hang on a sec you won't put the $1000 straight into liabilities of the banking account you would first take it from your personal account then record it in the assets of the bank account.
A biggest public campaign has started to end fractional reserve banking, look at the POSITIVE MONEY website and support the campaign ...and spread the word.
Abolish the private jewish federal reserve.Since 1913 they have destroy the country.They have create wars,depressions and brought poverty to America,their final goal in total destruction.
Read this book for free on internet to understand all the problem America is facing.
Then, if the fractional reserve was 20% then, if the US needed to print out money to cover the deficit, wouldn't the prices in USA effectivly increase by 1/7?????
So, the current deficit is $400 billion a year, which is from 2007 statistics. I am not from USA, but I have watched this 30 minute documentary called IOUSA.
If the fractional reserve is 20%, doesn't that mean that the money would have to increase by $2 trillion? Let's take USA's GDP. In 2007, USA was operating with a GDP of nearly $14 trillion. Suppose that it is the case that ALL of the GDP represents the money in circulation.
So is there an alternative to fractional reserve banking?
Why did it become so popular in the Western world?
Why was the USA so late in developing this system and why has the required reserve ratio been dropped by republicans regularly in the last 30 years or so?
Wait a sec... if fractional reserve banking and gov't borrowing both result in regressive taxation, then anyone concerned about the well being of societies poorest members should probably be against both without solid evidence to the contrary.
I'm generally of the opinion that fiscal policy should be driven primarily by humanitarian concerns, so I'd be interested any causative evidence (fractional reserve=>poverty, for example) one way or the other on this subject.
Let me know if I am misunderstanding this. When you pay back your loan, aren't you effectivley causing deflation because you are taking money out of the economy to pay back your loan.
So, in the end it evens out anyway. And the money supply is only inflated by the government running a deficit and has to add more money into the system by selling treasury bonds. And its only compounded by fractional banking not caused by it?
When you lend out $900 you do not have $1900 in money, even if deposited, but $1000 in money and a $1000 loan (you to bank), a $900 loan from the bank to the borrower and the borrower (because they have depositied it) has a loan BACK to the bank of $900, so still only $1000 in money.
So the bank has lent out $900 and has debts of $1900 and an asset of $1000 in cash.
If that $900 was not deposited but stuffed in a mattress, the cycle ends right there.
They key factor here is that bank does not actually give away any of it's deposits, only a promissory note (you can get your loan in cash if you want, it's just not that common). So if the bank loans you 9$ based on it's 10$, the net result is that it still has those 10$ and 9$ that you promise to return.
Further inflation occurs when your loan is again deposited - in the same or another, doesn't matter - bank, upon which it constitutes base for new loans.
So, say, the bank has 10$ to start with and fractional reserve regulations are 1:10, so it can lend out 9$ of those. Now: the bank still owns the original 10$, and it will also receive 9$ somewhere down the line, and it will also receive interest on those 9$.
If those 9$ are deposited in yet another bank, that bank can use them to loan out additional 8$ to same effect, then those can be used to loan out 7$ more, and so on.
That doesn't really cause inflation... It IS inflation.
It multiplies the effect of inflation, but you have to actually have an increase in the money supply to begin with for it to happen. If there's no increase in the money supply, it all peters out before long.
That's what I'm saying: it very literally increases money supply. The only difference between printing money and this is the medium being used: loan obligations as opposed to reserve notes.
Of course, since the amount of actual reserve notes used to reimburse these loans remains constant, as in less than requested by the banking system - assuming no money is actually printed - what it also produces is the vacuum effect on both money and collateral for the bank.
@SexyMelon If the bank lends out the $9, and, as you say, that $9 is deposited in another bank, the first bank MUST transfer $9 of the RESERVES, i.e. of its $10 it started with to the second bank. The second bank does not take electronic records of loans, it only accepts hard cash or balances of hard money (M0) at the central bank. It is not a multiplier, as in truth all these borrowiings and lendings are not used
@harlingtonstraker In the bank itself, no, it doesn't; you're correct about that. As far as the first bank is concerned, it's taking in a deposit (new reserves), keeping some, and loaning out the rest. As far as the second bank is concerned, what it's receiving is new reserves. The multiplier effect happens in the transaction in between, and is invisible to the individual bankers. So if you ask a banker if he creates money, he will honestly answer, no.
@harlingtonstraker Not quite, banks do accept bank credit, and bank credit transactions are as ubiquitous between banks as they are in the economy. Often they don't need to happen at all because banking business is, in reality, very heavily consolidated.
Whether new credit is deposited in a new bank or left on the account of the bank it was loaned from, or taken in cash, the total amount of credit in the system increases. And that increase is now grounds for new increase through same process.
As shane noted, it's invisible to individual bankers and individual customers because, as far as both are concerned, they're simply taking promissory notes, bits of paper that promise them a certain amount of money from the bank, no matter how much it has in reality.
So it's like a second layer of paper on top of already existing paper money. No one knows any better, and no one's going to refuse an offer of new money.
@SexyMelon As Milton Friedman once said, it's not noticeble to bankers and customers because the creation of money out of thin air in this manner occurs as a result of transactions between banks, not within any specific single bank
At any rate, the FRR is secondary. As soon as you allow the lending of deposits, the multiplier effect takes place. That's the unfair and inlationary profit.
Peace, family planning and deflation to the people!
Wow. Is that really true? Got a source for that? Do you perhaps mean there is no gold-backing, no reserve of anything of intrinsic value? The $'s the same since at least 1972 Reagan. I think most world currencies are moving towards 100% fiat now. They are almost all owned by the same few bankster dynasty families.
Actually, UK bank managers call it "Capital Adequacy", just to make it more obscure :-)
Banks can lend everything they have on deposit, or they could before the recession happened. I haven't checked recently so it might have changed. The pound is 100% fiat, it's not backed by anything.
USC 18-it is illegal for banks to loan their own stock or the "money" of their depositors! So how do they loan out "money"? A: they don't! So where does the "$" come from? It is created by your signature.
the private banks do not create new money, they create money for the purpose of loaning money. When all is said and done the created money disappear but the bank would have made money on the interest on phantom accounts. If i owned a rental supply store i have to rent a cement mixer, but the cement mixer does not get re-deposited so it could be rent out again.
The gentleman who created this video has correctly comprehended and explained the Fraudulent Reserve system.
Here is a chart entitled "Multiple Deposit Creation" which has been posted by the Fed itself (periods surrounded by parentheses) and spaces inserted to enable me to post it:
federalreserveeducation (.) org / fed101 _ html / policy / frtoday _ depositCreation (.) pdf
The Fed has been fleecing We The Sheeple for almost 100 years (since 1913) through its practice of legalized counterfeiting (which it has labeled "Fractional Reserve Banking") in order to fool most people into thinking that it only lends out a percentage of actual deposits.
The deposits stay right where they are - ON the books, and available for withdrawal at any time. Meanwhile, 90% of that deposit amount has been "lent" out on the books, and spent.
The amount which was lent out and spent finds its way into another deposit, under another account holder's name because the borrower has used it - spent it - and the recipient has deposited it somewhere. New deposits are created out of thin air.
We are not allowed to do that.
Study that "Principle of Multiple Deposit Creation" chart carefully - you will see that shanedk has reiterated it correctly, and has understood the process completely. He is telling you the truth. So is Ron Paul.
When I say "WE are not allowed to do that", I mean that you and I have to hand over our actual pre-existing money in order to lend it to someone. WE are not legally permitted to create it on the books and add new loan funds to the money supply. If WE did that, WE would be guilty of counterfeiting. That's what counterfeiting IS - making new money out of thin air without permission, since WE cannot set up new accounts with new balances by making a bookkeeping entry. watch?v=GJMQCcFFzak
Shawn, fractional reserve banking DOES create money out of thin air. That's why people advocate it, they usually say that without fractional reserve banking economic grown would be slowed, because of lack of easy credit for expansion, etc.
