Thoughts on how to improve our monetary system? Shoutout to DeleteMe for making this vid possible - check them out here and use code "SPACE" joindeleteme.com/SPACE
It’s crazy that the whole system is based on trust. The bank doesn’t actually have the amount of money to pay everyone, it just hopes that we don’t all withdraw are money.
I was surprised to hear that there's no restrictions on handing out money. In the past banks were required to keep a cash reserve, but apparently that's now gone. However, reliable financial institutions (so not FTX despite what they claimed at the time) are FDIC insured, meaning that if a bank has to pay out more than it actually has, that insurance kicks in and ensures that everyone gets their money. It's done to keep trust in the system as in the past banks collapsed and took people's life savings with them. It also helps prevent bank runs, which is when everyone wants to take out their money at the same time. People do that when they lose trust in the bank, so as long as the trust is there bank runs are less likely to happen. It does all increasingly feel like a house of cards.
@@primalspace going off a gold standard was unbelievably wicked, i say this because there is a crucial aspect you overlooked, namely, the very act of printing money is inflation, however banks and financial institutions like stock markets particularly but others too, have an assortment of tricks to delay when this inflation is felt as your savings are rendered less valuable by increased money supply, and those tricks are to essentially tie that newly made money up in all sorts of abstractions that diatance them from the real markets, but eventually the house of cards must fall, it is always crumbling and being built atop of, this inevitable repricing of things to more closely align with the reality of the unit of account(i.e money) being devalued by increasing it's total amount, is an inevitable process, it can be slowed down but it is still inevitable, and this is the true origin of what is called, a recession.
😂😂 it depends who cashes out, if all the broke lower middle class people cash out their amount of less than a thousand dollars they’ll be fine. But if the upper middle class wanna cash out their sizable savings then they’d probably freak out
This comment is so cliche by now... If you learn less than a 10min video in 3 years of economic classes that doesn't talk any good about you nor your university.
i don't think so. They have to only lend out 80 percent or so of total deposit amount available, They can borrow from central bank more to lend but they'll need more borrowing customers which is risky.
No... They can not create any amount of money the want 🤦... If that were the case then why banks you try to lend money or invest it if they can just create it. That's not how it works is much much more complex than a 10min video.
The most interesting thing is that the whole system basically works on promises and trust. And the money you put into banks isn't the same one you get back.
Both of the most interesting channels, Primal Space and Fern, dropped videos within 3 hours of each other. Amazing! I loved the video-I learned so much!
I like that part where you first talk about old method when money didn't exists and sudden shift to connect today's bank situation with that gold coin owners that actually very good and seamless , simple
What shocks me the most is when the corrupt companies and politics take all the interest for themselves, leaving us, the taxpayers, the cost of the transactions
They give us loans with money they did not earn and we pay interest on it. The World Bank works the same way. Its much of the reason the third world stays the third world.
Its really crazy how the US government will constantly buy bonds and go into a cycle of debt, knowing damn well they got the option of actually investing in infrastructure, helping people and alleviating the debt little by little.
The government issues the bonds and the federal reserve buys them all with printed dollars. Its how most of the government is funded, they don't even need the IRS anymore.
The video was really good up untill 7:40 . You yourself say that money is created when a loan is made (i.e. created out of nothing and a liability to the bank -which is correct), but then directly after you say: "banks have to limit how much money they create. In the past, they could only lend out a portion of the actual cash they had in their backup supply". Do you not see the obvious error? There is no such thing as a "backup supply of cash" since all money is credit (i.e. liability on the banks' balance sheets). Then you go on to perpetuate another huge misunderstanding by saying that "they can go to the central bank and ask for more money" Again, that is completely contrary to your previously correct statement and is factually false. Please read: Money creation in the modern economy Quarterly Bulletin 2014 Q1, Bank of England And please issue a correction to the video. I can give you more sources and explanations if you need.
Sorry, but I stand by my explanation. At some point, many countries followed the fractional reserve method of having to retain a certain percentage of the digital money they were lending out in cash form, but this is no longer the case. It's true that physical cash is essentially just credit and essentially meaningless (like I explained in the transition from gold to paper notes), but in the modern age, most people still think of cash as "real money", a kind of anchor, just like gold was in the past. Instead of the fractional reserve system being used to limit how much a bank loans out, there are more specific requirements banks must have before they can lend out money. But if they need more money to up those reserves, they can take out a loan from the central bank.
@@primalspace Please read the official bulletin published by the Bank of England that I mentioned in my comment, it will help you understand more clearly. "At some point, many countries followed the fractional reserve method of having to retain a certain percentage of the digital money they were lending out in cash form" -> Banks have historically been restrained from lending based on the liquid assets that they hold (this is not the same as cash). In the USA this was natioanlly mandated by the National Bank Act in 1863 to ensure liquidity. Over time, and especially with digitisation of currency, the reserve requirements have changed and are now used as a part of monetary policy (although not an important aspect). --> This is not at all the same as them "being able to lend out a portion of the actual cash they had in their backup supply". "But if they need more money to up those reserves, they can take out a loan from the central bank." -> No, banks do not take out loans from the central bank. The central bank does not create money. Here are some additional sources you can read: Sheard, P. (2013). Repeat After Me: Banks Cannot And Do Not “Lend Out” Reserves. Can Banks Spend Their Reserves? - Fed Guy, 2020
A couple of quotes from the “repeat after me” source. “Central banks don’t constrain the amount of bank reserves they supply. Rather they supply whatever amount of reserves the banking system demands given the reserve requirements and the amount of deposits have been created.” Also, “If bank lending increases and the associated increase in bank deposits leads, as it will, to a higher level of minimum required reserves, the central bank will supply those reserves”.
