Banking 5: Introduction to Bank Notes

[Raeez100]

Sal, we are in fact paying interest to the federal reserve for the dollars that we have.

The currency we have is constantly DEVALUED due to the effects of INFLATION, which is under the control of the Fed Reserve Bank.

So the purchasing power of the dollars that we own decreases EXPONENTIALLY.

We are in fact paying COMPOUND INTEREST!!!

[seany282]

just asking you are using gold but what is like gold to money now because ive been watching alot of videos lately and nolonger banks use money to gold ratio? or something like that hope you know what i mean and can help :)

[jewbinson]

@seany282 Sal is using gold in his examples, but in this context the gold is immaterial: he could be using salt, or plastic, or glass, or pieces of paper, or whatever. It doesn't matter. It's what those things represent which is important (that thing being "value").

[jewbinson]

Hey Sal, these videos are very interesting and informative. I have one question though.

How do you build Sal's Bank in the first place? Surely you need builders to pay to build it. Where does the money to pay them come from?

[bruincafe00]

Thank you, I've learned a lot! But I've got a few questions Sal.

If there are X gold pieces in the world, and the bank keeps profiting by taking more and more of it, won't people be keeping less and less of it? Will that make us slaves to debt eventually?

Also... if the economy starts with say 100 GP that the bank has, and the bank lends you 90 GP, it will charge interest. If it makes you pay back 90GP + 10GP interest, you're going to have to borrow money to pay that interest back. Right?

[MrJoeyboomboom]

@bruincafe00 let's say you have 0 "GP" as you put it. You borrow 100GP from a bank, but must pay 10% interest, and start a business building houses by yourself. By the time you complete one you've spent 50GP on whatever. You then sell the house to someone else for 100GP and now have 150GP. So after you pay the bank back 100 plus 10GP (10% interest) you have 40GP and you didn't have to borrow from anyone else.

[bruincafe00]

@MrJoeyboomboom Yes, but the person I sold the house to got money from where? Remember my stipulation? There are only a limited number of GP, and the fact that the person bought my house for 100GP means he/she had to get the money from somewhere (which has interest on it).

I can't sell the house to someone if they don't have money. And if they do have money, it's because they've borrowed it (just as I have). If everything stems from interest... well, my case holds.

[coturnix19]

Fractional reserve banking is a kind of counterfeiting, and has to be punishable as such. The only reason for this is that bank notes are equated to underlying commodity money, and cash is equated to checking account records. Bank notes are nothing other than bonds that bank issues. Is it against liberty to transact in bonds? No! Is it fraud to claim that bonds are the same as underlying commodity and should be redeemable? Yes!

[coturnix19]

@coturnix19 Therefore, is fractional reserve system fraudulent? Yes, as long as it is fractional. I believe, it is ok to keep 100%, 50% or even 0% in reserves for as long as people that use bank notes (essentially IOUs or bonds) understand that gold=/cash=/check - these are all three different currencies. Equating them is called real bills doctrine and it has been proven wrong, i think.

[187dAFeD]

True Keynsian fallacious arguments.

[BlahBlah7151]

great!! 

[vickiormindyb]

That face on the note at 8:47 reminds me of all that money my brother gave me. It had that old Saddam Hussein's face plastered over every bill. At least our money has different presidents on different money: $1, $5, $10...

I still have the dinars and their weird looking coinage, b/c the bank wouldn't let me trade it for U.S dollars-and this was in 2003 that I tried to exchange it.

I've never seen other money go from value to no value that damn fast.

[dalcde]

In Hong Kong, which is where I live, there are a few (I think 3) banks issuing bank notes, but it still works fine since the government restricts the money printing (physical printing)

[nalcow]

I'd like to get shares from the Bank of Sal. is it in the stock market ? ;)

[nalcow]

so a bank note is paper money.

[dellwon]

I think our economy would be in great shape IF bank notes actually existed. But they DO NOT. Credit should never be allowed to be converted into U.S currency NOR loans. If a bank had TOO MANY "Bank Notes" in circulation, then people would reject it as payment to settle debts. But because of idiotic gov't law we are FORCED to accept their "money" which only increases the money supply and allow these banks to create inflation. Inflation is theft of our purchasing power by the gov't and banks.

[fh1469]

i have a question. Necesarily, if the Fed prints money there will be more inflation?

[nalcow]

@fh1469 it depends the reason why in prints money.. if the reason is to buy the US treasury debt indeed it causes inflation because it pumps money into the system. The more money, more people wants to buy and the prices rises and also it devaluates the dollar.