Bank runs are evidence that fractional reserve banking creates money from nothing.
No. If the bank was creating money, then bank runs wouldn't be a problem (because the banks would have the money). It is precisely because they are NOT creating new money that bank runs are a problem.
Yeah... if the Fed bails out a bank, then that is inflationary. That's entirely different than what you alleged in your video however. I would have no problem with people claiming that FRB increases inflation risk due to the possibility of bank runs.
However, to say that FRB is inflationary, as a matter of standard practice, as the result of the multiplier effect, is quite fallacious.
It's not the Fed "bailing out" a bank--it's the Fed DOING ITS JOB!!! DOING THE VERY THING IT WAS CREATED TO DO IN THE FIRST PLACE!!!
If it's fallacious, then why is it covered in BASIC MACROECONOMIC TEXTBOOKS? You're just like a creationist denying the basics of evolution and genetics!
Well, what would happen if there were no Federal Reserve, and a bank went on a run?
I'm completely objective on this subject, mainly because I'm completely ignorant on the subject. I'm going to watch all the rest of your videos, and see if I can learn enough to formulate a conclusion in my own mind. I don't like to side on a subject because one educated person does. Thanks for posting all these videos. I subbed your channel.
if the bank was using full reserve banking ie. not loaning out people's savings, then a bank run would result in everyone taking out 100% of their savings. the bank might collapse immediately after it happened, but everyone would be able to withdraw all of their savings. if you have fractional reserve bank and there's a bank run, there's only enough money for everyone to withdraw a fraction of their savings, people lose their savings if a bank using fractional reserve goes bankrupt.
also bank runs are usually caused by banks being on the verge of bankruptcy, and that's usually caused by the bank loaning out too much money, or losing money through creating too many loans that can't be repaid.
No, because the bank would still have its time deposits, and payments from loans coming in, not to mention its own assets. They could conceivably keep going.
Now, if the reason FOR the run is because people don't have confidence in the bank, or some other reason not to want to do business with them, then they could fail like any other business, but in a case like that they probably SHOULD fail.
If I deposited $100, and the bank created 90 NEW dollars, why would it matter if there was a run on the bank (if I asked for my $100 back)? The bank wouldn't owe anybody any money. In fact, someone else would owe the bank $90. This wouldn't cause a problem (bankrupts). It's precisely because the bank does NOT create $90 (it loans out $90, and only has $10 left), that it would be a problem if I asked for my $100 back (assuming I was the bank's only customer).
When the bank lends out money, it doesn't create new money. That's an absolute fallacy. When the banks loans out money, it TRANSFERS money to the recipient of the loan. The bank no longer has that money. That money is simply owed to the bank. You are acting like the money is in two places at once. Well... I suppose you'd have to create new money if you wanted the money to be in two places at once, but that's not how a loan works.
No it's not. You are forgetting about the reserves. The reserves SERVE A PURPOSE. THAT is where the bank gets the funds to meet it's obligations. The bank can't and doesn't create new money.
When a loan is made, that money is NEVER in two places at once. You only think it is because you are ignoring the reserves. You're pretending the reserves don't exist, and don't serve a purpose. It's where the mystery money is coming from. It's not magical money creation.
Why is the "broken window fallacy" still used all the time by so-called economists?
There are lots of different schools of thought out there, and a lot of them are just wrong. There's a lot of disagreements in economics, and not everybody can be right at the same time.
The textbook I have handy is "Macroeconomics" by Paul Watchel. The first section of Chapter V is "Banks as Creators of Money," and the process is described on pages 97-103.
Check ANY other Macroeconomics textbook and you'll see the same thing.
When the bank loans out the initial $900, they may have that listed as an "asset" (i.e. that money is owed to them), but they don't actually have that money (it's been lent out). You refer to that money as being "in reserve". It's not in reserve. It's been lent out. So when the $900 gets returned to the bank, that's not ANOTHER $900. It's the SAME $900. No money has been created as you claim.
I understand that it's fractional reserves. I also understand why that is not a problem (usually) in terms of the bank being able to meet it's obligations.
It's not a problem because not everybody wants all of their money, all of time, all at the same time.
This is why the bank is able to meet it's obligations EVEN THOUGH it's reserves are F-R-A-C-T-I-O-N-A-L.
And when it's not, it gets money from the Federal Reserve (in its role as Lender of Last Resort) to cover the obligations. Where does THAT money come from? Hmmm???
I am not denying that the Fed can create new money.
I am denying that commercial banks can, through the process of FRB (which is what you alleged in this video).
The fallacy in this video, is that when you lent out money, you did not subtract it from the banks reserves. Money that the bank lends out, does not simultansouly enter the reserves. The money never goes in two places at once. If the bank loans money, it no longer has that money. That money is merely owed to the bank.
It's actually worse then your video describe. The banks can expand their reserves directly based on something called risk weight (Basel2). So banks don't create loans out of deposits: they just expand their balance sheets on both sides. The risk weight for states and municipals are set to 0 so the banks can create this credit from absolutely no reserves at all. Meaning that you pay taxes to banks for loans they created from nothing. Please check my videos (sorry for my bad english).
Small Tweak. Im sure you left it out for simplicity but "Assets=Liabilities + Shareholder's Equity"
Awesome video.
I have always felt that the banking system has been given a licence (by the government) to commit fraud for their and the government's gain. One would think that this would be accepted as a prime example why big government doesnt work and that free market principles are sound. But all two often it is twisted the other way.
Thanks. Yeah, I tend to leave out things that aren't relevant; that's the only way to get these concepts across to a general audience in under 10 minutes.
While net worth is also right. Accountants try to not use that term, as it can be very misleading. The term net worth is misleading because it is really the book value (net worth) and not the fair market value (net worth). Meaning that if you sold of all your assets and paid of all your liabilities it would not likely come out to that amount. But that it is rather the most accurate value you could come up with in a reasonable manner.
Does this mean that If we had a full reserve banking system along with the gold standard AND zero (or bare minimum) regulation of the financial markets, then the financial crisis wouldn't have happened?
Also, by keeping the financial markets that way, would this prevent the huge market crashes (e.g. the 1921, 1929 and 2008 ones) that can cause even people with diverse stock/investment portfolios to lose most or all of their savings?
It depends on what you consider losing. Obviously, they've lost the remainder of the principle minus whatever they've recovered from the collateral. You can also consider that they've lost the future interest payments, since they've likely taken on obligations on the basis of getting that interest money. Of course, any good bank will manage the risks.
Excuse me for being dense here, but lemmie spell our my question precisely.
If a bank gets $1000 on deposit and makes a car loan of $900, the $900 is redeopsiteded by the used car dealer and is loaned out again at $810 this goes on creating ~$9000 of new money. So the guy defaults on the car after paying $250 (ignoreing interest) and the bank repos and sells the car for another $250. Thus the bank is out $500. Did they loose 50% or 5%? Since the cash that was lost was 90% created where'd it go?
It seems to me that the best way to turn the deficit into a surplus and pay down the debt is to raise taxes on the rich and cut the budget of the military.
"Germany's unforgivable crime before the second world war," Churchill said," was her attempt to extricate her economic power from the world's trading system and to create her own exchange mechanism which would deny world finance its opportunity to profit." (Churchill to Lord Robert Boothby, quoted in the Foreword, 2nd Ed. Sydney Rogerson, 'Propaganda in the Next War' 2001, orig. 1938.)
Of course, than only works if 100% of loans goes right back into banks and banks loan out every penny they can. That's not quite true. Enough of it that the end result is more or less the same, I won't deny, so the point is valid, but it is a highly simplified explanation.
That was brilliant, shane. Your insight and clarity of presentation are inspiring.
I'm ashamed of not having learned this in spite of college macro and micro economics. I encourage you to make more vids on the topic of banking and the US economic/political system.
