The real distinction people need to make isn't between money and credit, it's money and wealth. Money is not wealth. Money can turn into stove fuel faster than you can say hyperinflation. Wealth is real resources: property, food. The thing with banks is they can make all the money they want, but they don't simply credit themselves infinite dollars, because the rest of us would notice and stop dealing with them. They play a confidence game of managing money to extract as much wealth as they can.
It seems like you admit the chief rebuttal to this argument within the video. The credit people have is only money because the government guarantees it. Thus, the government has merely ALLOWED the banks to drive up the money supply, rather than the banks having some inherent, superior power to the government. The IOUs only truly become money when the government backs its guarantee. Prior to this, the money is only EFFECTIVELY money, because it has the same effect as money at the level of the individual consumer. If the government decided to withdraw its guarantee, that effect would be severely damaged, and people would guard their money much more closely by holding it as physical cash. This is what happened during the Great Depression in the United States, and after that we created the FDIC. At that point, the US government endorsed the concept of money creation by the banks. However, this is neither a requirement, nor written in stone as the way the economy has to be.
I think that this video should have been earlier in the series. Calling bank credit "bank created money" without explaining how it becomes money because of the government was bugging me quite a bit.
this is actually a very nice video that describes the real nature of money... Zeitgeist tried to explain it but they didn't understood it, although they got the money out of thin air part their mind couldn't get out of terms like reserve ratio or the famous multiplier... it's not easy to do it when even nowdays universities teach it the wrong way... so sad...
Yeah I was wondering that too. But... after digging, turns out joint accounts are covered up-to £170K, and if you have up-to £1 million in your account (due to selling home for example) that's covered too!! The FSCS covers 98% of the population. Also, all you have to do (as a customer) is put a MAX of £75K (figure was lowered from £85K) in each bank, as the FSCS covers each banking institution. So £75k in Lloyds, £75k in Natwest etc etc.... Irony is, it's tax-payers money that covers the losses made by the banks, so we are their insurance company - which is why they are so reckless with our money.
Yeah the authors have totally forgotten that some people happen to have more than £85k, just to make their argument that bank credits = money work. Lackluster.
but in aggregate a lot of people will loose money. Cuz they cover up to 85 grands, in my country (croatia) it is the same. So that is a credit indeed and not a money.
th-cam.com/video/iiKr-i022mY/w-d-xo.html ...... The Progressive Growth of the Money Supply Principle (year 2013) tells us the exact quantity of new money the economy needs to works correctly, driving us to the Wicksell interest rate or natural interest. This principle will force central banks to change monetary policy.
By this argument if I borrow 200k from the bank, 100k will be money (because they are insured by fdic, fscs or whatever) and the rest will be credit. There are 2 distinct cases for Robert's deposit. 1) his own money that he brought to the bank in cash or by bank transfer. In this case the money are already created in the system and they enter in the balance on the asset part as cash or bank reserves(if they arrived as a wire transfer from a different bank). 2) Robert's deposit is actually a loan from the bank. In this case a credit is created, and it has risks because Robert might not pay it back. On the asset side of the bank's balance sheet will be a loan (instead of cash or reserves as in first case). Now, let 's say Robert transfer some money to John. Robert's bank shifts reserves to John's bank. No money are created at this point. If Robert's bank doesn t have the reserves it can borrow from other bank (repo) or from central bank (lender of last resort) at IORR (interest on reserves rate).
Well then what the hell are the banks liable to if they just create money? Do deposits serve no purpose? If they can create money then why would they need deposits?
They need the deposit system....as it has convonced the public that deposits are money... The system owes u for ur labour...the deposit is a record of that debt ..a system iou... In affect the.credit deposit system is a record of a failure to pay ...the exact opposite of.money... Everyone is failing to pay..by using credit as payment... We ensure this failire to pay..FTP system... keeps running... Another option we have is to use the FTP system iou..credit..and destroy treasury debt..ir the collective debt...so an individual can choose to destroy what the collective owes its creditors...u do that when u understand that the individual is the eventual surety of the FTP credit system.. Even the US treasury accepts anyones currency... And when u do that...u destroy US debt...and the US has tp acknowledge ur surety rights over it.. Google : surety rights So by destroying debt...u get the US to pick up ur bills... Theres more to this.. Since the US is a war corporation...in foreign policy..hence the military bases ...it ensures the world trade system..and when u reduce its debt ..they become ur debtor..and accountant...not banker ...since u r not banking syatem ious...u r destroying it..u r destroying system risk... Instead of working for credit...u will be able to get credit for a project and thrn service credit back to the US to destroy the debt created from providing credit... At the moment the US war machine does it by itself..by relying on wars to create credit...that then allows massive credits back to buy US treassury bills.. Email the US treasury ..debt reduction department
It seems still like credit to me. The risk has just been piled on elsewhere. Is the key problem or theme of how central banks can't control money supply(a lot of this video series) is because credit is being handled a lot like money with its risks going elsewhere? What do you think?
