The amount of money banks can create is actually not limited by the reserve requirement. This is in no small part because banks don't have to meet reserve requirements until AFTER they've made loans. If they were to create too much money, then they would be short reserves. In an attempt to meet the requirement, they would attempt to borrow reserves from other banks. Because there is now more demand than before, this would push the inter-bank interest rate, also known as the Fed Funds rate, up. Because the Federal Reserve targets the Fed Funds rate, if the rate went up too much, they would engage in an open market operation to bring the rate back down. Essentially what they would do is buy bonds using reserves "printed" from thin air. Once the Fed had supplied the reserves necessary to allow the bank to meet the reserve requirement, the interest rate would stabilize, and the Fed would stop. So, the banks are actually not limited in any way by the reserve requirement, because the Fed must supply any necessary reserves in order to target the interest rate. If they didn't supply the reserves, then there would very quickly be not enough reserves for the system as a whole, which would push interest rates to infinity, which would implode the banking sector (unless the government happened to be deficit spending by more than that at that moment, in which case the interest rate would actually fall to zero). This is why several countries, one of which is the UK, don't even bother with reserve requirements anymore. (For more information, look into "endogenous money" and Modern Money Theory (MMT).)

I have been looking for a channel like this one, that explains how things work without talking about conspiracy theories or frauds. I just want to know how does the system works.

i've been paying attention, a lot of attention. creating money from nothing and profiting from it. when your liabilities go south cry for help. get that help, then treat it like your own personal bonus. the banking industry is doing this on an industrial scale.

That's it, I'm starting my own bank.

Even if it is limited by a reserve which in most cases it isn't. What does the bank "loose" when I default on my loan? They still have the IOU which they can sell, which we created out of thin air and if they loose it, they lost nothing. On top of that, they confiscate my house. The bank doesn't loose anything, instead gains if I don't pay (house+IOU) and gains interest + priniciple (which never existed) if I do. But if they can't pay up, they are insured. Why do I have to pay back, if the bank doesn't share any risk for me paying up. This is so wrong.

Remember that the money person A had in the first place was probably the result of, lets say, BANK C creating money (maybe someone put 200M on BANK C and BANK C lent 100M to Person A, creating if from nothing). In the end, the money that BANK A had in the first place is just as unreal as the money that BANK B created at the moment. Although you could say that the method of BANK B may be more blatant or cheeky, it is actually the exact same thing

Ah I wish I could do that with my money..

I would still like to see a history of the great depression and the role bank runs played on the contraction of the money supply. This would bring fractional reserve lending to reality for a lot of people, as most people find it hard to believe banks actually do this.

THANK YOU FOR THAT VIDEOS

10% is the traditional reserve ratio, however the Silver market is leveraged by as much as 400:1, that is 400 paper ounces of silver backed up by 1 ounce of physical silver, this is what happens in a totally deregulated system with no oversight.

which multiplier creats more M1, M2 or M3? and how? give simple answer plz

Thanks

whichmultiplier creats more m M1, M2 or M3? and how? give simple answer plz

Of course it creates money, could there be a cost of money when demand or supply changes?

So if every bank had the reserve requirements mandated by the fed and no more, would that mean that M1 = M0*9?

Hi, I think the order of the videos in your playlist -Monetary system is wrong.

A bit hard to follow

True, but what does it matter when the end result is the same?

🎯 Key Takeaways for quick navigation: 00:00 🤖 Banks can create assets and liabilities simultaneously to facilitate fractional reserve lending, allowing them to expand their balance sheets beyond initial reserves. 00:59 🛡️ The video aims to explain the mechanics of fractional reserve lending without taking a stance on whether it's good or bad. 01:27 💼 A bank starts with assets like buildings and equipment, which contribute to owner's equity, and can accept deposits as liabilities. 03:25 🤖 Banks can lend out more money than they have in reserves by creating checking accounts for borrowers and receiving IOUs as assets in return. 05:22 🛡️ Banks are constrained by reserve requirements, limiting the amount they can lend based on the ratio of checkable deposits to reserves. 06:20 💼 The process of creating checking accounts backed by limited reserves is functionally equivalent to traditional fractional reserve lending, where banks tell customers they have more money on demand than they actually hold.

The result is exactly the same, I swear, both banks end out with 100M in checking account and in both banks there are 90M lent to someone. You should realize that in theory, borrowers of Bank A are as likely to repay their debt as the borrowers of bank B

I'm sorry, but I don't see how these examples are the same. In Example 2, the bank could only create $90M for loans because of the $10M it has in reserves. However, in Example 1, because $100M was deposited instead of $10M, the bank could actually create $900M in loans before needed further money as reserves. Huge difference. If I'm wrong please explain. Your videos are excellent by the way.

Today in USA there isn't a reserve requierement no more, infact today the requirement is ZERO reserves... So..today banks can create infinite amount of money, give them to who ever they want, in what amount they want. I mean, in a certain way it was alwayse like this...but know a bank don't even need reserve, so it don't even need an economy that saves money. My question is, how could this be sustainable?