Increasing money makes the money supply go up. When supply goes up, value goes down. Basic supply and demand. That's what inflation IS. Gold is more valuable than silver because there's less of it. Same concept.
So is this whole system bullshit? I'm not being flippant, it's a serious question. The banks are "creating" money by loaning it out and someone else depositing it. Wow, I had no idea. Thanks for the great vid!
But if the loans are being paid back then doesn't that mean that the money has come from somewhere else rather than simply being created out of thin air?
(sigh) NO, because it's the FULL AMOUNT that's being paid back! In my example, the money people pay to pay off their loans is A LOT MORE THAN A THOUSAND DOLLARS!
"NO, because it's the FULL AMOUNT that's being paid back!"
I know the full amount is being paid back. But doesn't that mean, in your example, that the bank will eventually get the money to pay back its depositors? Wouldn't the extra money come from the people who pay back their loans?
Your are obviously of the Austrian school, who believes inflation to be a pure economical evil.
But the problem is that you take the ideas of that school as pure facts.
Perhaps you should take a look at the Keynesian school, who states that inflation is neccesary way in which the market expresses the preassures its currently under and uses it to change labour and goods demands.
"Perhaps you should take a look at the Keynesian school,"
I have. Keynes HIMSELF said that his principles were only for a depression/wartime economy. Also, every major tenet of Keynesian economics has been thoroughly falsified. Austrian economics is the ONLY ONE that has made reliable predictions.
I will ignore the obvious fallicies in your first point and jump right to the second good Shane.
The problem with your statement is that keynesian theses have been adopted to a large degree in northern Europe with fairly good results following, so it seems that it isn't as flawed as your percieve it to be.
Oh, please! According to Keynesian theory, you can't have rising inflation and rising unemployment at the same time! How many times have we seen THAT? Isn't France a living refutation of it?
In fact, given the rampant unemployment of France and other countries, I don't see how you can honestly say that without being either completely ignorant or deliberately dishonest.
Neo-keynesians like myself reject the first statement as an absolute, although inflation CAN help to bring down unemployment in certain cases.
But I am mainly talking about the Neo-keynesian heavily and heavily controlled economic politics which have been used with a fine amount of succes in Northern Europe.
Well, isn't it just funny then that they can't predict ahead of time when it's going to apply, only by looking back and finding the curve amidst a sea of data points? Just like the Bible Code prophecies...
Wait, I have a questions. How could a bank exist on a full reserve system? Without being able to loan money that is deposited, the bank can't make any money to pay for it's existence. Am I just missing something?
You have forgoten something real big here..!!!!!! They always hold colateral,which is what makes us pay the money back..My first house had to be a loan on only 75% of the real value,which this value was determand by some of their choosing. They hold a deed for your Real value.And can sell it after default to recoop their lose.
I don't debate that FR-type (or any type) inflation in excess of economic growth is a bad thing - but I think that something's missing here.
The above fractional reserve calculations assert that all money is redeposited somewhere - but it generally circulates for a while.
Do we know what, the timeframe and ratio of redeposit is on a loan? Given that information, we could, theoretically, conservatively match the reserve requirement to growth, preventing currency value fluctuations.
One of the problems in the 70's that lead to the loss of the gold standard was a run on the money supply. Competent use of the reserve requirement could, theoretically, act as a feedback control to inflation - as long as it's kept near or above the reciprocal of the current growth rate.
I know at present the Fed uses the interest rate to do this - I think that's kind of stupid, as interest rate control really only encourages saving and spending.
You should probably mention that as the loaned money is paid back, it is essentially annihilated from existence. If this were happening in a vacuum, when all the money were paid back, the bank would be back to the original $1000 deposit.
The main tragedy of our system is how "high powered money" from the Fed IS multiplied by the reserve ratio when lent out. Also, the fact that this is the way almost all our money is created so that interest charged forces overall debt to grow.
Considered new reserves? No it isn't, except for any interest paid on the loan. Let's go back to your video-- First guy gets a $900 loan and deposits it. This is an asset and a liability for the bank.
The guy withdraws the $900 from his account to pay back the loan (slowly or all at once, makes no difference)... (cont)
...The bank releases the lean it had over the person's property as well as the person's promise to pay any more money (the entire value of the loan), they also no longer have that person's money on deposit, and the person cannot demand any more money back. The bank now has $900, which, when added to their previous amount on reserve ($100), equals the original $1000. If the original depositor comes in and asks for all his money back, the bank has exactly enough to pay them back + interest.
Okay, Please pause your video at 3:30 to illustrate. Now, the guy who borrowed $900 and deposited it withdraws it all (subtract $900 from the asset column). The borrower can't withdraw any more money (subtract their $900 from liabilities column). The borrower uses $900 to repay the loan (the loan is no longer an asset for the bank, cross it out.) Now, add the $900 just paid to the bank to the assets column. $1000 on each side, extra money annihilated. (cont..)
I can do the same thing at any other point in the video, no matter how many deposited loans you have. Once a borrower pays back the loan, the balance sheets look the same as before that money was lent out (plus interest earned).
This sort of inflation decreases as people pay off their fractional-reserve bank debts, up to a minimum level where no one owes. On the other end, there is a maximum possible inflation where all possible money is lent out and no one has yet paid back a cent.
"the guy who borrowed $900 and deposited it withdraws it all"
It's not the borrower who deposits it; it's the people he pays. THEY deposit it. His bank sends $900 of their reserves to their bank. Then the borrower repays the loan to HIS bank. Now, we have $900 twice! The extra money is NOT annihilated!
Wait. So you agree that in my last situation where the borrower deposits the money, then takes it and uses it to pay down the loan, my analysis is correct. There is inflation (to $1900) and then the inflation is brought back down (to $1000).
It makes no difference if they guy gives the money to someone else who deposits it, or buys something with it and it is deposited, or if he just deposited the money so that he could bring the deposit slip to a bar to try to show off... (cont.)
... for the simple fact that none of these transactions create any inflation. All the inflation is created when the fractional reserve banking system LOANS the money. You cannot escape the fact that a borrower must lose money (or take it out of the overall economy) to pay back the loan, and when the loan is paid back, it is worthless. The bank is then in the same situation it was in before this loan was made. Think of the borrower working for the guy he pays the loan to, maybe that will help.
Shane, I didn't see a reply on this part. Does this mean you are conceding the point that when a loan is paid back, the inflation created by taking out the loan is annihilated?
If everyone were to pay back all their fractional-banking debts at once, there would be a lot less money in the system. It would cause deflation down to the high-powered money.
No, it's not annihilated, because the money is still there! When you pay back the loan, the money goes into a bank account, and the cycle is continued.
NO! You're going to make me facepalm. Is that what you want? ;-)
I went step by step through the T at 3.30, showing how when all money is paid back, the inflation goes away. The bank has the same money it initially had to loan out (+interest), no more. I'll do the deed and make a video on this if that will help.
If you try to withdraw the $1,000 after the bank lent me $900, you've just created a run on the bank. They don't have your $1,000 to give back you. The most they can give you (unless they are willing to transfer my loan to you) is $100. This is assuming that this is the only activity going on at the bank.
... also, when I pay back the loan, the bank is no better off than it was when you first deposited the $1,000. My loan is no longer an asset for them (since they can't get any more money for it) and I no longer have $900 in my account, since I used that much to pay back the loan. Therefore that amount is no longer a liability for the bank. The T balances once again at $1000 (or zero if you withdraw your money).
You're right, but that's just the point. Until the recipient of the loan actually pays back the loan in full, the bank is promising money to its depositors that it doesn't have. That's where money creation comes into play, the cost of this expansion of wealth is delayed and it seems as though people have more than they should, because they have assets they haven't paid for yet. Until those debts are paid, the resulting wealth is backed by nothing but promises, and is therefore illusory+unstable.