[mickeyrocks101]

bank of George bush god help us lol great vid man

[AtheismIsWiked]

To be honest I didn't give a shit about any of this, I just wanted to learn something new.

Afterwards, I feel a lot more educated. I love your videos. I wish all teachers worked like you. I don't think I would be lost without your help since I've always done fine without it, but with it I've been able to move a lot fast.

Thanks a million.

[apricotsnms516]

so is there an actual vault full of gold in the us?

[cv45fg56hg83sd91]

Didn't USA drop the gold standard? So does it mean owning gold is illegal and transactions based on gold metal are not allowed within US of A? Really, why don't the US go back to a gold standard in order to save the shrinking & sinking dollar?

[pickmanfox]

@cv45fg56hg83sd91

No, if you owe someone money or buy something from them you can pay off the debt using gold - if they agree to accept gold. If you offer them cash to settle the debt, though, they have to accept it, as it is "legal tender". It's up to them whether they accept payment in gold, or chickens, or any other form.

[pickmanfox]

@cv45fg56hg83sd91

As long as the currency is not backed by anything the government can always adjust its value. If they wanted to increase the value of the dollar they could, but it might have worse consequences economically than letting it shrink (for example, the Chinese government deliberately keeps their currency less valuable than the dollar to keep their exports cheap.)

On the gold standard, the value of the dollar is tied to the availability of gold, which is harder to control.

[cv45fg56hg83sd91]

I bought some nice banknotes for my collection on a Banknotes website, but since I had to pay (they were not free to me unfortunately) so I will not advertise their website on here, but the currency I bought are so nice. And I'm not sure if bank note collectors need something to deposit or store them in?

[ivanleo]

It's not true that only 1 bank per country issues banknotes. In the United Kingdom banknotes are issued by the Bank of England, the Bank of Scotland, the Royal Bank of Scotland, Cydesdale Bank, Ulster Bank, Northern Bank, the Bank of Ireland and First Trust Bank.

[pagalmadman1]

hey u can also try money as debt video on youtube.......its more fun as they have made animations to explain the same thing sal has tried.........

[Evulmeh]

This is actually more in depth :) And a lot less biased towards an OH SHI- conclusion.

[pagalmadman1]

although i dont live in united states of america (nor have been there as of yet).......still now i seem to know more than most of americans.....lol

[Darkestaxe]

For those saying banknotes no longer represent anything because of the gold standard, the gold was never actually worth anything much either.

Bank notes (money) is worth the goods and services it will buy. Golds primary value is how much MONEY people will pay for it because they THINK it's worth money.

So please watch more (or read a book) or be quite. Spreading disinformation makes it easier for banks to get people to pressure congress into helping them fuck up our economy further.

[GtheMVP]

you need to clone yourself so you can  spread your common sense better, this world needs it!

[TheCapitalistdog]

@GtheMVP

Dude, I've seen you post on Stefbots videos

Weird coincidence. :-D

[uraijit]

Except bank notes no longer represent ANYTHING. The only thing they're guaranteed to be good for is to pay taxes...

Today's bank notes aren't worth the paper they're printed on. They represent NOTHING.

[ivanleo]

Then please send me all your worthless banknotes, I'm sure I can find some use for them

[jackuy12345]

keep them up!!!!

[Schroeder182]

bank of george bush...lol.

[jabmalassie]

What if the "wealth" that was created was

fake.?The multiplier would be fake?

[jackuy12345]

lol this is a example that he assume everything went good and the wealth is created, assuming no bad accidents happened, yea if the wealth was fake the multiplier would not be working but yea... just a positive example

[Kin94285]

generally everything works good. It's how the economy has grown for the last couple of hundred years. Of course there are hiccups here and there..

[jackuy12345]

??? why u reply me for dude? wtf?

[obbytoo]

Wonder what happens if I went to my bank today and ask them to give me gold with my bank note.

[Kin94285]

notes were taken off gold in 1970 by nixon.

[ilikadapepsi]

you should do it

[carracer481]

I am looking forward for your explanation on how the treasury backs a fed note! As far as I know now nothing backs this up and I am willing to bet you never explain this. If you do and it is true it will amaze me.

[at1212b]

Therein lies the greatness of the Fed... there is aparently something backing it.

Let's just call it elixir

[airicka011]

does this mean that bank notes are the money and check issued by the bank????

[Boxmanboxman]

How does this explain our current fiat system. Our economy is no longer based on the gold standard. As far as I can tell this video has no relevance to our current situation.