This video just made me realize... money is basically a collective illusion we all agreed to believe in! 💰✨ Banks creating money out of thin air feels like the biggest magic trick ever-except I never got the VIP pass to learn the trick!
"So you're telling me banks just type money into existence? And here I am, typing every day but still broke. Clearly, I'm in the wrong profession!" 2025
Yeah you didn't know? When you take a loan from any bank unless you specifically ask for cash they would just press few numbers and Enter and done congratulations your loan is credited to your account, In fact even the Federal Reserve creates money the same way since the crash of 2008 The fed has injected more than 8 Trillion dollars into the economy and the fun thing about all of that is this money first goes to the rich guys which drives up the prices of all hard assets such as stocks, properties etc thus making rich richer and since your broke ass can't afford to buy them you stay broke🙂
You work for money that another man can print for free. Most people must provide value to society to earn money for trade (like that farmer and the tool maker), but the banker at the federal reserve gets to print dollars and buy all our stuff with it.
These videos are amazing. I think what shocks me the most is that our money system is so ephemeral now, how it's evolved from physical items to digital ones and zeros but still maintains the same basic rules.
7:51 it is not true that banks have the power to create as much money as they would like. Banks use very conservative regulatory models that forecast how much money could leave the bank over 30 days and 90 days. Based on this, the bank must keep over 100% of that figure in reserve. This is called the LCR. There are many other tests and regulations that banks must follow as well. Banks must prove to regulators that they can survive a randomized stress test every year, for example. And based on their results on these stress tests, they must hold additional money in reserve.
This still doesn't mean that withdrawals cannot surpass predictions. Fundamentally, a system within which only a fraction of a percent of the total bank's money is actually withdrawable to customers is a little flawed even if viewed favourably and for its upsides.
I have a 11 year old son who likes learning about things and money is one of his favourite things. When I showed this video to him, he liked it and started to tell me his favourite part of the video. He said “I like the part when people used items in the medieval times because even though coins were not invented, people actually trusted each other and gave equal amounts when there was not that much law in place. Also, when banknotes include UV ink to show patterns, show culture and also give security I look through it to see any Easter eggs and history. Thank you Primal space for this video! My son loves your channel and always likes to watch previous videos.
3:36 the idea of Velocity of Money is such an interesting concept. I pay $100 to a grocery who pays $100 to a farmer who pays $100 to a tractor company who pays $100 to a pencil manufacturer who pays $100 to a lumberer who pays $100 to a saw mill who pays me $100 for whatever my job there is. The same $100 just generated $700 worth of economic movement. Super interesting stuff.
Our country is in complete DENIAL about how crappy things have become. Basic Living should not be unaffordable here in the US. So many people are barely able to afford rent. ~Serious question: WHY has our country allowed things to get THIS bad? How is Nothing being done about it? Unaffordable cost of living is the #1 issue we need to fix in order to keep our society functioning. This obsession with Perpetual growth & perpetual profits is impossible. Yet our country acts like its completely normal. There is no way things can function like that. A huge amount of people struggling to afford Rent.. Of course this affects small towns & local businesses because the rent on these shops increases too. Our country basically requires everyone to become wealthy. Remember this is just to afford the cost of basic living. It's not possible for us to live in a system where everybody can be wealthy. So lots of store fronts are becoming vacant. Average people cannot afford rent. There is absolutely no help for our citizens who are now stuck dealing with poverty.. (and worst of all, we have to wake up everyday and see that our country is completely ignoring that any of this is happening. The media just acts like none of this is going on. They just continue to show us clips on the news and statistics in the media like "Look how many new jobs were created last month, Look at how well our economy is thriving") Homes are so expensive, Yet Our country has NO SYSTEM that helps someone if they lose their home.. This corruption will DESTROY our country. It has made our country a country that lacks sympathy. We've forgotten what the soul of America is made up of.. It came from a thriving multilevel system.. Where even the lower income brackets had obtainable living options.. if the lower income citizens cannot afford to exist, the system that we know will begin to breakdown..
As an Indian we pray every day for first worlders like you to keep your luxurious lifestyle and love to hear complaints about not being rich enough or not having enough opportunity. Sorry healthcare is expensive, I have never had it at all. Love from Kota ❤️
The system is functioning as designed. The PrimalSpace guy described how banks print money, but failed to mention the implications of this. Money is a claim on wealth, not the wealth itself. So when bankers at the Federal Reserve print money they are granting themselves the right to consume all our resources and stuff without contributing anything in return. This is known as the Cantillon Effect. Inflation is a massive wealth transfer scheme from the poor to those who control the money printer. This is the origin of the inequality you cry about.
I love how high quality your content is, and how whatever the topic, the animations, explanations and information given are always top notch! I do hope you'll keep making space related videos though, even though the more general stuff is still great
Here in Argentina we are told that the government printing money is what drives inflation up. After watching this video, I'm left wondering how the "private" creation of money (that of banks) compares with its public counterpart. Really informative video, keep it up!
Its the same thing here in the United States, just with some extra steps. The Federal Reserve prints the dollars and buys the governments bonds, now the government has the money to spend. It spends the money and buys up all the resources, now that there are less resources and more money in the economy all our prices go up. This is known as the Cantillon Effect. The first recipient of the newly printed money has the arbitrage opportunity of being able to spend money before prices have increased. They get to buy up all the stuff with that printed money. The same money we all must work for. Its a clever wealth transfer scheme.