What about this for a fix... When you open a bank account at a fractional reserve bank, you sign a document acknowledging that if there is a lack of funds at the bank (aka, a run), the bank has to give you part of the loans it holds instead. You can then sell or manage the loan benefiting from any interest.
good video, but talk about simplifying it for the masses, anyway maybe people can wake up to the fact that money equals debt and the whole monetary system needs a real overhaul for the coming generations
Question: I know you're against regulation (as am I), but why have the fed set the reserve? Shouldn't the free market do that? I think this is an instance where it's GOOD to have at least a little regulation. The queston is, where are the limits of this "good"?
This looks like the exact explanation that the movie Zeitgiest: Addendum uses in the beginning. Except it is a little bit more indepth. Out of curiosity what do you think about that movie Shanedk?
I still haven't seen it. Tons of people keep mentioning it to me, and I keep telling myself I need to watch it one of these days, but I never seem to get to it.
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tacticalmastermind 3 months ago
hang on a sec you won't put the $1000 straight into liabilities of the banking account you would first take it from your personal account then record it in the assets of the bank account.
liberalgamer4 3 months ago
@liberalgamer4 Watch the video again. This is from the BANK'S point of view.
shanedk 3 months ago
@shanedk oh ok, sorry I was think from the person view of it, my bad.
liberalgamer4 3 months ago
A biggest public campaign has started to end fractional reserve banking, look at the POSITIVE MONEY website and support the campaign ...and spread the word.
PositiveMoneyUK 7 months ago
@MikeLV Cool! And thanks.
shanedk 1 year ago
This has been flagged as spam show
Abolish the private jewish federal reserve.Since 1913 they have destroy the country.They have create wars,depressions and brought poverty to America,their final goal in total destruction.
Read this book for free on internet to understand all the problem America is facing.
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MsMihailescu 1 year ago
Great topic. One of the simplest, clearest explanations yet is the YouTube video WHY WE ARE IN SO MUCH DEBT. Highly recommended viewing.
SilentNoMorePubs 1 year ago 3
Then, if the fractional reserve was 20% then, if the US needed to print out money to cover the deficit, wouldn't the prices in USA effectivly increase by 1/7?????
Denon3333 1 year ago
@Denon3333 It depends on how much money was created. Remember, it's a multiplier effect.
shanedk 1 year ago
So, the current deficit is $400 billion a year, which is from 2007 statistics. I am not from USA, but I have watched this 30 minute documentary called IOUSA.
If the fractional reserve is 20%, doesn't that mean that the money would have to increase by $2 trillion? Let's take USA's GDP. In 2007, USA was operating with a GDP of nearly $14 trillion. Suppose that it is the case that ALL of the GDP represents the money in circulation.
Denon3333 1 year ago
@Denon3333 Oh, wait, didn't read the posts in order.
Yes, your figures sound about right.
shanedk 1 year ago
@shanedk Wow.....
Denon3333 1 year ago
So is there an alternative to fractional reserve banking?
Why did it become so popular in the Western world?
Why was the USA so late in developing this system and why has the required reserve ratio been dropped by republicans regularly in the last 30 years or so?
johncrwarner 1 year ago
Wait a sec... if fractional reserve banking and gov't borrowing both result in regressive taxation, then anyone concerned about the well being of societies poorest members should probably be against both without solid evidence to the contrary.
I'm generally of the opinion that fiscal policy should be driven primarily by humanitarian concerns, so I'd be interested any causative evidence (fractional reserve=>poverty, for example) one way or the other on this subject.
StubbornProgrammer 1 year ago
its fraud on a mas scale and our governments are alowing privately own banksters do this.
Welcome to The New World Order
enslaved for ever as serfs to the elite
Killerme460 1 year ago
Let me know if I am misunderstanding this. When you pay back your loan, aren't you effectivley causing deflation because you are taking money out of the economy to pay back your loan.
So, in the end it evens out anyway. And the money supply is only inflated by the government running a deficit and has to add more money into the system by selling treasury bonds. And its only compounded by fractional banking not caused by it?
mikeochenballs 1 year ago
This is not quite true.
When you lend out $900 you do not have $1900 in money, even if deposited, but $1000 in money and a $1000 loan (you to bank), a $900 loan from the bank to the borrower and the borrower (because they have depositied it) has a loan BACK to the bank of $900, so still only $1000 in money.
So the bank has lent out $900 and has debts of $1900 and an asset of $1000 in cash.
If that $900 was not deposited but stuffed in a mattress, the cycle ends right there.
harlingtonstraker 1 year ago
You're ignoring the fact that the $900 goes through that or another bank (it doesn't matter which) and THAT is when it's created.
If you ask bankers if they create money, they'll say no, because the process is invisible to them. It happens in the transactions in between.
shanedk 1 year ago
They key factor here is that bank does not actually give away any of it's deposits, only a promissory note (you can get your loan in cash if you want, it's just not that common). So if the bank loans you 9$ based on it's 10$, the net result is that it still has those 10$ and 9$ that you promise to return.
Further inflation occurs when your loan is again deposited - in the same or another, doesn't matter - bank, upon which it constitutes base for new loans.
SexyMelon 1 year ago
So, say, the bank has 10$ to start with and fractional reserve regulations are 1:10, so it can lend out 9$ of those. Now: the bank still owns the original 10$, and it will also receive 9$ somewhere down the line, and it will also receive interest on those 9$.
If those 9$ are deposited in yet another bank, that bank can use them to loan out additional 8$ to same effect, then those can be used to loan out 7$ more, and so on.
That doesn't really cause inflation... It IS inflation.
SexyMelon 1 year ago
It multiplies the effect of inflation, but you have to actually have an increase in the money supply to begin with for it to happen. If there's no increase in the money supply, it all peters out before long.
shanedk 1 year ago
That's what I'm saying: it very literally increases money supply. The only difference between printing money and this is the medium being used: loan obligations as opposed to reserve notes.
Of course, since the amount of actual reserve notes used to reimburse these loans remains constant, as in less than requested by the banking system - assuming no money is actually printed - what it also produces is the vacuum effect on both money and collateral for the bank.
Handy.
SexyMelon 1 year ago
@shanedk
Hence the title of this video.
Surhotchaperchlorome 1 year ago
@SexyMelon If the bank lends out the $9, and, as you say, that $9 is deposited in another bank, the first bank MUST transfer $9 of the RESERVES, i.e. of its $10 it started with to the second bank. The second bank does not take electronic records of loans, it only accepts hard cash or balances of hard money (M0) at the central bank. It is not a multiplier, as in truth all these borrowiings and lendings are not used
harlingtonstraker 1 year ago
@harlingtonstraker In the bank itself, no, it doesn't; you're correct about that. As far as the first bank is concerned, it's taking in a deposit (new reserves), keeping some, and loaning out the rest. As far as the second bank is concerned, what it's receiving is new reserves. The multiplier effect happens in the transaction in between, and is invisible to the individual bankers. So if you ask a banker if he creates money, he will honestly answer, no.
shanedk 1 year ago
@harlingtonstraker Not quite, banks do accept bank credit, and bank credit transactions are as ubiquitous between banks as they are in the economy. Often they don't need to happen at all because banking business is, in reality, very heavily consolidated.
Whether new credit is deposited in a new bank or left on the account of the bank it was loaned from, or taken in cash, the total amount of credit in the system increases. And that increase is now grounds for new increase through same process.
SexyMelon 1 year ago
@harlingtonstraker "It is not a multiplier"
As shane noted, it's invisible to individual bankers and individual customers because, as far as both are concerned, they're simply taking promissory notes, bits of paper that promise them a certain amount of money from the bank, no matter how much it has in reality.
So it's like a second layer of paper on top of already existing paper money. No one knows any better, and no one's going to refuse an offer of new money.
For as long as people need cash.