I don't understand how a bank can create money out of nothing, lend it out and charge interest on it.. They would carry no risk at all. Given money was created out of nothing , if the borrower defaulted , why would the bank care ? Something must be missing here because it doesn't make sense.

Or i can borrow 20M, buy a bank for 10M, pt 10M in reserve, create 90M, pay back 20M and still have 70M? Banking seems nice.

What a confusing explanation!! How can there be a 'Checking Account' liability in Example 2!?! In Example 1 you have the depositor's money - you have a liability to pay it back. But in Example 2, you have LENT money to a borrower...that is why you have an 'IOU', you don't have a Liability to pay him again!! So what does he mean by 'Checking Account' on the Liability side!?!? It makes no sense and this is driving me Crazy...can someone please explain!!??

in the second example when the initial deposit was $10m then won't the reserve requirement be 10%*$10m = $1m and lend the rest of $9 ($5m and $4m respectively) instead of 50m and 40m respectively

@Austin1990

Жыл бұрын

They need 10% of their checkable deposits on reserve. So, that $10M reserve allows them to have up to $100M in checkable deposits since 10% of that $100M is the $10M in reserve.

@suii6961

4 ай бұрын

@@Austin1990but in example 2, 10 million are not reserves that’s the total of the federal reserve notes deposited. Meaning that the actual reserve should be 1,000,000, thus the bank can create 10,000,000 of new checking accounts. The same thing is shows in example 1 where 100,000,000 is deposited as federal reserve notes and 10,000,000 is kept on reserves (10% of 100M) thus they were able to lend out and create 100,000,000 of checking accounts (10,000,000 x 10). Ultimately I think the example in the video was wrong.

@Austin1990

4 ай бұрын

@@suii6961 I thought that at first as well. Banks create money through double-entry accounting, creating a $1 of credit and a $1 of debt at the same time out of nothingness. When the $1 credit is paid toward the $1 debt, they go back into nothingness. However, the examples in this video do not show double-entry accounting. But, they do show that the net effect of a fractional reserve system is the same thing mathematically. Say a bank has $100 in deposits. It needs $10 in reserve, so it can lend out $90. Those $90 will eventually be deposited into the bank. Now, it has $190 in deposits and $100 in reserves again. It can lend $81, keeping $19 in reserve. That $81 will eventually be deposited, giving the bank a total of $271 deposits and $100 in reserves. This can be repeated until the bank has $1000 of deposits and $100 of reserves.

3rd

Question: If all this money is been created out of nothing ...but no one creates the interest...where does the interest come from......could it be ....QE1, QE2,and recently announced QE3???

@Austin1990

Жыл бұрын

Yes, the monetary supply must be ever-expanded to pay the interest. But, it is often expanded through more debt. This system creates an ever-expanding debt bubble.

I don't quite follow the logic behind that claim. Bank A has $10M with $90M out on loan. Bank B has $10M with $90M out on loan. Aren't those the same results? Whereby there is $90M that wasn't there before. Sounds like the same results to me.

first

in example 2, 10 million are not reserves that’s the total of the federal reserve notes deposited. Meaning that the actual reserve should be 1,000,000, thus the bank can create 10,000,000 of new checking accounts. The same thing is shows in example 1 where 100,000,000 is deposited as federal reserve notes and 10,000,000 is kept on reserves (10% of 100M) thus they were able to lend out and create 100,000,000 of checking accounts (10,000,000 x 10). Ultimately, the example in the video was wrong.

Yeah, I dont quit understand how they are the same if bank b never had the cash to lend out in the first place.

@Austin1990

Жыл бұрын

If the $90M in Bank A was put back inside the bank instead of thrown into the void with an arrow, it would make more sense. There would be $100M on reserve, a $90M IOU, and $190M on deposit. This is only a 1.9x expansion of the initial monetary supply, so it appears less shady. But, that is because it is not followed through. if the process is repeated, Bank A would eventually have $100M reserves with $900M IOUs and $900M deposits. That is the same result as Bank B, just everything multiplied by 10. It is a very shady trick to make the fractional reserve system seem less shady than it is. This also shows how you could try to create a less shady system while accidentally winding up at the same place. The fractional reserve system exponentially expands debt.

and?

You weren't paying attention or you wouldn't be saying that.

This Is scary

Before I saw your videos, I thought i was the master of the intellectual universe...

Ok I beg my pardon for my comments on the last video. I thought you were kind of misleading.

So i can borrow 20M, buy a bank for 10M, create 90M, then buy another 4 banks, create 360M. then buy another 18 banks, create 1,62G, then buy another 81 banks, create 7,29G, then buy another 364 banks, create 32,76G, then buy another 1.638 banks, create 147,42G, then buy another 7.371 banks, create 663,39G, then buy another 33.169 banks, create 3T, then buy another 149.260 banks, create 13,4T, then buy another 671.670 banks, create 60,5T. Pay back those 20M. The world is mine! #trollface.jpg