Mainly because gold is just some metal. It can't possibly hold the value of all the mortgages of the world, which is worth $140 Trillions. add to that the value of all the land, factories, cars...etc. You can't just convert everything to gold. Gold would become exponentially expensive, and people would just trade 1 house for 10 cars instead of going through the bank and convert all that value to gold. And why would gold be so special, just trade things in silver, or copper, or oil... That's why the gold standard died, you can use anything to exchange value. There's no point in gold being a middleman. Where it all comes together for states is that all the people MUST pay taxes, and they have to do it by using paper money. And the government has LOTS of it. Because it's so large, it's a much more powerful entity than some metal. And you can trust your government more or less, you see how it behaved in the past. You wouldn't sell food for a Zimbabwe dollar because the inflation is 10000% per year. You would however buy the USD because the US was much more responsible with the value of the food you're selling. Governments also have an army and police with which they can force the will of the parliament (which should reflect the will of the people) , which you might prefer to a dictator.
@@dariusdareme thats why bitcoin is going to replace gold as the hard money for the world , it has the safety and hardness of gold but the portability and storing of fiat money( dollar,euro...)
@@Fiathater Bitcoin is by no means 'safe' or 'hard'. Its value lies purely in speculation and in no way is it 'safer' than gold. Furthermore, it is in no way tangible and serves as a second middleman in 99% of transactions (e.g: I store my money in bitcoin, I need cash to pay in a shop, so I get dollars for my bitcoins and I use the dollars in the shop then convert the change back to bitcoin???). Above all, I do not see a future where businesses and countries implement an uncontrolled, completely decentralised system of value storage to use on the same level as a trusted and regulated currency.
I have a quick answer for why it was abandoned. The Primal Space guy mentioned that the Gold Storehouses started to issue gold redemption vouchers even though they didn't have enough gold to redeem everyone. He did not elaborate on what this would ultimately lead to, the goldsmiths would get more aggressive with their fraud. Eventually the public would catch on and start to all withdraw their gold in a panic. These storehouses were the first banks, their gold receipts were the first paper currency, and these panic withdrawals were the first bank runs. These early banks really liked to buy government bonds, and governments really liked how the banks could fund all their spending by just issuing more gold vouchers, eventually the government suspended the redemption of gold declaring the Banks' fraud legal. They of course sited all kinds of excuses, "antiquated gold system does not work with modern society" and all that spin. So now we have the Federal Reserve, it prints dollars for nothing and funds all of the government's spending. So the quick answer is: state coercion. You can look up Executive Order 6102, this is when FDR suspended the redemption of dollars for gold and ordered all Americans to turn in their gold. Britain also has a lot of colorful bank history from like the 1860's to the final removal of the gold standard in like 1930 or so. This happened gradually.
2.57 literally giving way a piece of paper and getting back the value mentioned with an interest. Crazy yet mind blowing exponential type of money gain.
The most fascinating part of the video was the fact that people are just relying on papers that are in existence and have value just because of a promise like how did people even believed in such system back then
What I can't imagine is that the "falsity" has succeeded in creating a system that can support the lives of many people but it is also an irony to see how the system works. As always, amazing video
This is a mind blowing system based on creating money out of thin air! Really puts into perspective how little about the world we know. The fact that I have to rely on a yt video to learn about this shows that maybe the world doesn't actually want the average person to know about this.
Banks have a neat trick where they can whip up money just by giving out loans. When you take out a loan, they’re not handing you cash they’ve been holding onto; instead, they’re just creating new money with a quick digital entry. Really awesome!
The fact that we all use money that doesn't even exist just shows how much of a nonsense is everything around us. Taxes, buying stuff we don't even need for money we don't even have. Ridiculous...
I still find it insane how countries get the money they need with debt from other countries or institutions like the international bank, Its soo hard to fathom the amounts being transferred, more money that I can understand. Great vid as always!
Extremely well explained. I have been looking for this for a long time & this is by far the best one. I particularly like that you go back to the farmer & use grains as currency.
Was pretty shocking to me how the government uses bonds to add more money through debt, and it gets you wondering if it’s still possible to improve the system and invest more inwards for better returns as mentioned near the end.
Exactly. Money is not the actual wealth, money is a claim on wealth. Where is the wealth being created? Because if money is just being moved around with no wealth creation then everybody is just consuming all the resources and not replacing them. What does this make a bank if they can just print claims on wealth at will.....?
Money is just a invention that everyone agrees is worth something. It is actually just a number that businesses and governments exchange around, and tells everybody "how much" it is worth...
It shocks me how the basic concept of the monetary system has transferred from goldsmiths and paper into our modern technological age. Also, if you think about it, the evolution of money has largely been spurred by the need for more convenience.
I think it’s only a select few that think like you, For instance you point out how the most efficient way banks could work However most think how the could take loans to buy fancy cars and houses to impress others…
Printing money at home is legal as it is just a small bank making money for one person. Idk why so many ppl get arrested for this. Maybe I should do it too!! 🤣🤣🤣
I have wondered this for some time, thank you so much for explaining it in simple terms :) I don't fully understand the bond part, but I get the idea of it in general.
Federal Reserve prints money and buys bonds from the government. The government takes that loan and spends the money. Its why the government gets unlimited debt, all the money comes from printed dollars.
Fascinating how a small piece of paper can change the entire economic status of the area!! BTW: I've watched your vids for a while! They fit my curiosity gap completely
I think the first banks were in 1630 london , It is very similar to the banks of the 21st century But the system they had are also very similar to cheques used by banks nowadays, And the cash increases when you buy something like food or other things in 1630 before credit score was invented
The music will stop eventually, the party the bankers are enjoying can't last forever. The obvious choice is to stop saving in a money that a banker can print for free.