But if you're 100% sure that you're going to get your money back anytime, then the risk equals 0, doesn't it?By term that "risk has just been piled elsewhere" you probably mean the fact that taxpayers would have to repay you at some point when your banks fuc*ks it up, right?Same shit happens with cash, which is backed by the CB, that is backed backed by the government and at the end, they are also mostly backed by taxpayers money ...But taxpayers aren't dealing with "risk", because they HAVE to pay their taxes, no matter if they want to.
@Mexican Chicken Yes, risk is virtually 0, but that doesn't make it "money". Credit doesn't need risk to be credit, all it needs is a borrower and a lender. In the case of the numbers in your bank account, the bank is the borrower and you're the lender who just happens to incur virtually no risk.
Maybe. What if tax receipts aren't greater than government spend and loans to insolvent banks? I lose my job, then I have no income to tax. In fact, I might become a receiver of government spending. A double hit to government's books.
I think the reason is way more simple. Money is a medium of exchange,as simple as that. We don't care if it's made out of metal,paper etc, we just need that it'll allows us to buy what we want. When you pay at a restaurant or wherever, you can use your credit card and in that moment you are not using cash but your deposit, to regulate your debt towards the restaurant owner. So sight deposits are money simply because they are a medium of exchange, just as cash
This may be a distinction without a difference, but the ability of commercial banks to lend what it does not have in its vaults is its ability to borrow from the central bank. The problem with government-provided deposit insurance is that the premiums paid by banks are not based on the actual risks associated with bank investment and lending practices.
This explanation uses money and credit interchangeably, making no distinction between the two. Credit is a promise to pay, money is that which repays credit, allowing the promise to be extinguished. Since BE cash is a promise to pay - and that of the lowest order imaginable, back 'money' is credit , backed with credit. Fail. Checkmate.
For similar reasons, Keith Weiner, owner of Monetary Metals, insists that Dollars and Sterling are credit and not money. For something to be money, he says, it has to extinguish the debt, which is what payment in precious metals does.
Isn't this, in part, an explanation of a BANK NOTE? If you read a bank note it says "I promise to pay the barer on demand the sum of £20" ? Because in the past, you would take your valuables (gold etc.) to a reserve/bank and in exchange they would give you a note to the sum of the value of your gold. I've always been lead to believe that the amount of money used to equal the amount of gold a country would have (Obviously this is before the days of credit etc)
there is an important difference between GB and the Euro system. Eurozone banks still have to fulfill a reserve requirement It might probably explain the big debt of the financial sector in GB compared with the rest of the world But Eurozone has other big problem, of course.. What is common to the two systems is the preference for the financial investment compared with loans to the real economy
Andmkost importantly, the money they create is spent into the economy just like another other money, used to pay salaries, buy equipment etc. So, if it walk like a duck and quakes like a duck....
This is almost but not quite true. The government only guarantees bank deposits up to £85,000. Beyond that, if the bank screws up you lose it. In practice of course very few people have more than £85,000 in their bank account, which makes the above approximately true for the majority of the population.
I don't get it. If loans have to be paid back, how is any new money created? Say a bank loans someone $100. At the same time that person now owes the bank $100 (plus a little interest). +100 + (-100) = 0. How is any new money created here?
+Serban V.C. Enache Yeah, I don't understand the MMT outlook as well as you do, but from what I understand it makes a lot of sense to me. In fact it is the only economic theory that makes sense to me. At the same time, I have tried to explain it to some friends of mine who are highly trained in economics. They agree that all the premises are correct: e.g. the US Govt can create any amount of money it wants, etc. But the conclusion never sinks in. They still talk as though national debt is a problem, and it would be better if it were all paid off, etc. It's very odd.
