Banking 7: Giving out loans without giving out gold

[peleok1]

Sal for president!



[LieDownAndSing]

at first i tot somethings wrong wif my speaker lol

[kourosh89]

Is equity a liability???

[clray123]

@kourosh89 Wikipedia: "Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity."

[tIs4gatorbait]

Twilight zone

[juliusreea]

why on previous videos loans for investments were on assets side and now(loan) they appeared on liability side?

[mustafasohail456]

how sal knows many things

[Luigi84289]

Man you're loans are nice but wouldn't be very profitable for the bank at 0% interest.

[ojdidit34]

C and D never deposited any gold into bank of Sal. There fore when D paid A with a check of 100g there it is a bad check. How can D have a checking account when he came to your bak only for a loan? Or Did you honor D's check by paying out of your reserves, hoping that investment C would work out? Seems a bit screwy here, but I really appreciate your videos.

[badjouras]

@ojdidit34 Bank of Sal lent 100g to D in the form of a checking account. So D paid A with borrowed money from the Bank of Sal, which expects D to pay back his loan. At least this is how I understand it.

[clray123]

@ojdidit34 What Sal doesn't mention is that loans normally have a collateral. To obtain a loan, D must first prove his creditworthiness somehow - either by convincing the management that his project is uber-excellent or (more realistically) by temporarily transferring some of his property to the bank. This property forms the "collateral", which can be taken away from D by the bank in case he doesn't pay back the loan.

[Bakkermman]

system looks nice, but bankers and government forgot that a huge supply of houses will steamroll their worth + the interest on fed issued money and commerce bank interest will eventually kill the patient. 10 % reserve is nothing good. Consumption credti should not exist in banking. In Poland we have 3,5 % reserve. Fasten your seat bealts people the roller coaster is about to go down.

[dellwon]

Is the Fed paying you for your propaganda?

[rexirexi]

@dellwon grow up

[donttellmethetime]

@dellwon

He's an idiot

[1980littleboy]

Does this take into account that the FED reserve doesn't back the full currency value with Gold but only a % of it? So the $20 you get, if you tried to cash it in for Gold may only be secured with $2 of Gold?

Prior to this system coming in, the currency was backed $ for $ with gold, you could redeem your currency in the same value of Gold and reserves HAD to back the currency they released with Gold reserves.

[NietzscheanMan]

@1980littleboy The USD (or any other currency for that matter) is not directly backed by gold in any way that even resembles some sort of gold standard. Not even 1%; nothing, nada.

[1980littleboy]

@NietzscheanMan My point was that at one time, by law, all currencies had to be backed by a corrisponding amount of gold that could be redeemed. Now days, money is worthless (if it collapses) but we are sold the idea of its value but in truth it is debt. For every cent issued, there is already debt tied to it.

[clray123]

@1980littleboy Regardless of commodity backing money is a legal tender in the sense that you can get government services in exchange for it. So figuratively, you can say it's backed by the soldier, the policeman, the doctor, the fireman, essentially anyone employed by the government, and of course also by the goodwill of all other (private) users. When push comes to shove, I would certainly prefer to have my money backed by a guy with a gun rather than by a shiny metal.

[1980littleboy]

@NietzscheanMan Isn't that exactly what I said in my post?????

[NietzscheanMan]

@1980littleboy Perhaps it was and I merely misunderstood; in that case I agree with you ;)

[MrLanging]

Your example leaves implicit the introduction of gold necessary to base the two loans. Makes it seem like the gold magically appears, when it really doesn't.

[monkeyDtech]

whats an asset?

whats the difference between capital and equity?

whats the difference between saving account and checking account?

[bkishar]

An asset simply is any economic resource you own.

Capital or Equity are the same thing, they are the economic resources you actually own if you pay all your dues (liabilities).

Capital (Equity) = Assets - Liabilities

[what you actually own] = [what you own] - [what you owe]

[bkishar]

Difference between checking and saving accounts is usually determined by the institution but generally a checking account (or current account in the UK) is intended for frequent transactions (getting your salary in, drawing some cash out, or paying for Modern Warfare II at the store with a debit card).

Savings accounts are intended for - well - savings! They usually have restrictions over how much you can draw per month and offer a higher interest rate for your money.

[FortNikitaBullion]

@monkeyDtech Banks are allowed to lend money that is put in savings accounts, up to 90%, whereas checking accounts have to be held in cash. That's why you usually pay a higher fee for having a checking account, as the banks can't do business with the money.

[Luigi84289]

@monkeyDtech A savings account is meant for long term storage of funds so they can gain interest. You can generally only make a certain number of transactions with in a set period of time. A checking account is meant to be used as gold or debt notes in our current system as a safer way to spend your earnings. What ever the standard is. Ideally everyone would use checking accounts as it's the easiest option with a normal banking system. You just write a check or electronically transfer the money.

[Luigi84289]

@monkeyDtech equity is the total investment. Capital is the part of the investment used to make more money to get the system (capitalism) going. An asset is something of value.

[draggeddownthehole]

But taking a loan is just giving a promisory note (with our signature) in exchange of promisory notes from the bank, aka bank notes. The bank doesn't have to work to gain those notes. Why should you have to work to repay them? You're just buying back your promise to pay (the asset security) with other promises to pay (new bank notes) so the bank can discharge the liability on its book. Wether you repay or discharge the liability the bank contracted for your signature, it's the same.

[caveltor]

the bank is acting as a conduit here. As every loan has a depositor and creditor, the "work" the bank does is to manage the risk and pay the depositor.

[draggeddownthehole]

All I'm saying it that it's utter nonsense to allow private banks in such a monetary system. They bring nothing to the table and collect all the interests. Even worse, they imply ownership of 96% of the money supply (debt presumably owed to them). Credit should be public and debt-free.

[Evulmeh]

No no, banks are charging interest because of the risk, and as manager.

If you fail to repay the loan, the bank will be in trouble.

[nemnaisa]

I understand what Sal is trying to do: to justify the current fractional reserve banking system. The point why gold should be money is that it takes effort and human energy to extract gold from the ground hence it is precious and cannot be manipulated. While digital dollar can be manufactured by the bank anytime. The point is that banks are enjoying the spread by essentially doing nothing in the money creation process. Now, they try to keep all the profit while socializing the lost.

[HappyCowinCA]

You obviously have no idea what you are talking about and probably never went to college. Or if you did, you did not pay attention.

[FranceParisian]

In fairness to nemnaisa; his got a point and he is trying to critique the bad side of the system. Remember a system is only effective if the rest of its parts are working properly.

[ananiasacts]

Yes, but his solution that we should literally be using physical gold is simply impractical. People would barter with everything if that was the case. It's the same thing as saying there should be no such thing as currency because to do otherwise is immoral.

[jackuy12345]

wow u guys r just nerds that read from the book and never studied in real life

[Psychosmurf547]

So you would rather go to a mine and work hard and dangerous hours to create money, when you could just sit at a computer and do the same thing but much easier?

[luke2468013579]

Whats the maximum the bank can loan out in this vid, assuming money is not redeposited and there is no sort of multipier? cheers

[Cabanas751Dunhill]

Thanks to the FAILOUT, they are not required to have anything in reserve

[pongman]

Lol, I can see that this is going to get juicier and juicier and how the banks basically neglected their requirements of keeping enough assets to cover the loans that were outstanding. I often wonder what the bank examiners were doing? Visions of "It's a Wonderful Life" keep popping in my brain, and the massive run on the bank. Y'know I think Hollywood should make a movie about this. It's a Wonderful Life 2008.

[gamemaster014]

your voice sounds cool