SexyMelon 1 year ago
@SexyMelon As Milton Friedman once said, it's not noticeble to bankers and customers because the creation of money out of thin air in this manner occurs as a result of transactions between banks, not within any specific single bank
supahsekzy 5 months ago
HUH!?! That's not what caused the depression. And that's NOT fractional reserve banking explained correctly. Keynesian economics is for idiots.
dellwon 1 year ago
I'm not a Keynesian.
shanedk 1 year ago
I'm now a firm Shane follower.
WizardKing78 2 years ago
We have no reserve banking in the UK.........
grahamhg 2 years ago
@grahamhg yea we do the bank of england
Sinlingual 2 years ago
@Sinlingual What I ment was the fractional reserve requirement in the UK is 0%
grahamhg 2 years ago
oh right sorry lol
Sinlingual 2 years ago
@Sinlingual its ok. its ludicrous though, no wonder we're in this mess.
grahamhg 2 years ago
At any rate, the FRR is secondary. As soon as you allow the lending of deposits, the multiplier effect takes place. That's the unfair and inlationary profit.
Peace, family planning and deflation to the people!
sustaincain 1 year ago
Wow. Is that really true? Got a source for that? Do you perhaps mean there is no gold-backing, no reserve of anything of intrinsic value? The $'s the same since at least 1972 Reagan. I think most world currencies are moving towards 100% fiat now. They are almost all owned by the same few bankster dynasty families.
Actually, UK bank managers call it "Capital Adequacy", just to make it more obscure :-)
sustaincain 1 year ago
Its true (or it was before the recession.) I'll have to do some digging to find it.
grahamhg 1 year ago
Banks can lend everything they have on deposit, or they could before the recession happened. I haven't checked recently so it might have changed. The pound is 100% fiat, it's not backed by anything.
grahamhg 1 year ago
I just looked and the rate is still 0% according to wikipedia.
grahamhg 1 year ago
I hate banks, I have one account I only use to pay utilities. I use cash mainly though I'm trying to get some real money invested.
Luigi84289 2 years ago
USC 18-it is illegal for banks to loan their own stock or the "money" of their depositors! So how do they loan out "money"? A: they don't! So where does the "$" come from? It is created by your signature.
hiphopsocnroc 2 years ago
the private banks do not create new money, they create money for the purpose of loaning money. When all is said and done the created money disappear but the bank would have made money on the interest on phantom accounts. If i owned a rental supply store i have to rent a cement mixer, but the cement mixer does not get re-deposited so it could be rent out again.
se7ensnakes 2 years ago
The gentleman who created this video has correctly comprehended and explained the Fraudulent Reserve system.
Here is a chart entitled "Multiple Deposit Creation" which has been posted by the Fed itself (periods surrounded by parentheses) and spaces inserted to enable me to post it:
federalreserveeducation (.) org / fed101 _ html / policy / frtoday _ depositCreation (.) pdf
HurricaneHeidi 2 years ago
shanedk knows what he is talking about.
The Fed has been fleecing We The Sheeple for almost 100 years (since 1913) through its practice of legalized counterfeiting (which it has labeled "Fractional Reserve Banking") in order to fool most people into thinking that it only lends out a percentage of actual deposits.
The deposits stay right where they are - ON the books, and available for withdrawal at any time. Meanwhile, 90% of that deposit amount has been "lent" out on the books, and spent.
HurricaneHeidi 2 years ago
The amount which was lent out and spent finds its way into another deposit, under another account holder's name because the borrower has used it - spent it - and the recipient has deposited it somewhere. New deposits are created out of thin air.
We are not allowed to do that.
Study that "Principle of Multiple Deposit Creation" chart carefully - you will see that shanedk has reiterated it correctly, and has understood the process completely. He is telling you the truth. So is Ron Paul.
HurricaneHeidi 2 years ago
When I say "WE are not allowed to do that", I mean that you and I have to hand over our actual pre-existing money in order to lend it to someone. WE are not legally permitted to create it on the books and add new loan funds to the money supply. If WE did that, WE would be guilty of counterfeiting. That's what counterfeiting IS - making new money out of thin air without permission, since WE cannot set up new accounts with new balances by making a bookkeeping entry. watch?v=GJMQCcFFzak
.
HurricaneHeidi 2 years ago
Shawn, fractional reserve banking DOES create money out of thin air. That's why people advocate it, they usually say that without fractional reserve banking economic grown would be slowed, because of lack of easy credit for expansion, etc.
Bank runs are evidence that fractional reserve banking creates money from nothing.
MonkeyThatIsLuminous 2 years ago
No. If the bank was creating money, then bank runs wouldn't be a problem (because the banks would have the money). It is precisely because they are NOT creating new money that bank runs are a problem.
D4Shawn 2 years ago
Bank runs are covered by the Fed as Lender of Last Resort.
shanedk 2 years ago
Yeah... if the Fed bails out a bank, then that is inflationary. That's entirely different than what you alleged in your video however. I would have no problem with people claiming that FRB increases inflation risk due to the possibility of bank runs.
However, to say that FRB is inflationary, as a matter of standard practice, as the result of the multiplier effect, is quite fallacious.
D4Shawn 2 years ago
It's not the Fed "bailing out" a bank--it's the Fed DOING ITS JOB!!! DOING THE VERY THING IT WAS CREATED TO DO IN THE FIRST PLACE!!!
If it's fallacious, then why is it covered in BASIC MACROECONOMIC TEXTBOOKS? You're just like a creationist denying the basics of evolution and genetics!
shanedk 2 years ago
Well, what would happen if there were no Federal Reserve, and a bank went on a run?
I'm completely objective on this subject, mainly because I'm completely ignorant on the subject. I'm going to watch all the rest of your videos, and see if I can learn enough to formulate a conclusion in my own mind. I don't like to side on a subject because one educated person does. Thanks for posting all these videos. I subbed your channel.
IFloridaMotocrossI 2 years ago
Bank runs can't happen with full reserves.
shanedk 2 years ago
if the bank was using full reserve banking ie. not loaning out people's savings, then a bank run would result in everyone taking out 100% of their savings. the bank might collapse immediately after it happened, but everyone would be able to withdraw all of their savings. if you have fractional reserve bank and there's a bank run, there's only enough money for everyone to withdraw a fraction of their savings, people lose their savings if a bank using fractional reserve goes bankrupt.
Fernoe 2 years ago
also bank runs are usually caused by banks being on the verge of bankruptcy, and that's usually caused by the bank loaning out too much money, or losing money through creating too many loans that can't be repaid.
Fernoe 2 years ago
No, because the bank would still have its time deposits, and payments from loans coming in, not to mention its own assets. They could conceivably keep going.
Now, if the reason FOR the run is because people don't have confidence in the bank, or some other reason not to want to do business with them, then they could fail like any other business, but in a case like that they probably SHOULD fail.
shanedk 2 years ago
If I deposited $100, and the bank created 90 NEW dollars, why would it matter if there was a run on the bank (if I asked for my $100 back)? The bank wouldn't owe anybody any money. In fact, someone else would owe the bank $90. This wouldn't cause a problem (bankrupts). It's precisely because the bank does NOT create $90 (it loans out $90, and only has $10 left), that it would be a problem if I asked for my $100 back (assuming I was the bank's only customer).
D4Shawn 2 years ago
And where does that $90 from the loan go? It's in circulation, the original depositor still has his $100, but now there's an extra $90 in the sysytem.
Assets Liabilities
$R10 $100
$L90
So far so good. But that loan money is going to be deposited back into a bank:
Assets Liabilities
$R10 $100
$L90
$R90 $90
We've got $190 in the system from nothing but deposits and loans, the amount of "real" money is still $100.
MonkeyThatIsLuminous 2 years ago 2
No money is being created here.