BoE notes backed by the government make them money? No. They are backed by laws made by the government in representation of the people, who pay the taxes to the government and essentially are the guarantors of the solidity of their own (?) BoE money. It is a circular system. Type that into Excel and see how far it gets... ;-)
saying that banks create money would be saying the banks do not need the central bank of England. 2nd if there was not central bank they can only lend on what was saved. they increase the velocity of it. one can represent ten transactions a second of 100 dollars or pounds in this case with one transition of 1000 pounds. since banks can create money than can feel credit crunch. if they can create money then they can print as much as they want.
"Banks create money, because the credit issued is a risk-free investment because the governement will reimburse the bank clients with taxpayers funds in case the banks can't pay back" -- BUT ! -- it never happend right ?? In any historical financial crisis, there haven't been any governement that payed back citizens, am I right ? So, can we say as you claimed that it is "money" ? I'd rather say "fake money". What do you think ? Is it an acceptable judgement ?
+Paul ROGER "In any historical financial crisis, there haven't been any governement that payed back citizens, am I right ?" - no you are not. in my country (Latvia) in 2011 Krājbanka bank crashed and all of the clents got their under 100 000 eur government insurance, however government had to take a loan in European Central Bank to repay to all the bank holders. and it was not the only case in history, there were a lot of. so stop saying something untill u explore it.
I don't see why the government backing an insolvent bank by loaning it tax receipts is removing risk and therefore making loan deposits money, and not credit. Isn't there still the risk of insufficient tax receipts to offset bank losses? Since there is that risk, doesn't that make it a credit instrument? I agree the risk is much lower, but not zero. Maybe it's a difference in risk level and not a binary evaluation of no risk/risk. Even with a gold standard, it assumes the gold that backed money creation is in fact still in the vault and not sold for money to someone else (fraud), or stolen. The paper or ledger that says I have gold in the depository is a credit instrument. I could trade that ticket (ie. money) for silver, food, services, or whatever, as long as the other party accepts the ticket for exchange with the depository or someone else. This continues whether it's gold or a house. A credit instrument is exchanged for the asset--- gold, house, income stream, etc .
It removes the risk from the bank, but not society. So for the banks it is not credit and the banks can do whatever they want (within the limited rules set by the government) and society ends up paying the bill if things go wrong.
I like your thinking. Regarding the first paragraph, there are a few things to say here, but I'll keep it short: yes there is still a risk involved. Regarding the second paragraph: I like what you have to say here and my addition is that cryptocurrencies, being public decentralised ledgers, are the solution here; the solution to the age old problem of centrally maintained ledgers by a designated authority.
Don't you need (really need) to factor in where the "government backed" money, as in Funds and taxes, comes from? Because that's also loaned money. Risk from a third party, ultimately again a bank. Of course, this would be on a global scale, then, which is why everything (those banks who are working with the currencies) is affected by a financial crisis. Or do I misunderstand something? On another note, I believe the EU wide minimum reserve is currently 1%. Other than that, much the same system.
Banks create money because they create new purchasing power, full stop. You just have to define "money = purchasing power whatever the form it takes". Why are you getting mixed up with all that risk analysis stuff?
Maxium The Hannan 5 years late but the FDIC or Federal Deposit Insurance Corporation. I thinks it's very similar to the FSCS. However, It insures up to $250,000 per account, and people who have more money than that open up multiple accounts.
There is no central bank I am aware of that actually holds "hard money" (i.e., gold, silver, etc.) in reserve to back the currency in circulation. Every country today has what is essentially a full fiat currency. Its bank notes are, in effect, promises to pay nothing in particular.
Edward Dodson what i am trying to understand here is that the big commercial banks settle payments amongst themselves with CB Reserves right ?..so how did they get them ? is it the currency notes that they have in possession that determine their central bank reserves? ...which means that the objective of these commercial banks is to float around as much as credit as possible to us and get back payments in currency notes and becomes the next biggest bank to the central bank..am i understanding it correctly sir ?