For those thinking a bankrun - when everyone actually tries to get all their money out of the bank at the same time - would crash this system: Nope. What you are actually doing is exchanging digital money for paper money. Just a different form of the same thing. You would need to actually get gold from the bank. However, such a large volume does not exist. What DOES exist is non-monetary value like housing, cars, but also infrastructure, companies and more. The actual value of work that was put in at some point simply shifted away from metal coins to pretty much everything around you, in every form and shape you can imagine. Money, at this point, has become a catalyst for trade. Best example are super-rich people. They almost never actually have a big bunch of cash somewhere rotting away, they own large quanities of housing, companies and more. When these people need cash, they simply sell a house, trade in some stocks or sell whatever they have on hand. Those people do not need like hundreds or thousands of houses. They only need the trade value and a timeframe it takes to sell it to someone.
I've seen other videos on this topic, and completely forgot how much it blows my mind that money just gets created when loans are given out. Kinda seems like shady stuff but guess that's the way it works.
Now makes sense why the infrastructure spending bill was paired with the inflation reduction bill. I still don't understand why doesn't the govt spend more or encourage loans for new housing which would be the most efficient way to create productive value
Tbh the case of where the US government print more money than it should be shocked me how our modern civilization is still revolving.This type of case known to me before,ive read a book written by Robert T Kiyosaki which is also about the history of money.
The part about the Central Bank and Government Bonds really shocked me. I can't believe that my tax dollars are being used to cover the government's debt, while they keep creating more and more bonds while borrowing even more money.
@@FunkyJeff22 Yes. - Who else but the government can create its own currency? Nobody. Banks are only allowed to create new money because the government allows them to. Anything else is counterfeit. The money must come from the government. Every single dollar in your bank account is there because the government allowed it to be created. So what money basically represents is goods produced in a country, and when that relationship starts to get out of whack, you've got something called inflation. Secondly, the government could simply create new money without selling bonds. This is a holdover from the days when the currency was backed by gold. It's completely unnecessary today.
Okay I didn't know that the overall debt via bonds is how most of the world's economic system operates. I was under the impression it was through various smaller loans and stuff.
Thoughts on how to improve our monetary system? Shoutout to DeleteMe for making this vid possible - check them out here and use code "SPACE" joindeleteme.com/SPACE
so, if the us loans out “money” to banks and corporations and foreign governments, can’t the federal reserve collapse like banks?
Maybe if they lost Trust
But they are Trusted a lot
It’s crazy that the whole system is based on trust. The bank doesn’t actually have the amount of money to pay everyone, it just hopes that we don’t all withdraw are money.
Pretty wild when you think about it.
I was surprised to hear that there's no restrictions on handing out money. In the past banks were required to keep a cash reserve, but apparently that's now gone. However, reliable financial institutions (so not FTX despite what they claimed at the time) are FDIC insured, meaning that if a bank has to pay out more than it actually has, that insurance kicks in and ensures that everyone gets their money. It's done to keep trust in the system as in the past banks collapsed and took people's life savings with them.
It also helps prevent bank runs, which is when everyone wants to take out their money at the same time. People do that when they lose trust in the bank, so as long as the trust is there bank runs are less likely to happen.
It does all increasingly feel like a house of cards.
Yep, that's a bank run. Happened in the great depression.
@@primalspace going off a gold standard was unbelievably wicked,
i say this because there is a crucial aspect you overlooked,
namely, the very act of printing money is inflation, however banks and financial institutions like stock markets particularly but others too, have an assortment of tricks to delay when this inflation is felt as your savings are rendered less valuable by increased money supply, and those tricks are to essentially tie that newly made money up in all sorts of abstractions that diatance them from the real markets, but eventually the house of cards must fall, it is always crumbling and being built atop of,
this inevitable repricing of things to more closely align with the reality of the unit of account(i.e money) being devalued by increasing it's total amount, is an inevitable process, it can be slowed down but it is still inevitable, and this is the true origin of what is called, a recession.
Happens with small banks all over the world
No one:
Primal Space guy: WE MODELED THE ENTIRE THING
every documentary channel on youtube
To show you how.......
GUYS i have an idea for a CRAZY PRANK! How about on february 15th, we ALL go to our local banks and CASHOUT ALL OUR MONEY?! Its gonna be SO FUNNY
😂😂 it depends who cashes out, if all the broke lower middle class people cash out their amount of less than a thousand dollars they’ll be fine. But if the upper middle class wanna cash out their sizable savings then they’d probably freak out
nobody with significant money in their bank acc wants to crash the economy
Ever heard of a "bank holiday?"
Wow, I just learned more about how money actually works in 10 minutes than from 3 years of economics classes.
economic class don't want you to learn more i am guessing 😂
I’m guessing you missed the first day
😂
This comment is so cliche by now...
If you learn less than a 10min video in 3 years of economic classes that doesn't talk any good about you nor your university.
Same
The part of the money system that shook me the most is the fact that every bank can create how much money they want at will!
Pretty crazy to think about. Thanks for watching and good luck in the giveaway.
Yea thats crazy! who controls these banks??
i don't think so. They have to only lend out 80 percent or so of total deposit amount available, They can borrow from central bank more to lend but they'll need more borrowing customers which is risky.
Can they create a quadrillion dollars 💵?
No... They can not create any amount of money the want 🤦...
If that were the case then why banks you try to lend money or invest it if they can just create it. That's not how it works is much much more complex than a 10min video.
The part of the money system that shook me the most is the creation of digital money like its nothing
The one thing i love about youtube is that i can just click on a video and walk away with knowledge that i had no idea i needed to know
The most interesting thing is that the whole system basically works on promises and trust. And the money you put into banks isn't the same one you get back.