When the bank lends out money, it doesn't create new money. That's an absolute fallacy. When the banks loans out money, it TRANSFERS money to the recipient of the loan. The bank no longer has that money. That money is simply owed to the bank. You are acting like the money is in two places at once. Well... I suppose you'd have to create new money if you wanted the money to be in two places at once, but that's not how a loan works.
D4Shawn 2 years ago
The money IS in two places at once! It DOES get created!
You'll find this in ANY Macroeconomics textbook!
shanedk 2 years ago
No it's not. You are forgetting about the reserves. The reserves SERVE A PURPOSE. THAT is where the bank gets the funds to meet it's obligations. The bank can't and doesn't create new money.
When a loan is made, that money is NEVER in two places at once. You only think it is because you are ignoring the reserves. You're pretending the reserves don't exist, and don't serve a purpose. It's where the mystery money is coming from. It's not magical money creation.
D4Shawn 2 years ago
No, I'm NOT ignoring the reserves! YOU'RE ignoring that it's FRACTIONAL reserve!
shanedk 2 years ago
Shane, Shawn is coming from "Second Reply to Shawn on fractional reserve banking as it pertains to inflation" by confederalsocialist.
MonkeyThatIsLuminous 2 years ago
The idea that fractional reserve banking involves the creation of new money is a silly conspiracy theory.
D4Shawn 2 years ago
Then why is it in basic Macroeconomics textbooks?
shanedk 2 years ago
Why is the "broken window fallacy" still used all the time by so-called economists?
There are lots of different schools of thought out there, and a lot of them are just wrong. There's a lot of disagreements in economics, and not everybody can be right at the same time.
D4Shawn 2 years ago
Because it's an ACTUAL FALLACY.
shanedk 2 years ago
And they're not, the Austrian school is the correct one. :P
MonkeyThatIsLuminous 2 years ago
Well, it's the one that's made consistently reliable predictions.
shanedk 2 years ago
The textbook I have handy is "Macroeconomics" by Paul Watchel. The first section of Chapter V is "Banks as Creators of Money," and the process is described on pages 97-103.
Check ANY other Macroeconomics textbook and you'll see the same thing.
shanedk 2 years ago
Sorry Shane, that a good book to get?
I got Wealth of Nations, and a few others you recommended (I think in a Q&A video).
MonkeyThatIsLuminous 2 years ago
Meh, it's your basic intro Macroeconomics text. They're all pretty much the same. It's not an Austrian school book.
shanedk 2 years ago
I call bullshit:
When the bank loans out the initial $900, they may have that listed as an "asset" (i.e. that money is owed to them), but they don't actually have that money (it's been lent out). You refer to that money as being "in reserve". It's not in reserve. It's been lent out. So when the $900 gets returned to the bank, that's not ANOTHER $900. It's the SAME $900. No money has been created as you claim.
D4Shawn 2 years ago
They DO have the money! When the person comes and makes a withdrawl, they HAVE to give it to him!
shanedk 2 years ago
THE MONEY COMES FROM THE RESERVES.
THE RESERVES
THE RESERVES
THE RESERVES
Why can't you folks understand that? THAT is why banks are required to keep reserves (to meet their customer obligations).
D4Shawn 2 years ago
IT'S FRACTIONAL RESERVE!!! F-R-A-C-T-I-O-N-A-L RESERVE!!! The reserves are only a SMALL PORTION of the overall money!
As I showed in the video, a reserve ratio of 10% will result in the actual amount of money being TEN TIMES the amount of the reserves!
shanedk 2 years ago
I understand that it's fractional reserves. I also understand why that is not a problem (usually) in terms of the bank being able to meet it's obligations.
It's not a problem because not everybody wants all of their money, all of time, all at the same time.
This is why the bank is able to meet it's obligations EVEN THOUGH it's reserves are F-R-A-C-T-I-O-N-A-L.
D4Shawn 2 years ago
And when it's not, it gets money from the Federal Reserve (in its role as Lender of Last Resort) to cover the obligations. Where does THAT money come from? Hmmm???
shanedk 2 years ago
I am not denying that the Fed can create new money.
I am denying that commercial banks can, through the process of FRB (which is what you alleged in this video).
The fallacy in this video, is that when you lent out money, you did not subtract it from the banks reserves. Money that the bank lends out, does not simultansouly enter the reserves. The money never goes in two places at once. If the bank loans money, it no longer has that money. That money is merely owed to the bank.
D4Shawn 2 years ago
I ABSOLUTELY DID SUBTRACT IT FROM THE BANK'S RESERVES!!! THE VIDEO SHOWS THAT CLEARLY!!!
Watch it again, without your damn biases getting in the way!
shanedk 2 years ago
It's actually worse then your video describe. The banks can expand their reserves directly based on something called risk weight (Basel2). So banks don't create loans out of deposits: they just expand their balance sheets on both sides. The risk weight for states and municipals are set to 0 so the banks can create this credit from absolutely no reserves at all. Meaning that you pay taxes to banks for loans they created from nothing. Please check my videos (sorry for my bad english).
MoneyCreation2 2 years ago
Interesting video, I was first made aware of this issue from Robert A. Heinlein's books.
saintaureus 2 years ago
If banks can create money, can't they also destroy money?
ForOrAgainstUs 2 years ago
Yes. When the Fed wants to destroy money, it sells bonds to its member banks. The money is then removed from circulation.
shanedk 2 years ago
Small Tweak. Im sure you left it out for simplicity but "Assets=Liabilities + Shareholder's Equity"
Awesome video.
I have always felt that the banking system has been given a licence (by the government) to commit fraud for their and the government's gain. One would think that this would be accepted as a prime example why big government doesnt work and that free market principles are sound. But all two often it is twisted the other way.
jestoninnes 2 years ago
Thanks. Yeah, I tend to leave out things that aren't relevant; that's the only way to get these concepts across to a general audience in under 10 minutes.
shanedk 2 years ago
I thought it was:
Assets = Liabilities + Net Worth
Surhotchaperchlorome 2 years ago
While net worth is also right. Accountants try to not use that term, as it can be very misleading. The term net worth is misleading because it is really the book value (net worth) and not the fair market value (net worth). Meaning that if you sold of all your assets and paid of all your liabilities it would not likely come out to that amount. But that it is rather the most accurate value you could come up with in a reasonable manner.
jestoninnes 2 years ago
Does this mean that If we had a full reserve banking system along with the gold standard AND zero (or bare minimum) regulation of the financial markets, then the financial crisis wouldn't have happened?
Also, by keeping the financial markets that way, would this prevent the huge market crashes (e.g. the 1921, 1929 and 2008 ones) that can cause even people with diverse stock/investment portfolios to lose most or all of their savings?
Surhotchaperchlorome 2 years ago
Yes, that's EXACTLY what it means.
shanedk 2 years ago
Translation - The government:
IT TOOK OUR JERBS!!!111
AND OUR SAVINGS!!!
Surhotchaperchlorome 2 years ago
I'm giving a presentation to my Debate class about this. I hope you don't mind if I use this as a reference, ShaneDK!
Xenithan 2 years ago
Shane, perhaps you can answer this haven't been able to find it.
How much does a bank loose if someone defaults on a loan?
Do they loose the whole amount or do they loose the 10%?
If they repossess a car or home have they in effect just paid 10% for it and when they sell it off short they are still making a large profit?
phookadude 2 years ago
It depends on what you consider losing. Obviously, they've lost the remainder of the principle minus whatever they've recovered from the collateral. You can also consider that they've lost the future interest payments, since they've likely taken on obligations on the basis of getting that interest money. Of course, any good bank will manage the risks.
shanedk 2 years ago
Excuse me for being dense here, but lemmie spell our my question precisely.