***** Your question relates to whether commercial banks themselves can create money (i.e., currency balances) out of thin air. My answer is no. Banks raise financial reserves in various ways, including accepting deposits from individuals and businesses. If they belong to the Federal Reserve System they have certain borrowing privileges from the central bank. It is the central bank that under law has this rather bizarre authority to create currency balances and simply print its bank notes backed by nothing at all. The commercial bank has to meet certain reserve requirements and ratios between assets and liabilities. The rules for all of this are complex and subject to interpretation. Part of the responsibility to telling the banks how to book its business activity comes from the Financial Accounting Standards Board, which is ostensibly independent of the industry. Banks also must adhere to rules established by other regulatory entities, such as the Office of Thrift Supervision, the Securities and Exchange Commission, the the Federal Deposit Insurance Corporation (which collects premiums from the banks supposed to be sufficient to cover the potential of bank failures, but have not done so according to most critics). How have banks gotten very big? Mostly by mergers and acquisitions on a global scale.
+Edward Dodson ~ Well of course legal tender bank notes aren't a "promise to pay" anything, they are the payment, says so on every note and in law. If they promised something then they wouldn't be the money, whatever they promised would be the money. Funny how that works......
Dwain Dibley _"legal tender bank notes aren't a "promise to pay" anything, they are the payment"_ People *_settle_* payments with debt-money all the time...most of the time. ;) _"whatever they promised would be the money"_ In most cases, we are promising each other bank deposits, not cash. Dwain, i respect your effort to distinguish between debt-free money and credit-money, but I don't think you are helping anyone by insisting that credit is not money. It only confuses people - makes credit seem less significant, when it is the most significant part of the monetary system. Instead, distinguish between the two, accept that they are both _types_ of money, and then describe why we need less debt-money and more government money. People need to first understand how the system actually works, before they can draw conclusions as whether it needs to be changed or not. Thanks! ;)
Just because taxpayers take the risk doesn't make it risk free. If enough fiat money is produced to cover these fractional promises then it is inflationary hurting mostly poor consumers.
+Serban V.C. Enache There is only 1 simple change needed for honest banking.. 1.We need to take the power to create money from the banks, and return it to the PEOPLE individually. Returning to a FULLY backed receipt currency based on resources not debt and fraud. A fiat/fractional economy weather it is created by the state, banks, or an independent committee is simply legalized counterfeiting. Don't be fooled this video offers more of the same
Yes the late 1800's was riddled with insolvent, state charted wild cat banks that was part of the problem not the solution. That doesn't mean there hasn't been honest metal standards thru history. Going back 2,000 years 1 gold solidus today still has the same purchasing power as it did for the ancients. (stability) There is no record of any fiat economy existing for more than a generation or two, (chaos) and all fractional economies ALWAYS degrade into fiat. www.google.com/search?q=gold+purchasing+power+chart&biw=1366&bih=643&source=lnms&tbm=isch&sa=X&ved=0CAYQ_AUoAWoVChMIi8Li5bWsyAIVUC2ICh1XHwON#tbm=isch&q=inflation+chart&imgrc=k9bNV4FNuRFn3M%3A
illogical. government money comes from tax payers. they finance the government, and the government is backing the banks with - whose money? so if the banks lose tax payers money, then the government will repay them with - tax payers money? wtf, this just pisses me off.
It is money because we ultimately back it. When you say its not credit because its backed by the central bank which in turn is backed by the government .. you forget to mention that WE tax payers are the Government. Summarising, the numbers in people's bank accounts are money because we tax-payers back it
Angela Merkel speaks German. Adolf Hitler spoke German. Angela Merkel is Adolf Hitler! Bank credit is guaranteed by government. Money is guaranteed by government. Bank credit is money! I suppose when you're on TH-cam, basic logic does not apply.
Hello and thank you for this amazing information, but you have a really important question that I did not understand so much from your video: You said it was a closed system the central bank and the 46 banks with which they have a joint account and you said that if there was ever a bank that would end the day with a lack of cash there would be another bank that could lend to it. If I understand correctly from you then we will take an example that there are 10 banks and a million dollars in the system which means that at the end of the day they will transfer between them what is needed but there will still be a million dollars left. You also said that the bank can lend money to the public without having a reserve because it knows that at the end of the day there will be someone to lend it, but if that bank lent "other" money to the public it causes it to make more money than there is in the system. Will not be worth and will not have enough money for another bank to lend to him, I would be happy to help please ??
Take it this way, the Bank reserve that banks have at the Central bank is an asset to the bank. It is part of money just like cash or bank deposits. The system is closed based on the one million dollars being held by the central bank. The other forms of money like cash and deposits can be increased when banks receive deposits or grant loans. But their savings at the central bank is closed looped(used to settle transactions).