Both of the most interesting channels, Primal Space and Fern, dropped videos within 3 hours of each other. Amazing!
I loved the video-I learned so much!
I like that part where you first talk about old method when money didn't exists and sudden shift to connect today's bank situation with that gold coin owners that actually very good and seamless , simple
What shocks me the most is when the corrupt companies and politics take all the interest for themselves, leaving us, the taxpayers, the cost of the transactions
They give us loans with money they did not earn and we pay interest on it. The World Bank works the same way. Its much of the reason the third world stays the third world.
I like the analogy when you used it to explain that Bank promise thing with goldsmith promise note
Its really crazy how the US government will constantly buy bonds and go into a cycle of debt, knowing damn well they got the option of actually investing in infrastructure, helping people and alleviating the debt little by little.
The government issues the bonds and the federal reserve buys them all with printed dollars. Its how most of the government is funded, they don't even need the IRS anymore.
"But how does you fail in your life andd watching youtube until 3am and have no money and no job?"
"WE MODELED THE ENTIRE THING"
The video was really good up untill 7:40 . You yourself say that money is created when a loan is made (i.e. created out of nothing and a liability to the bank -which is correct), but then directly after you say:
"banks have to limit how much money they create. In the past, they could only lend out a portion of the actual cash they had in their backup supply".
Do you not see the obvious error? There is no such thing as a "backup supply of cash" since all money is credit (i.e. liability on the banks' balance sheets).
Then you go on to perpetuate another huge misunderstanding by saying that
"they can go to the central bank and ask for more money"
Again, that is completely contrary to your previously correct statement and is factually false.
Please read: Money creation in the modern economy
Quarterly Bulletin 2014 Q1, Bank of England
And please issue a correction to the video. I can give you more sources and explanations if you need.
if there was no "backup supply of cash", wouldn't that mean that no one could withdraw cash?
Sorry, but I stand by my explanation. At some point, many countries followed the fractional reserve method of having to retain a certain percentage of the digital money they were lending out in cash form, but this is no longer the case. It's true that physical cash is essentially just credit and essentially meaningless (like I explained in the transition from gold to paper notes), but in the modern age, most people still think of cash as "real money", a kind of anchor, just like gold was in the past.
Instead of the fractional reserve system being used to limit how much a bank loans out, there are more specific requirements banks must have before they can lend out money. But if they need more money to up those reserves, they can take out a loan from the central bank.
@@primalspace Please read the official bulletin published by the Bank of England that I mentioned in my comment, it will help you understand more clearly.
"At some point, many countries followed the fractional reserve method of having to retain a certain percentage of the digital money they were lending out in cash form"
-> Banks have historically been restrained from lending based on the liquid assets that they hold (this is not the same as cash). In the USA this was natioanlly mandated by the National Bank Act in 1863 to ensure liquidity. Over time, and especially with digitisation of currency, the reserve requirements have changed and are now used as a part of monetary policy (although not an important aspect).
--> This is not at all the same as them "being able to lend out a portion of the actual cash they had in their backup supply".
"But if they need more money to up those reserves, they can take out a loan from the central bank."
-> No, banks do not take out loans from the central bank. The central bank does not create money.
Here are some additional sources you can read:
Sheard, P. (2013). Repeat After Me: Banks Cannot And Do Not “Lend Out” Reserves.
Can Banks Spend Their Reserves? - Fed Guy, 2020
A couple of quotes from the “repeat after me” source.
“Central banks don’t constrain the amount of bank reserves they supply. Rather they supply whatever amount of reserves the banking system demands given the reserve requirements and the amount of deposits have been created.”
Also, “If bank lending increases and the associated increase in bank deposits leads, as it will, to a higher level of minimum required reserves, the central bank will supply those reserves”.
This video just made me realize... money is basically a collective illusion we all agreed to believe in! 💰✨ Banks creating money out of thin air feels like the biggest magic trick ever-except I never got the VIP pass to learn the trick!
"So you're telling me banks just type money into existence? And here I am, typing every day but still broke. Clearly, I'm in the wrong profession!" 2025
Yeah you didn't know? When you take a loan from any bank unless you specifically ask for cash they would just press few numbers and Enter and done congratulations your loan is credited to your account, In fact even the Federal Reserve creates money the same way since the crash of 2008 The fed has injected more than 8 Trillion dollars into the economy and the fun thing about all of that is this money first goes to the rich guys which drives up the prices of all hard assets such as stocks, properties etc thus making rich richer and since your broke ass can't afford to buy them you stay broke🙂
You work for money that another man can print for free. Most people must provide value to society to earn money for trade (like that farmer and the tool maker), but the banker at the federal reserve gets to print dollars and buy all our stuff with it.
These videos are amazing. I think what shocks me the most is that our money system is so ephemeral now, how it's evolved from physical items to digital ones and zeros but still maintains the same basic rules.
I'm so glad you enjoy them. Thanks for taking the time to leave a comment, and good luck in the giveaway.
7:51 it is not true that banks have the power to create as much money as they would like. Banks use very conservative regulatory models that forecast how much money could leave the bank over 30 days and 90 days. Based on this, the bank must keep over 100% of that figure in reserve. This is called the LCR. There are many other tests and regulations that banks must follow as well. Banks must prove to regulators that they can survive a randomized stress test every year, for example. And based on their results on these stress tests, they must hold additional money in reserve.
This still doesn't mean that withdrawals cannot surpass predictions. Fundamentally, a system within which only a fraction of a percent of the total bank's money is actually withdrawable to customers is a little flawed even if viewed favourably and for its upsides.
This video has changed my entire POV on money and banking. Thanks for dropping this treasure!