If a bank gets $1000 on deposit and makes a car loan of $900, the $900 is redeopsiteded by the used car dealer and is loaned out again at $810 this goes on creating ~$9000 of new money. So the guy defaults on the car after paying $250 (ignoreing interest) and the bank repos and sells the car for another $250. Thus the bank is out $500. Did they loose 50% or 5%? Since the cash that was lost was 90% created where'd it go?
phookadude 2 years ago
The bank would consider that they're out 50%. Remember, the individual banks operate unaware of this money creation effect.
shanedk 2 years ago
It seems to me that the best way to turn the deficit into a surplus and pay down the debt is to raise taxes on the rich and cut the budget of the military.
Walabio 2 years ago
in the end you're paying people to sit around and play with your money.
siniqdrakon 2 years ago
So does this mean that two banks could just loan each other enormous amounts of money and create even more instantly?
uni4dfx 2 years ago
It would still peter out the way it does above.
shanedk 2 years ago
great video.
styrofoamheart 2 years ago
The way I see it, since the 900 they loan out also has to be paid back, they aren't "creating" money at all, just moving it around.
I am an economic retard, I will probably be wrong.
VerboseVindication 2 years ago
When it's paid back, the $900 comes from another bank's reserves. They then get to keep 10% and loan the rest out.
shanedk 2 years ago
but what about the interest paid of on the loan?
AncelDeLambert 2 years ago
Yes, the interest payments coming in are considered reserves for that bank, too. ALL money coming in from another bank is new reserves for that bank.
shanedk 2 years ago
Thanks for this video. I teach English to some bankers in Germany, so they need vocabulary relevant to their jobs. This vid is excellent!
ramette99 2 years ago
Maybe you can tell them this:
WINSTON CHURCHILL
"Germany's unforgivable crime before the second world war," Churchill said," was her attempt to extricate her economic power from the world's trading system and to create her own exchange mechanism which would deny world finance its opportunity to profit." (Churchill to Lord Robert Boothby, quoted in the Foreword, 2nd Ed. Sydney Rogerson, 'Propaganda in the Next War' 2001, orig. 1938.)
LibertaerUeberAlles 2 years ago
T Diagram.... Is That Not Just A Diagram? Or Am I Missing SomeThing?
*head assplodes*
God Dam It! I Almost Got It This Time...
GegoXaren 2 years ago
Of course, than only works if 100% of loans goes right back into banks and banks loan out every penny they can. That's not quite true. Enough of it that the end result is more or less the same, I won't deny, so the point is valid, but it is a highly simplified explanation.
Rystefn 2 years ago
Well, I SAID I was making those assumptions in the video, so I don't know what point you're trying to make here.
shanedk 2 years ago
Only the point I explicitly stated - that it's highly simplified. Not EVERYTHING I say is a criticism. Sometimes a comment is merely a comment.
Rystefn 2 years ago
That was brilliant, shane. Your insight and clarity of presentation are inspiring.
I'm ashamed of not having learned this in spite of college macro and micro economics. I encourage you to make more vids on the topic of banking and the US economic/political system.
joemarklawson 2 years ago
How does the $trillion make prices go up and the dollar value go down? You say that it contributes to inflation but you don't say how.
dangerics 2 years ago
Increasing money makes the money supply go up. When supply goes up, value goes down. Basic supply and demand. That's what inflation IS. Gold is more valuable than silver because there's less of it. Same concept.
shanedk 2 years ago
Ah ha, that makes sense.
So is this whole system bullshit? I'm not being flippant, it's a serious question. The banks are "creating" money by loaning it out and someone else depositing it. Wow, I had no idea. Thanks for the great vid!
They're all great vids by the way.
dangerics 2 years ago
Very nicely and succinctly explained.
Shane, have you ever read "Creature From Jechkyl Island".
That was the book that I first read about this. I later did quite a bit of independent research, and it seemed to be pretty accurate.
If you read it, what's your opinion of it?
pandstar 2 years ago
I haven't read it. I do recommend Murray Rothbard's "The Case Against the Fed."
shanedk 2 years ago
But if the loans are being paid back then doesn't that mean that the money has come from somewhere else rather than simply being created out of thin air?
bluecode320 2 years ago
(sigh) NO, because it's the FULL AMOUNT that's being paid back! In my example, the money people pay to pay off their loans is A LOT MORE THAN A THOUSAND DOLLARS!
shanedk 2 years ago
"NO, because it's the FULL AMOUNT that's being paid back!"
I know the full amount is being paid back. But doesn't that mean, in your example, that the bank will eventually get the money to pay back its depositors? Wouldn't the extra money come from the people who pay back their loans?
bluecode320 2 years ago
Comment removed
grungefreak10 2 years ago
I'd like to know that as well.
Bookwyrm86 2 years ago
(double sigh) Discussed above. At length.
shanedk 2 years ago
Your are obviously of the Austrian school, who believes inflation to be a pure economical evil.
But the problem is that you take the ideas of that school as pure facts.
Perhaps you should take a look at the Keynesian school, who states that inflation is neccesary way in which the market expresses the preassures its currently under and uses it to change labour and goods demands.
qanazir 2 years ago
"Perhaps you should take a look at the Keynesian school,"
I have. Keynes HIMSELF said that his principles were only for a depression/wartime economy. Also, every major tenet of Keynesian economics has been thoroughly falsified. Austrian economics is the ONLY ONE that has made reliable predictions.
shanedk 2 years ago
I will ignore the obvious fallicies in your first point and jump right to the second good Shane.
The problem with your statement is that keynesian theses have been adopted to a large degree in northern Europe with fairly good results following, so it seems that it isn't as flawed as your percieve it to be.
qanazir 2 years ago
Oh, please! According to Keynesian theory, you can't have rising inflation and rising unemployment at the same time! How many times have we seen THAT? Isn't France a living refutation of it?
In fact, given the rampant unemployment of France and other countries, I don't see how you can honestly say that without being either completely ignorant or deliberately dishonest.
shanedk 2 years ago
Neo-keynesians like myself reject the first statement as an absolute, although inflation CAN help to bring down unemployment in certain cases.
But I am mainly talking about the Neo-keynesian heavily and heavily controlled economic politics which have been used with a fine amount of succes in Northern Europe.
qanazir 2 years ago
Oh, come on! Examine the Phillips Curve skeptically and tell me it's not cherry-picking!
shanedk 2 years ago
I have said it's not an absolute concept and it's only applicalbe to certain cases.
qanazir 2 years ago
Well, isn't it just funny then that they can't predict ahead of time when it's going to apply, only by looking back and finding the curve amidst a sea of data points? Just like the Bible Code prophecies...
shanedk 2 years ago
We have driven very much of course so I will leave it at this.
It was fun to debate with you.
qanazir 2 years ago
Wait, I have a questions. How could a bank exist on a full reserve system? Without being able to loan money that is deposited, the bank can't make any money to pay for it's existence. Am I just missing something?
sorienor 2 years ago
"How could a bank exist on a full reserve system?"
Asked and answered, several times.
shanedk 2 years ago
You have forgoten something real big here..!!!!!! They always hold colateral,which is what makes us pay the money back..My first house had to be a loan on only 75% of the real value,which this value was determand by some of their choosing. They hold a deed for your Real value.And can sell it after default to recoop their lose.
no1saphead 2 years ago
isn't the point of the fractional reserve system to make inflation? Inflation is not a bad thing in most cases, in rampancy rather, it is bad.
thejugglenaut91 2 years ago
"isn't the point of the fractional reserve system to make inflation?"
Yes.
"not a bad thing in most cases,"
Yes, it is. It's ALWAYS a transfer of wealth away from the poor and middle-class.
shanedk 2 years ago
I don't debate that FR-type (or any type) inflation in excess of economic growth is a bad thing - but I think that something's missing here.
The above fractional reserve calculations assert that all money is redeposited somewhere - but it generally circulates for a while.
Do we know what, the timeframe and ratio of redeposit is on a loan? Given that information, we could, theoretically, conservatively match the reserve requirement to growth, preventing currency value fluctuations.