Sure, money the bank gives you is not credit, it's just money. But where do banks get that money? They package loans and sell them to other people, and these packages are credit, as they have a risk. These packaged loans can be used as a sort of money for REPO, but they always remain credit
When it comes down to it, the bank has buddies in government who make the laws that are enforced by sheriffs with guns. Eviction notices are served by armed men, more than you can resist.
Poorly reasoned and factually incorrect. Bank deposit accounts are nothing more than bank managed records of legal claims held by account holders against the legal tender money that is supposed/assumed to be in the bank's vault. That's why deposit accounts are categorized as liabilities of the banks and why account holders are designated as "the creditor" and banks are designated as "the debtor" in all deposit account contracts. A deposit account (a.k.a. record of bank debt, a legal liability) is not, and cannot be money in and of itself. When you write a check or use a debit card you are directing the bank to transfer a specified amount of 'money proper' to a designated recipient. Debiting your account signifies that the transfer of money has been made, and crediting the recipient's account signifies that the money has been received and is available for immediate withdrawal or for use in other bank administered transactions. That the banks resort to debiting and crediting user accounts with the amounts without effecting the transfer of money as directed, is perpetrating a fraud upon the account holders. That the banks do not have the money and do not possess the means to get the money, and referring to that condition of insolvency as 'fractionally reserved banking', only compounds the fraud. Regardless of anyone's acceptance of a bank crediting their account in the amount as payment, by law, claimed or not, money is still owed to the account holder by the bank. Crediting a deposit account with the amount and payment are two separate events, especially so in a banking system that is chronically necessitous of the money it owes. People are confusing a means of payment, the transfer of a debt obligation (credit), for the medium of exchange, what is owed as payment (an asset). By legal definition, United States coins and currency, including Federal reserve notes, are legal tender money, the medium of exchange (the asset) by law. Checks as well as debit cards, credit cards, money orders, etc., are a means of payment, referred to as a generally accepted (institutional) arrangement or method that facilitates the delivery of money from one to another. Payment has not been made unless or until actual money proper has changed hands. All credit is debt outstanding. All you’re doing when you use a debit card (credit) to make a purchase is, transferring your obligation to pay the vendor, to the bank, payment has yet to be made. The bank deducts the amount from its debt to you, as represented by your account with them, and adds that amount to the debt it owes to the vendor, as represented by his account with the bank. There was no money or currency of any type, digital, electronic or otherwise, used or exchanged in that transaction, it's just the banks transferring their legal obligations to pay from one account to another. In other words, You Are Not Spending The Claim, You Are Spending The Money The Claim Represents, even when the banks do not have the money. The notion that we’re using ‘digital money’ or ‘digital currency’ or ‘digital dollars’ or 'credit dollars' or 'credit money' (terms made-up by ignorant people who believe in magic) as a medium of exchange is nothing more than a trick of the mind, a figment of our overactive imaginations, a deception, it’s how we rationalize the transaction, and it's how the banksters get away with stealing our labor and wealth.
Yeah I was going to comment, it's a nice distinction to make, but basically irrelevant. No one gives a shit whether I have "central banking money" or credit or whatever when I go to buy anything. It's just money, and it's all pretty sketchy anyway. Like we're supposed to feel better about backing by the full faith and credit of the government...yayyy...governments never fail.
When you conflate the words money, debt, credit, and currency the end result is one very confusing video that doesn't help promote true understanding of the subject matter.
As per my comment on part 4 of your video again. This is FALSE. Since the 2008 crisis, as per BASEL III, the bank's regulator (the PRA for the UK) stress tests banks regularly to check that they sufficiently solvent during a crisis scenario. This solvency includes banks' ability to meet the FSCS requirements. The stress tests require that the bank categorise all their assets by how risky they are and this categorisation (RWA) is used to check a bank's solvency. If a bank fails its stress test then it will be required to increase its liquidity buffer and so the bank will ultimately reduce the number of risky loans it creates. STOP MISLEADING PEOPLE. Also next time you need answers on how banks create money, speak to someone who actually works in a bank rather than a civil servant. Stop you BS Marxist propaganda.