Look up: Modern Monetary Theory.
I have a 11 year old son who likes learning about things and money is one of his favourite things. When I showed this video to him, he liked it and started to tell me his favourite part of the video. He said “I like the part when people used items in the medieval times because even though coins were not invented, people actually trusted each other and gave equal amounts when there was not that much law in place. Also, when banknotes include UV ink to show patterns, show culture and also give security I look through it to see any Easter eggs and history. Thank you Primal space for this video! My son loves your channel and always likes to watch previous videos.
3:36 the idea of Velocity of Money is such an interesting concept. I pay $100 to a grocery who pays $100 to a farmer who pays $100 to a tractor company who pays $100 to a pencil manufacturer who pays $100 to a lumberer who pays $100 to a saw mill who pays me $100 for whatever my job there is. The same $100 just generated $700 worth of economic movement. Super interesting stuff.
Our country is in complete DENIAL about how crappy things have become. Basic Living should not be unaffordable here in the US. So many people are barely able to afford rent. ~Serious question: WHY has our country allowed things to get THIS bad? How is Nothing being done about it? Unaffordable cost of living is the #1 issue we need to fix in order to keep our society functioning. This obsession with Perpetual growth & perpetual profits is impossible. Yet our country acts like its completely normal. There is no way things can function like that. A huge amount of people struggling to afford Rent.. Of course this affects small towns & local businesses because the rent on these shops increases too. Our country basically requires everyone to become wealthy. Remember this is just to afford the cost of basic living. It's not possible for us to live in a system where everybody can be wealthy. So lots of store fronts are becoming vacant. Average people cannot afford rent. There is absolutely no help for our citizens who are now stuck dealing with poverty.. (and worst of all, we have to wake up everyday and see that our country is completely ignoring that any of this is happening. The media just acts like none of this is going on. They just continue to show us clips on the news and statistics in the media like "Look how many new jobs were created last month, Look at how well our economy is thriving")
Homes are so expensive, Yet Our country has NO SYSTEM that helps someone if they lose their home.. This corruption will DESTROY our country. It has made our country a country that lacks sympathy. We've forgotten what the soul of America is made up of.. It came from a thriving multilevel system.. Where even the lower income brackets had obtainable living options.. if the lower income citizens cannot afford to exist, the system that we know will begin to breakdown..
This is the result when governments can create currency out of nothing
As an Indian we pray every day for first worlders like you to keep your luxurious lifestyle and love to hear complaints about not being rich enough or not having enough opportunity. Sorry healthcare is expensive, I have never had it at all. Love from Kota ❤️
The system is functioning as designed. The PrimalSpace guy described how banks print money, but failed to mention the implications of this. Money is a claim on wealth, not the wealth itself. So when bankers at the Federal Reserve print money they are granting themselves the right to consume all our resources and stuff without contributing anything in return. This is known as the Cantillon Effect. Inflation is a massive wealth transfer scheme from the poor to those who control the money printer. This is the origin of the inequality you cry about.
I love how high quality your content is, and how whatever the topic, the animations, explanations and information given are always top notch!
I do hope you'll keep making space related videos though, even though the more general stuff is still great
The part of the money system that shocked me the most was the start. How it started with goldsmiths and paper "statements." I never knew that
perhaps the best video i've seen on how this system works
Thank you! I'm so glad you enjoyed it.
The fact that debt literally generates money changed my whole perspective on the financial system. Great video, super eye-opening!
Here in Argentina we are told that the government printing money is what drives inflation up. After watching this video, I'm left wondering how the "private" creation of money (that of banks) compares with its public counterpart. Really informative video, keep it up!
Its the same thing here in the United States, just with some extra steps. The Federal Reserve prints the dollars and buys the governments bonds, now the government has the money to spend. It spends the money and buys up all the resources, now that there are less resources and more money in the economy all our prices go up.
This is known as the Cantillon Effect. The first recipient of the newly printed money has the arbitrage opportunity of being able to spend money before prices have increased. They get to buy up all the stuff with that printed money. The same money we all must work for. Its a clever wealth transfer scheme.
I wish you'd include the gold standard and how (and why) it was abandoned.
Mainly because gold is just some metal. It can't possibly hold the value of all the mortgages of the world, which is worth $140 Trillions. add to that the value of all the land, factories, cars...etc. You can't just convert everything to gold.
Gold would become exponentially expensive, and people would just trade 1 house for 10 cars instead of going through the bank and convert all that value to gold.
And why would gold be so special, just trade things in silver, or copper, or oil...
That's why the gold standard died, you can use anything to exchange value. There's no point in gold being a middleman.
Where it all comes together for states is that all the people MUST pay taxes, and they have to do it by using paper money. And the government has LOTS of it. Because it's so large, it's a much more powerful entity than some metal.
And you can trust your government more or less, you see how it behaved in the past.
You wouldn't sell food for a Zimbabwe dollar because the inflation is 10000% per year. You would however buy the USD because the US was much more responsible with the value of the food you're selling.
Governments also have an army and police with which they can force the will of the parliament (which should reflect the will of the people) , which you might prefer to a dictator.
@@dariusdareme thats why bitcoin is going to replace gold as the hard money for the world , it has the safety and hardness of gold but the portability and storing of fiat money( dollar,euro...)
@@Fiathater Bitcoin is by no means 'safe' or 'hard'. Its value lies purely in speculation and in no way is it 'safer' than gold. Furthermore, it is in no way tangible and serves as a second middleman in 99% of transactions (e.g: I store my money in bitcoin, I need cash to pay in a shop, so I get dollars for my bitcoins and I use the dollars in the shop then convert the change back to bitcoin???). Above all, I do not see a future where businesses and countries implement an uncontrolled, completely decentralised system of value storage to use on the same level as a trusted and regulated currency.