[dsglop]

This vid explains quite well that it doesn't matter if there is gold "backing" our dollar because gold and paper currency serve the same function.Products and services back our economy so no stock pile of gold is necassary.

[gwynedd1]

The dollar is backed by government securities aka government debt. It was gold or government debt based upon the taxing power of the government and its ability to raise gold. Now its just debt so its technically insolvent . The description of the dollar as backed by goods and services is not correct as a distinction from gold because that is also what backs gold. Thats why primitive societies just used it as jewelry. So the dollar is basically backed by taxing power.

[garybsg]

@dsglop It's true it's wealth backing our dollars. However, the Fed has the power to print more dollars then real wealth created(inflation). In that case, the dollar's actual value begins to diminish relative to gold. That's why people buy gold.

[dellwon]

@dsglop

If the money in circulation grew at the same rate as real wealth in the economy, then what you said would be true. But the problem is that money DOES NOT grow at the same rate as real wealth. Gold's best functions is that it acts as a restraint. Gold can't be "printed out of thin air." If the money had to be backed by gold the result would be deflationary. That is good because you retain your purchasing power and then some. What we have today isn't deflation but inflation.

[juanfranlopez]

@dsglop, wrong! The video is nice, but it misses 2 points:

- interest rate: if you assume that the investments went well and wealth is created then the interest rates should grow as well

- It is unrealistic to assume that all the investments will go well (as we have seen in many countries). And, as has been shown, credit expansion policies invariably lead to bubbles and bad investments.

The elimination of central banks and the adoption of gold backing policies are mandatory!

.

[cjwtech]

@dsglop Yes, but gold is a limited quantity, so we cannot produce it at any rate we want to. Paper money is producible, so the Fed will produce more when it needs it, making it less valuable than gold.

[Achilles033]

ironically you theoretically need to pay .99 cents to buy this video but you can copy the link on the right and put any of these videos on to any website you like... just some food for thought...

Also VERY nice work man. This clears up a lot of confusion i had with fractional reserve banking

[luke2468013579]

lol i was going to ask that very question...you havent left me with any confusion in all you're videos so far, thanks.

[HamiDjoukou]

Im also interested how the Fed Swaps with Emerging Markets exactly work. (witch where in the new this week)

[HamiDjoukou]

Oct. 30 (Bloomberg) -- The Federal Reserve agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time.

The Fed set up ``liquidity swap facilities with the central banks of these four large systemically important economies'' effective until April 30, the central bank said yesterday in a statement.

[HamiDjoukou]

The Fed also created this week a $15 billion swap line with its New Zealand counterpart and removed limits this month on four existing swap lines, including one with the European Central Bank. The Fed set up a $10 billion arrangement with Australia's central bank last month and then tripled it to $30 billion.

[murtleman224]

Sal if you have bank notes that are owned by the Fed reserve and are lent at interest doesn't that mean you are always loosing money to a privately owned bank

[khanacademy]

I assume you're talking about holding bank notes issued by the Federal Reserve (i.e. dollars) that aren't getting interest in which case you are making an astute observation. This is how the Fed has money to operate without taking taxpayer money (in normal times). It gets interest on the loans it makes to banks but pays no interest on the reserves kept with it or the notes (dollars) that it issues.

[novusord]

Except for the insidous tax: inflation.

[vickiormindyb]

@khanacademy Why am I not surprised that that's the way the Federal Reserve works? Getting interest on loans it makes to banks but paying no interest on the reserve.

They seem like sharks IMO. My not-so-humble opinion.

[ivanleo]

People who constantly point out the Fed is privately owned also constantly fail to notice the profits of the Fed must, by law, be paid to the US treasury.

[Corporations8MyBaby]

excellent point. perfect ivanleo. these are people who have problems in thinking in systems.

[ExquisiteDoom]

@ivanleo can't see the problem with this, huh? :)

[ivanleo]

Frankly no, the current system works a lot better than any alternatives I've seen

[covingtonium]

@ivanleo lol yes I discovered this in my research. The average person does not THINK enough about topics they are discussing. Thinking always leads more questions and more answers and more complexity and, in my opinion, more satisfaction.

[BradPearce621]

He sounds just like John Mayer...

[pongman]

I wish I had his brain. Someone needs to examine it to find out the secret. Is it what he eats or drinks that makes him so smart? Any neurosurgeons here that can do an MRI of his brain to find out? lol

[brco2003]

maybe he can lol

[VictimOfBoredom]

I just want to thank you for all these banking/financial videos. They are VERY useful and VERY appreciated!