Basel 3 was Nov 2010, and was not even originally scheduled to take effect until after this vid was made. Surprise though, it keeps being put off another year, or two, or three... It still has not even gone to full implementation, though plans have been drafted. www.bis.org/bcbs/publ/d510.pdf en.wikipedia.org/wiki/Basel_III I'm sure there will be no gaming of the system by banks and things will be much safer, especially post COVID when they have ample propaganda to squelch it. www.risk.net/our-take/7719551/never-mind-the-buffers-covid-reveals-deeper-flaws-in-basel-iii
Yes, purported "Positive Money" is highly misleading and it's obviously intentional. People should study Mathematically Perfected Economy instead of blind following these people because they have money to make videos. Then they would be able to see through their lies.
But if there is a limit to the losses the FSCS reimburses, then surely some credit risk is incurred if credit exceeds that limit?
The Limit Is Based on The Type Of Credit Being Issued As Well As The Breakeven Cost to Originate The Loan
The real distinction people need to make isn't between money and credit, it's money and wealth. Money is not wealth. Money can turn into stove fuel faster than you can say hyperinflation. Wealth is real resources: property, food. The thing with banks is they can make all the money they want, but they don't simply credit themselves infinite dollars, because the rest of us would notice and stop dealing with them. They play a confidence game of managing money to extract as much wealth as they can.
Hi, but in US, FDIC only guaranteed up to 250k per person.
Therefore, any amount above 250k still has credit risk.
Is this right?
I believe so.
It seems like you admit the chief rebuttal to this argument within the video. The credit people have is only money because the government guarantees it. Thus, the government has merely ALLOWED the banks to drive up the money supply, rather than the banks having some inherent, superior power to the government. The IOUs only truly become money when the government backs its guarantee. Prior to this, the money is only EFFECTIVELY money, because it has the same effect as money at the level of the individual consumer. If the government decided to withdraw its guarantee, that effect would be severely damaged, and people would guard their money much more closely by holding it as physical cash. This is what happened during the Great Depression in the United States, and after that we created the FDIC. At that point, the US government endorsed the concept of money creation by the banks. However, this is neither a requirement, nor written in stone as the way the economy has to be.
I think that this video should have been earlier in the series. Calling bank credit "bank created money" without explaining how it becomes money because of the government was bugging me quite a bit.
this is actually a very nice video that describes the real nature of money... Zeitgeist tried to explain it but they didn't understood it, although they got the money out of thin air part their mind couldn't get out of terms like reserve ratio or the famous multiplier... it's not easy to do it when even nowdays universities teach it the wrong way... so sad...
... but above 85k ??
Yeah I was wondering that too. But... after digging, turns out joint accounts are covered up-to £170K, and if you have up-to £1 million in your account (due to selling home for example) that's covered too!! The FSCS covers 98% of the population. Also, all you have to do (as a customer) is put a MAX of £75K (figure was lowered from £85K) in each bank, as the FSCS covers each banking institution. So £75k in Lloyds, £75k in Natwest etc etc.... Irony is, it's tax-payers money that covers the losses made by the banks, so we are their insurance company - which is why they are so reckless with our money.
+fug off ... well hopefully we wont need to find out ! .... hmmmm
Yeah the authors have totally forgotten that some people happen to have more than £85k, just to make their argument that bank credits = money work. Lackluster.
but in aggregate a lot of people will loose money. Cuz they cover up to 85 grands, in my country (croatia) it is the same. So that is a credit indeed and not a money.
th-cam.com/video/iiKr-i022mY/w-d-xo.html ...... The Progressive Growth of the Money Supply Principle (year 2013) tells us the exact quantity of new money the economy needs to works correctly, driving us to the Wicksell interest rate or natural interest. This principle will force central banks to change monetary policy.
By this argument if I borrow 200k from the bank, 100k will be money (because they are insured by fdic, fscs or whatever) and the rest will be credit.
There are 2 distinct cases for Robert's deposit.
1) his own money that he brought to the bank in cash or by bank transfer. In this case the money are already created in the system and they enter in the balance on the asset part as cash or bank reserves(if they arrived as a wire transfer from a different bank).
2) Robert's deposit is actually a loan from the bank. In this case a credit is created, and it has risks because Robert might not pay it back. On the asset side of the bank's balance sheet will be a loan (instead of cash or reserves as in first case). Now, let 's say Robert transfer some money to John. Robert's bank shifts reserves to John's bank. No money are created at this point. If Robert's bank doesn t have the reserves it can borrow from other bank (repo) or from central bank (lender of last resort) at IORR (interest on reserves rate).