Fordi 2 years ago
I'll explain.
One of the problems in the 70's that lead to the loss of the gold standard was a run on the money supply. Competent use of the reserve requirement could, theoretically, act as a feedback control to inflation - as long as it's kept near or above the reciprocal of the current growth rate.
I know at present the Fed uses the interest rate to do this - I think that's kind of stupid, as interest rate control really only encourages saving and spending.
Anyway, just some thoughts.
Fordi 2 years ago
You need more subscribers.
internetaccount122 2 years ago 3
I keep saying that.
Longsday 2 years ago
You should probably mention that as the loaned money is paid back, it is essentially annihilated from existence. If this were happening in a vacuum, when all the money were paid back, the bank would be back to the original $1000 deposit.
The main tragedy of our system is how "high powered money" from the Fed IS multiplied by the reserve ratio when lent out. Also, the fact that this is the way almost all our money is created so that interest charged forces overall debt to grow.
hugesinker 2 years ago
Except that it isn't. The money that's paid back is considered new reserves and the cycle starts all over again.
All total, in this example, $10,000 was loaned, so $10,000 would be paid back on principle, plus whatever the interest is!
shanedk 2 years ago
Considered new reserves? No it isn't, except for any interest paid on the loan. Let's go back to your video-- First guy gets a $900 loan and deposits it. This is an asset and a liability for the bank.
The guy withdraws the $900 from his account to pay back the loan (slowly or all at once, makes no difference)... (cont)
hugesinker 2 years ago
...The bank releases the lean it had over the person's property as well as the person's promise to pay any more money (the entire value of the loan), they also no longer have that person's money on deposit, and the person cannot demand any more money back. The bank now has $900, which, when added to their previous amount on reserve ($100), equals the original $1000. If the original depositor comes in and asks for all his money back, the bank has exactly enough to pay them back + interest.
hugesinker 2 years ago
But they've got a LOT more deposits than that $1,000!!! Weren't you paying attention?
shanedk 2 years ago
Okay, Please pause your video at 3:30 to illustrate. Now, the guy who borrowed $900 and deposited it withdraws it all (subtract $900 from the asset column). The borrower can't withdraw any more money (subtract their $900 from liabilities column). The borrower uses $900 to repay the loan (the loan is no longer an asset for the bank, cross it out.) Now, add the $900 just paid to the bank to the assets column. $1000 on each side, extra money annihilated. (cont..)
hugesinker 2 years ago
I can do the same thing at any other point in the video, no matter how many deposited loans you have. Once a borrower pays back the loan, the balance sheets look the same as before that money was lent out (plus interest earned).
This sort of inflation decreases as people pay off their fractional-reserve bank debts, up to a minimum level where no one owes. On the other end, there is a maximum possible inflation where all possible money is lent out and no one has yet paid back a cent.
hugesinker 2 years ago
"the guy who borrowed $900 and deposited it withdraws it all"
It's not the borrower who deposits it; it's the people he pays. THEY deposit it. His bank sends $900 of their reserves to their bank. Then the borrower repays the loan to HIS bank. Now, we have $900 twice! The extra money is NOT annihilated!
shanedk 2 years ago
Wait. So you agree that in my last situation where the borrower deposits the money, then takes it and uses it to pay down the loan, my analysis is correct. There is inflation (to $1900) and then the inflation is brought back down (to $1000).
It makes no difference if they guy gives the money to someone else who deposits it, or buys something with it and it is deposited, or if he just deposited the money so that he could bring the deposit slip to a bar to try to show off... (cont.)
hugesinker 2 years ago
... for the simple fact that none of these transactions create any inflation. All the inflation is created when the fractional reserve banking system LOANS the money. You cannot escape the fact that a borrower must lose money (or take it out of the overall economy) to pay back the loan, and when the loan is paid back, it is worthless. The bank is then in the same situation it was in before this loan was made. Think of the borrower working for the guy he pays the loan to, maybe that will help.
hugesinker 2 years ago
Shane, I didn't see a reply on this part. Does this mean you are conceding the point that when a loan is paid back, the inflation created by taking out the loan is annihilated?
If everyone were to pay back all their fractional-banking debts at once, there would be a lot less money in the system. It would cause deflation down to the high-powered money.
hugesinker 2 years ago
No, it's not annihilated, because the money is still there! When you pay back the loan, the money goes into a bank account, and the cycle is continued.
shanedk 2 years ago
NO! You're going to make me facepalm. Is that what you want? ;-)
I went step by step through the T at 3.30, showing how when all money is paid back, the inflation goes away. The bank has the same money it initially had to loan out (+interest), no more. I'll do the deed and make a video on this if that will help.
hugesinker 2 years ago
All right, let's keep it simple:
I deposit $1,000. The bank lends you $900.
I withdraw the $1,000. You pay the bank back. The bank STILL has $900, even though I've withdrawn the $1,000!
shanedk 2 years ago
If you try to withdraw the $1,000 after the bank lent me $900, you've just created a run on the bank. They don't have your $1,000 to give back you. The most they can give you (unless they are willing to transfer my loan to you) is $100. This is assuming that this is the only activity going on at the bank.
hugesinker 2 years ago
... also, when I pay back the loan, the bank is no better off than it was when you first deposited the $1,000. My loan is no longer an asset for them (since they can't get any more money for it) and I no longer have $900 in my account, since I used that much to pay back the loan. Therefore that amount is no longer a liability for the bank. The T balances once again at $1000 (or zero if you withdraw your money).
hugesinker 2 years ago
You're right, but that's just the point. Until the recipient of the loan actually pays back the loan in full, the bank is promising money to its depositors that it doesn't have. That's where money creation comes into play, the cost of this expansion of wealth is delayed and it seems as though people have more than they should, because they have assets they haven't paid for yet. Until those debts are paid, the resulting wealth is backed by nothing but promises, and is therefore illusory+unstable.
GnomeSnafu 2 years ago
But again, this also misses the point: when the loan is paid back, the money comes in as new reserves and can be loaned out AGAIN!
shanedk 2 years ago
What about this for a fix... When you open a bank account at a fractional reserve bank, you sign a document acknowledging that if there is a lack of funds at the bank (aka, a run), the bank has to give you part of the loans it holds instead. You can then sell or manage the loan benefiting from any interest.
hugesinker 2 years ago
"Considered new reserves? No it isn't"
EVERY dollar coming in is considered new reserves.
shanedk 2 years ago
good video, but talk about simplifying it for the masses, anyway maybe people can wake up to the fact that money equals debt and the whole monetary system needs a real overhaul for the coming generations
ec2like 2 years ago
I never knew... I'll have to rewatch it to make sure I understand it.
mikeryzy 2 years ago
How would things be different if there was a 50% RR minimum imposed on banks?
Secondly, does the 10% RR apply to Canadian banks as well?
stenchinator 2 years ago
Question: I know you're against regulation (as am I), but why have the fed set the reserve? Shouldn't the free market do that? I think this is an instance where it's GOOD to have at least a little regulation. The queston is, where are the limits of this "good"?
blurglide 2 years ago
In the Free Banking Era, it was full reserve, and it was a very prosperous time.
shanedk 2 years ago
Comment removed
IamtheVOICE123 2 years ago
This has been flagged as spam show
The thing most people don't understand is that the Federal Bank is about as Federal as Federal Express.
IamtheVOICE123 2 years ago
dang thanks
Immevu 2 years ago
This looks like the exact explanation that the movie Zeitgiest: Addendum uses in the beginning. Except it is a little bit more indepth. Out of curiosity what do you think about that movie Shanedk?
IamtheVOICE123 2 years ago
I still haven't seen it. Tons of people keep mentioning it to me, and I keep telling myself I need to watch it one of these days, but I never seem to get to it.
shanedk 2 years ago
Ah ok well I'll PM you the link then.
IamtheVOICE123 2 years ago