I have a quick answer for why it was abandoned. The Primal Space guy mentioned that the Gold Storehouses started to issue gold redemption vouchers even though they didn't have enough gold to redeem everyone. He did not elaborate on what this would ultimately lead to, the goldsmiths would get more aggressive with their fraud. Eventually the public would catch on and start to all withdraw their gold in a panic. These storehouses were the first banks, their gold receipts were the first paper currency, and these panic withdrawals were the first bank runs. These early banks really liked to buy government bonds, and governments really liked how the banks could fund all their spending by just issuing more gold vouchers, eventually the government suspended the redemption of gold declaring the Banks' fraud legal. They of course sited all kinds of excuses, "antiquated gold system does not work with modern society" and all that spin. So now we have the Federal Reserve, it prints dollars for nothing and funds all of the government's spending. So the quick answer is: state coercion.
You can look up Executive Order 6102, this is when FDR suspended the redemption of dollars for gold and ordered all Americans to turn in their gold. Britain also has a lot of colorful bank history from like the 1860's to the final removal of the gold standard in like 1930 or so. This happened gradually.
The craziest part is that how banks have complete freedom over the amount of money that can be produced
Crazy indeed. Thanks for watching and good luck in the giveaway!
2.57 literally giving way a piece of paper and getting back the value mentioned with an interest. Crazy yet mind blowing exponential type of money gain.
The part the money creted in not hold the actual vaule
I never thought about the fact that individual bank loans create money in a way very similar to the federal reserve creating new bonds. Great video.
Please do more finance related videos.
"And ultimately puts you in debt"
Wow the storyline about money in the past with the goldsmiths really got me understanding about money today.
The most fascinating part of the video was the fact that people are just relying on papers that are in existence and have value just because of a promise like how did people even believed in such system back then
I'm most shocked by how smoothly and naturally this system and money came into existence. And the fact that they emerged quite independently!
What I can't imagine is that the "falsity" has succeeded in creating a system that can support the lives of many people but it is also an irony to see how the system works. As always, amazing video
This is a mind blowing system based on creating money out of thin air! Really puts into perspective how little about the world we know.
The fact that I have to rely on a yt video to learn about this shows that maybe the world doesn't actually want the average person to know about this.
Banks have a neat trick where they can whip up money just by giving out loans. When you take out a loan, they’re not handing you cash they’ve been holding onto; instead, they’re just creating new money with a quick digital entry. Really awesome!
It's something I think more people need to know! So interesting. Thanks for watching and good luck in the giveaway.
The fact that we all use money that doesn't even exist just shows how much of a nonsense is everything around us. Taxes, buying stuff we don't even need for money we don't even have. Ridiculous...
Wow man this video was probably the best video i have ever watched on youtube
I still find it insane how countries get the money they need with debt from other countries or institutions like the international bank, Its soo hard to fathom the amounts being transferred, more money that I can understand.
Great vid as always!
Thank you. I'm so glad you enjoyed it. Good luck in the giveaway!
Extremely well explained. I have been looking for this for a long time & this is by far the best one. I particularly like that you go back to the farmer & use grains as currency.
what happens when the debt is force-collected? can it be a reason enough to justify a declaration of doubleu-ar ?
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The part of the money system that shook me the most is if all money is principal then where is the money to pay interest came from?
The craziest thing is that the government needs to loan more money to stay afloat! It’s an endless positive feedback loop
Wait, this video is exist as "The Illusion of Money" and also "How Digital Money Is Created".
When this video first posted, we did test a few titles. It's possible you were served more than one. Sorry about that 😅
@@primalspaceno problemo, sir
That's one of the best explanations I've seen so far!
Finally Understood this
I'm so glad to hear that!
Was pretty shocking to me how the government uses bonds to add more money through debt, and it gets you wondering if it’s still possible to improve the system and invest more inwards for better returns as mentioned near the end.
That was such a flawless explanation. Thank you!
And thank you for watching. I'm so glad you enjoyed the video.
The most shoking part was when you talked about the old ways how people had trade and the paper worth 100€ it is amazing
It really makes me think about how money in the economy is more about circulation and perception rather than actual new wealth being created.
Exactly. Money is not the actual wealth, money is a claim on wealth. Where is the wealth being created? Because if money is just being moved around with no wealth creation then everybody is just consuming all the resources and not replacing them. What does this make a bank if they can just print claims on wealth at will.....?
Money is just a invention that everyone agrees is worth something. It is actually just a number that businesses and governments exchange around, and tells everybody "how much" it is worth...
It shocks me how the basic concept of the monetary system has transferred from goldsmiths and paper into our modern technological age. Also, if you think about it, the evolution of money has largely been spurred by the need for more convenience.
I really never thought about the whole financial system in this way, it's kinda scary and genius at the same time!
scary and stupid.
The sentence you said at the end was the best part; if money invests in people and nature, it will earn more.
Glad you enjoyed that one. Thanks for watching and good luck in the giveaway!
The part that shocks me the most is how money was invented with grain
I think it’s only a select few that think like you,
For instance you point out how the most efficient way banks could work
However most think how the could take loans to buy fancy cars and houses to impress others…
The fact that money just spawn everywhere is quite crazy, I've understood more about it in this 9 minutes then in my 16 years of life.
Printing money at home is legal as it is just a small bank making money for one person. Idk why so many ppl get arrested for this. Maybe I should do it too!! 🤣🤣🤣
The Banking Cartel does not suffer competition.
I have wondered this for some time, thank you so much for explaining it in simple terms :)
I don't fully understand the bond part, but I get the idea of it in general.