Well then what the hell are the banks liable to if they just create money? Do deposits serve no purpose? If they can create money then why would they need deposits?
They need the deposit system....as it has convonced the public that deposits are money...
The system owes u for ur labour...the deposit is a record of that debt ..a system iou...
In affect the.credit deposit system is a record of a failure to pay ...the exact opposite of.money...
Everyone is failing to pay..by using credit as payment...
We ensure this failire to pay..FTP system...
keeps running...
Another option we have is to use the FTP system iou..credit..and destroy treasury debt..ir the collective debt...so an individual can choose to destroy what the collective owes its creditors...u do that when u understand that the individual is the eventual surety of the FTP credit system..
Even the US treasury accepts anyones currency...
And when u do that...u destroy US debt...and the US has tp acknowledge ur surety rights over it..
Google : surety rights
So by destroying debt...u get the US to pick up ur bills...
Theres more to this..
Since the US is a war corporation...in foreign policy..hence the military bases ...it ensures the world trade system..and when u reduce its debt ..they become ur debtor..and accountant...not banker ...since u r not banking syatem ious...u r destroying it..u r destroying system risk...
Instead of working for credit...u will be able to get credit for a project and thrn service credit back to the US to destroy the debt created from providing credit...
At the moment the US war machine does it by itself..by relying on wars to create credit...that then allows massive credits back to buy US treassury bills..
Email the US treasury ..debt reduction department
It seems still like credit to me. The risk has just been piled on elsewhere. Is the key problem or theme of how central banks can't control money supply(a lot of this video series) is because credit is being handled a lot like money with its risks going elsewhere?
What do you think?
But if you're 100% sure that you're going to get your money back anytime, then the risk equals 0, doesn't it?By term that "risk has just been piled elsewhere" you probably mean the fact that taxpayers would have to repay you at some point when your banks fuc*ks it up, right?Same shit happens with cash, which is backed by the CB, that is backed backed by the government and at the end, they are also mostly backed by taxpayers money ...But taxpayers aren't dealing with "risk", because they HAVE to pay their taxes, no matter if they want to.
@Mexican Chicken Yes, risk is virtually 0, but that doesn't make it "money". Credit doesn't need risk to be credit, all it needs is a borrower and a lender. In the case of the numbers in your bank account, the bank is the borrower and you're the lender who just happens to incur virtually no risk.
Maybe. What if tax receipts aren't greater than government spend and loans to insolvent banks? I lose my job, then I have no income to tax. In fact, I might become a receiver of government spending. A double hit to government's books.
I think the reason is way more simple. Money is a medium of exchange,as simple as that. We don't care if it's made out of metal,paper etc, we just need that it'll allows us to buy what we want. When you pay at a restaurant or wherever, you can use your credit card and in that moment you are not using cash but your deposit, to regulate your debt towards the restaurant owner. So sight deposits are money simply because they are a medium of exchange, just as cash
Disagree. Money is a store of value that can be used in lieu of goods to trade. I could exchange some wood for a goat, neither is money.
This may be a distinction without a difference, but the ability of commercial banks to lend what it does not have in its vaults is its ability to borrow from the central bank. The problem with government-provided deposit insurance is that the premiums paid by banks are not based on the actual risks associated with bank investment and lending practices.
You know ZERO about money.
John Sergei
Perhaps so. We can never be 100 percent that what we think we know is really worth knowing.
Does that mean theoretically that if I had £100,000 in a bank and the bank went bust then I'd still have access to the £15,000 above the threshold?
there is failure built into borrowing money because the interest paid is not put into circulation.
Bottom line is the Banking system is a perfect example of Corporate Fascism
So the numbers in your bank account are money, but.. only up to 85000 pounds right? are there no accounts with more than that in them?
This explanation uses money and credit interchangeably, making no distinction between the two. Credit is a promise to pay, money is that which repays credit, allowing the promise to be extinguished. Since BE cash is a promise to pay - and that of the lowest order imaginable, back 'money' is credit , backed with credit. Fail. Checkmate.
For similar reasons, Keith Weiner, owner of Monetary Metals, insists that Dollars and Sterling are credit and not money. For something to be money, he says, it has to extinguish the debt, which is what payment in precious metals does.
