All a check does, is save people the trouble of going to the bank. It's not some kind of inflationary scheme. It just saves people from making an extra trip.
D4Shawn 2 years ago
If you count money on your bank account as claims then the effects of commercial bank money/claim creation is anything but negligible.
swdmn 2 years ago
This is sort of tangential to the discussion but do you think the generation of new money might be useful to a functioning economy given that new wealth is always being created through profit?
atypicalguy 2 years ago
To my knowledge, real money expansion (that the Fed does) creates misallocation of resources/malinvestment. The Fed is essentially taking money from one person, and giving it to another. The Fed has no basis upon which to direct the flow of capital. This is why central planning always fails. There's no price system or anything that could guide their decision (other than political or personal interests).
D4Shawn 2 years ago
Currency is only a means to facilitate the transfer of wealth. Currency is not wealth. I borrow $1 from the bank. I buy a candy bar for $1. The shop puts $1 in the bank as a deposit. I eat the candy bar, I refuse to payback the bank. I basically steal the candy bar from the shop by using the bank.
Money does not disappear, wealth disappears. The bank has to cover the bad debt, cost of being a bad bank. If the bank fails to cover the bad debt, then you will have less wealth.
ZullGostnu2 2 years ago
"I basically steal the candy bar from the shop by using the bank."
Nope. The bank pays for the candy bar out of it's reserves.
D4Shawn 2 years ago
Yes, in a good economy. But in this US economy, the bank just prints the money to cover the bad debt. The Federal Reserve is now printing money to cover the bad debt of the US government. They justify this because they feel all Americans are at fault so printing the money, stealing, is their way of making Americans pay for the bad debt. Except the government alone is responsible, not the people.
ZullGostnu2 2 years ago
The Fed can certainly bail out a bank that goes goes bankrupt. I don't deny this. That however, is totally different (new money created by the fed in order to bail out a bank) is entirely different from the supposed "multiplier effect", where money is supposedly created through the practice of lending, every time the bank makes a loan.
D4Shawn 2 years ago
Liabilities = Assets + Reserves
If the 1$ deposit is loaned out again and again, at 20% Reserve Rate, until the bank has the whole 1$ in reserve its balance sheet would read 5$ liabilities (deposits by customers) 4$ assets (loans out) + 1$ reserves. Those 5$ are being used as real money, so the money supply has expanded. 4$ of commercial bank money has been created and is in the economy until all debts are paid back (which cant be done when interest is taken to account).
Nahuaque9 2 years ago
So you are right no new physical money (notes) is being created (unless the bank loans from to the Central Bank against its assets) but Money is not only Federal Reserve notes its debt.
Nahuaque9 2 years ago
"Those 5$ are being used as real money, so the money supply has expanded."
No. If $5 is used, it comes out the reserves. There's no money creation. All the money people think is being "created" is coming out of the reserves.
D4Shawn 2 years ago
If both Mrs. Powerbar and Mr Black Pepper and all the other depositors wanted there money back wouldnt it cause problems or if the debtors default on there loans? Is that what causes a bank to fail?
brave89ulysses 2 years ago
Mrs. PowerBar is a Transsexual whore...
Cailwyn 2 years ago 6
Good videoo, but you miss two things.
1) A bank wouldn't just lend out money unless they knew that it would be a secure investment (well, with a central bank backing them they can, but I'm talking about a free economy here). As long as all loans are returned the multiplier still makes sense.
2) There's no reason that the bank would have to lie about this. It can be perfectly understood by all the depositors that their money is being lent out.
Loserido 2 years ago