Federal Reserve prints money and buys bonds from the government. The government takes that loan and spends the money. Its why the government gets unlimited debt, all the money comes from printed dollars.
Fascinating how a small piece of paper can change the entire economic status of the area!!
BTW: I've watched your vids for a while! They fit my curiosity gap completely
So true. And thank you for watching. I'm so glad you've been enjoying the content here!
I have ancient coins from rome and greece. And medieval ones. Its so cool having such old coinage. Yet to get ancient gold, but i have silver
Nice, I never realized money could be made so easily!
Also another W upload from primal space :)
Thank you. I'm so glad you enjoyed it! Good luck in the giveaway!
I think the first banks were in 1630 london , It is very similar to the banks of the 21st century But the system they had are also very similar to cheques used by banks nowadays, And the cash increases when you buy something like food or other things in 1630 before credit score was invented
My money came from my parents. Now I get to retire at thirty eight.
Same, I'll retire at about 30 based on my calculations
Must be nice.
this topic is always something I've had surface knowledge about, but fell into the rabbit hole eventually💀
A question we all were waiting to be answered
The amount of US debt shocks me the most. I woonder how they will ever be able to pay it back at all.
Me too. Thanks for watching and good luck in the giveaway.
The part that shocked me the most was at 8:49. The cycle will probably never stop there will always be more debt and inflation
The music will stop eventually, the party the bankers are enjoying can't last forever. The obvious choice is to stop saving in a money that a banker can print for free.
For those thinking a bankrun - when everyone actually tries to get all their money out of the bank at the same time - would crash this system: Nope. What you are actually doing is exchanging digital money for paper money. Just a different form of the same thing. You would need to actually get gold from the bank. However, such a large volume does not exist. What DOES exist is non-monetary value like housing, cars, but also infrastructure, companies and more. The actual value of work that was put in at some point simply shifted away from metal coins to pretty much everything around you, in every form and shape you can imagine.
Money, at this point, has become a catalyst for trade. Best example are super-rich people. They almost never actually have a big bunch of cash somewhere rotting away, they own large quanities of housing, companies and more. When these people need cash, they simply sell a house, trade in some stocks or sell whatever they have on hand. Those people do not need like hundreds or thousands of houses. They only need the trade value and a timeframe it takes to sell it to someone.
One of few channels I enjoy watching on TH-cam 🤝❤️
Me too ❤
That means a lot! Thanks for watching 🙏🏼🙏🏼
Wow this has been insanely eye opening
This is insane! I love your videos and animations.
I always had a confusion about this system.Thanks for clarifying it.
And thanks for watching. I'm so glad you enjoyed this video.
Its insane how much easier it is to understand something once you add just a few pictures, graphics, and a really good narrator lol.
Haha it definitely helps. Thanks for watching and good luck in the giveaway!
Hey federal reserve, getting poor these days yk. Get me some cash please 💀
the bond shocked me the most because... I was lost there haha
I've seen other videos on this topic, and completely forgot how much it blows my mind that money just gets created when loans are given out. Kinda seems like shady stuff but guess that's the way it works.
Now makes sense why the infrastructure spending bill was paired with the inflation reduction bill. I still don't understand why doesn't the govt spend more or encourage loans for new housing which would be the most efficient way to create productive value
Tbh the case of where the US government print more money than it should be shocked me how our modern civilization is still revolving.This type of case known to me before,ive read a book written by Robert T Kiyosaki which is also about the history of money.
Every country in this world print more money than it should been.
This is the basic of economy on earth.
The last one was the one that choked me the most
its crazy how back in the days people trust the person without knowing them to actually save their money securely without scam
Thanks for this video. I was really surprised to learn how taking a loan from a goldsmith or a bank actually creates new money in the system.
for me the thing that shocks me the most is how the government is constantly in debt in order to create new money
The part about the Central Bank and Government Bonds really shocked me. I can't believe that my tax dollars are being used to cover the government's debt, while they keep creating more and more bonds while borrowing even more money.
The US government doesn't use your tax money to pay it's debt. It creates new debt to cover the old one.
@@tiempo9855 Does it matter?
@@FunkyJeff22 Yes. - Who else but the government can create its own currency? Nobody. Banks are only allowed to create new money because the government allows them to. Anything else is counterfeit. The money must come from the government. Every single dollar in your bank account is there because the government allowed it to be created. So what money basically represents is goods produced in a country, and when that relationship starts to get out of whack, you've got something called inflation.
Secondly, the government could simply create new money without selling bonds. This is a holdover from the days when the currency was backed by gold. It's completely unnecessary today.
Ingenious system honestly. First guy to have figured this out must have been proud of himself.
The complexity of such a system is just astonishing and of course terrifying...
It is indeed both those things. Thanks for watching and good luck in the giveaway.
The bonds shocked me the most, I never knew they were a thing.
Okay I didn't know that the overall debt via bonds is how most of the world's economic system operates. I was under the impression it was through various smaller loans and stuff.
What shocked me the most is the fact that foreign countries can also buy bonds from U.S.
I did not know that one loan can create so much added value in passing the initial money.
I'm ten years old and I absolutely love your videos think the most shocking part is that they make more money, but there's no real money
Pretty shocking for sure. Thanks for watching. I'm so glad to have you here!
One man prints fake money and another man must work for it. What even is money?
This video was so insane. I think the fact that money is just created shocks me the most
The part of the money system that shook me the most is that if we were to withdraw all our money at the same time the whole system collapses!
Its called a bank run. The government just bails em out, with printed money the federal reserved loaned them via bonds. Ever heard of a bank holiday?