Banking 11: A reserve bank

[vainamoinen17]

End The Central Reserve Bank! lol

[mlevi2538]

nice.

mlevi2538@gmail.com

[AdrianAzian]

Thank You very much for the videos. I find this much more helpful than my macroeconomics class!

[MustangManiac1115]

@exquisitedoom Actually, no. Market creation of the central bank is still "evil". There is little need for the creation of the central bank if there wasnt fradulent fractional reserves in the first place. What would the banks need insurance on if they had all the money already? The only function a true, non fraud, market created central bank could do is supply a uniform bank note.

[allchangesintime]

brilliant as always. thanks for this :)

[Vikash137]

soo does this mean that a person can take their bank notes to the central bank and get gold? since the bank notes represent claim to that gold....

[oldereb38]

GOLD ASSET??? The Fed obtained $8.4 trillion last year from the auction of Treasury securities---OFF OF THE BOOKS--without Congress and the public being aware of it !!!! The Ponzi scheme Fed does not even report the income as they confiscate the wealth of the people and inflict perpetual indebtedness and national bankruptcy. Search the mathematical inevitability at RIP OFF BY THE FEDERAL RESERVE or 3W scribd dot com, message 48194264

[Downfurlife]

I do not know how much time I invested in these videos. But, I made it to this part. I have a strange feeling things are going to get fucked up.

[Luigi84289]

There has to be more than one central bank or we're going to have the same problem we have now with overprinting of notes. You can't put one bank in charge of everything. If say we had one central bank per state that all issued US dollars it would help prevent the problems that arise whenever you have a lone central entity that is all powerful.

[matthewdunbaris]

Hey Sal,

Your videos are great and explain banking in a nice and simplified manner. However, and I'm not bagging you just some constructive criticism, you get side-tracked alot and waffle on a bit. Keep the point you are trying to make clear in your mind and keep going at it. Like I said I find your videos really informative and easy to understand, just trying to help you improve.

[Ferrus91]

'they don't teach you this in business school' - economists (a higher species of student frankly) get taught this.

[angpetru]

... the problem today is that the banks don't hold anywhere near the amount the depositors actually put in, and the depositors of today are not informed of this and don't understand that some (though in modern times it's actually almost all) of their money is currently being lent out (hence we get runs on the bank). Either the banks need to make it explicitly clear to their depositors what they are doing with their money (best solution) or they need to keep large % reserves on hand.

[clray123]

@angpetru No, the "excess" loans are not a "problem" at all as long as (1) they are collateralized (that is, the borrowers put up some form of insurance against default and their creditworthiness is scrutinized) and (2) the depositors know what is going on (as they do!).

The "excess" loans are essentially just a way for the depositors to let the bank earn more interest using their money (by getting involved into more projects) than it could otherwise do.

[angpetru]

The problem I see in your interpretation of this video is the fact that these banks are working under a policy of fractional reserve at all. The original purpose of banks was to safeguard money (gold) and make loans out using some small part of the money they are holding. In exchange for loaning out their depositors money for a short time the depositor (knowing what is happening with their money) gets some of the interest paid on their loaned money.....

[ExquisiteDoom]

All day long i speculate about an entirerly free market without government. And you just woke me up to a fact Khan. Central banking is really not an evil, in fact it is an insurance company. The only problem is that it is subsidized by a bunch of irresponsible psychopaths, but that's just what government is. A full free market central bank would simply mitigate this risk in the same way you outline, defining the requirements which in turns defines the insurance rates. Markets work like a glove.

[personova]

Sal, shoring up the interbank accounts can happen at the reserve bank, or over the counter MM. During "normal" times of risks in underlying assets, the central bank can float "mistakes" to reduce systemic risk.

However, as you stated before the central bank cushion is only one part of the overall banking confidence equation. I would argue that the primary "security blanket" for most depositors, which is now essentially broke itself, is the FDIC.

[8Kole8]

wish i could play on paint this well

[high5flyer]

The Central Bank sets the Reserve Requirement, but what about the leverage ratio? Do they set that?

[santyias87]

Think about it twice..You think you really need a separate control over leverage ratio? Wont the reserve ratio requirement implicitly do that?

[BPMa14n]

tHanks for posting thgese videos. There is a lot of misinformation about the motives of centralizing currency and this is a simple view that opposes all the conspiracists

[ExquisiteDoom]

@BPMa14n No it doesn't. Central banking is fine, it's just a warehouse. And if people through market forces decide to use bank notes and forget gold, then the smaller banks do not need to central bank for much, lowering it's power. It's perfectly free-market. However this is not what you see today.

The government regulates the central bank and the government can only use force; what do you think happens in the long run? Twist the Fed's arm to print more money to cover it's own costs.

[logic2reason]

gold reserve?  Since when... lol

[blahdelablah]

So if the (non-central) banks no longer have gold but have checking accounts with the central bank, what interest is at play (do banks loan the money from the federal reserve at interest, or does the federal reserve pay interest to the banks for the gold deposits)? I'm guessing this will be answered later but I thought I'd post now in case anyone else was thinking about the same thing. Thanks for this vid series.

[jackuy12345]

thx dude u r better than all those boring teachers!!

[dko02]

Sal, thanks for another wonderful video that explains how banking works.  I have learned far more from your presentation than from any other source.

I do like that your presentation is very neutral and unbiased but essentially just logical.

Along with the other viewers, I'd like to hear your opinions about the current economic/financial crisis and what more optimal systems are available for us to choose.

[FranceParisian]

The problem with this system (video above) is that it is very much open to manipulation and fraud. Exactly what's happening now in our current financial crisis (depression 2008 to present).

Let's say in our body system, gold equals to fat in your belly, a little bit of fat is good for the body system to work in times of crisis (as fat can be converted to sugar/energy if the body need it so). However, what is happening is too much fat in the system that the body can not sustain it anymore.

[16rl]

how could too much gold reserves be bad ? i do not undestand your point "FranceParisian"

[siggyboss]

The whole system is unstable and fraudulent, and propped up by government. Reserve ratio = how much can you lie about total funds available to depositors.

[gwynedd1]

Initially regional banks and their notes could not create many more notes than they had reserves. If they did, people would begin to notice an excess of notes and would look to invest it. Since it was likely that it was locally saturated with capital they would invest outside the region. Since the notes were only good for the region, bank notes would be redeemed for specie and gold would begin to leave the bank since only gold was accepted outside the region.

[spitius]

Very, very well explained. Watch also MONEY AS DEBT, if you haven't yet, to really understand the implications of such a banking and monetary system which basically leaves the money we use at the mercy of the banking cartel. Sal is somehow neutral to that. But very good work indeed.

[FranceParisian]

Agree on your comment and yes Sal is very much neutral to this. I just wonder what is Sal's motivation of being too nuetral when he can actually critique the present crisis and effectively make a comparison and in the process people will understand more what is facing us in our economic climate at present.

[balanemate]

This is very interesting, thanks, Sal, for expaining! Just why all this is not taught in business schools, formal education? Any ideas?

[gwynedd1]

Because too many people would find out about it.

[FranceParisian]

This is why I say thank you Sal.

[aleardo]

@balanemate they teach this at yale for sure 100% exact material .. not sure for other university .. if you are still in a business school or finish MBA that still do not understand this at all, you better get your money back for real .. you've just wasted too much time, energy and money being fooled by education institution

[mystryunfold]

at this point, i dont think it wud solve run on bank problem, since the loss of repute on bank will make people to withdraw money from all the bank(if not gold). the option left with centrl bank is to print more note leading to inflation??

[FranceParisian]

....inflation...and hyper-inflation. Let me coin a word. How about MALFLATION!

[AFGddddd]

I've been watching all the banking videos and thank-you Mr. Khan. I have been trying to figure this stuff out for awhile and this is the best explanation out there.

No where in my education here in Canada did they cover this even remotely. And it is hard to find a good explanation of it just by googling.

[vkgoku2012]

So what do you see in store for U.S. Banking System do you think that inflation will be a big issue.

[jdrizd2]

I thought the fiat currency system was deregulated from gold several years ago and therefore this example would have no relevance to today's central banking practices. I am aware that if the government defaults on the loans there is a emergency contingent plan to remove all gold from central banks though.

[khanacademy]

I'm trying to get to modern central banks incrementally. We'll get to the workings of the modern Fed in a few more videos.

[melnick1985]

Thank you God bless you sir.

[DanMan7997]

He's demonstrating how the banking system has evolved... he'll get to the modern banking system in later videos.

[jdrizd2]

I can't wait..

[masakmerah]

Thanks Sal! YAYYY!!! In Sal We Trust!!!

[dakshinamurti]

I wonder if Sal thinks this monopolistic system where one private cartel has the sole authority to issue currency and can print money out of thin air, and have no asset backing in Real money is the best we can hope for.

[khanacademy]

You bring up a good point. I think a lot about that and am going to address this issue once we get through the mechanics of how everything works.

[dakshinamurti]

Hey that's great :) If possible, and if you find any, try to lay down some form of money/currency system that is workable under an anarchistic (anarcho-capitalist/free market/polycentric order) society.

[pongman]

Sal! Is there a test at the end of this series? If there is do we all get an MBA? Lol. Thank you for explaining all of this it is truly appreciated. I think you should open up a university and issue degrees to everyone. Thanks professor.

[khanacademy]

Frankly, they don't teach you this in business school (or anywhere in the formal education system as far as I can tell).

[jdrizd2]

Aren't the lesser 'colonies' delivering lesser notes? Bahamas, off shore gambling efforts.... Mathematics doesn't deliver cheaters....

[notToast]

hey im watching ur vid