Isn't this, in part, an explanation of a BANK NOTE? If you read a bank note it says "I promise to pay the barer on demand the sum of £20" ? Because in the past, you would take your valuables (gold etc.) to a reserve/bank and in exchange they would give you a note to the sum of the value of your gold.
I've always been lead to believe that the amount of money used to equal the amount of gold a country would have (Obviously this is before the days of credit etc)
How are the central bank reserves made and what determines how much each bank gets?
there is an important difference between GB and the Euro system. Eurozone banks still have to fulfill a reserve requirement
It might probably explain the big debt of the financial sector in GB compared with the rest of the world
But Eurozone has other big problem, of course..
What is common to the two systems is the preference for the financial investment compared with loans to the real economy
Andmkost importantly, the money they create is spent into the economy just like another other money, used to pay salaries, buy equipment etc. So, if it walk like a duck and quakes like a duck....
This is almost but not quite true. The government only guarantees bank deposits up to £85,000. Beyond that, if the bank screws up you lose it. In practice of course very few people have more than £85,000 in their bank account, which makes the above approximately true for the majority of the population.
I don't get it. If loans have to be paid back, how is any new money created? Say a bank loans someone $100. At the same time that person now owes the bank $100 (plus a little interest). +100 + (-100) = 0. How is any new money created here?
+Serban V.C. Enache Yeah, I don't understand the MMT outlook as well as you do, but from what I understand it makes a lot of sense to me. In fact it is the only economic theory that makes sense to me. At the same time, I have tried to explain it to some friends of mine who are highly trained in economics. They agree that all the premises are correct: e.g. the US Govt can create any amount of money it wants, etc. But the conclusion never sinks in. They still talk as though national debt is a problem, and it would be better if it were all paid off, etc. It's very odd.
BoE notes backed by the government make them money? No. They are backed by laws made by the government in representation of the people, who pay the taxes to the government and essentially are the guarantors of the solidity of their own (?) BoE money. It is a circular system. Type that into Excel and see how far it gets... ;-)
What about someone who has deposits in excess of the guaranteed government amount? And what about any government bankruptcy?
then th ecountry is dead like many third world countries
saying that banks create money would be saying the banks do not need the central bank of England. 2nd if there was not central bank they can only lend on what was saved. they increase the velocity of it. one can represent ten transactions a second of 100 dollars or pounds in this case with one transition of 1000 pounds. since banks can create money than can feel credit crunch. if they can create money then they can print as much as they want.
"Banks create money, because the credit issued is a risk-free investment because the governement will reimburse the bank clients with taxpayers funds in case the banks can't pay back" -- BUT ! -- it never happend right ?? In any historical financial crisis, there haven't been any governement that payed back citizens, am I right ? So, can we say as you claimed that it is "money" ? I'd rather say "fake money". What do you think ? Is it an acceptable judgement ?
+Paul ROGER "In any historical financial crisis, there haven't been any governement that payed back citizens, am I right ?" - no you are not. in my country (Latvia) in 2011 Krājbanka bank crashed and all of the clents got their under 100 000 eur government insurance, however government had to take a loan in European Central Bank to repay to all the bank holders. and it was not the only case in history, there were a lot of. so stop saying something untill u explore it.
+RivieraByBuick This, was a question. Punctuations have a meaning. Thanks anyway.
Paul ROGER sorry if i sounded offensive
I really enjoyed this video, and learned a LOT!
There is risk in the deposit because bank might not have it but it isn't accurate to call it credit risk I don't think.
I don't see why the government backing an insolvent bank by loaning it tax receipts is removing risk and therefore making loan deposits money, and not credit.
Isn't there still the risk of insufficient tax receipts to offset bank losses? Since there is that risk, doesn't that make it a credit instrument? I agree the risk is much lower, but not zero. Maybe it's a difference in risk level and not a binary evaluation of no risk/risk.
Even with a gold standard, it assumes the gold that backed money creation is in fact still in the vault and not sold for money to someone else (fraud), or stolen. The paper or ledger that says I have gold in the depository is a credit instrument. I could trade that ticket (ie. money) for silver, food, services, or whatever, as long as the other party accepts the ticket for exchange with the depository or someone else.
This continues whether it's gold or a house. A credit instrument is exchanged for the asset--- gold, house, income stream, etc .
It removes the risk from the bank, but not society. So for the banks it is not credit and the banks can do whatever they want (within the limited rules set by the government) and society ends up paying the bill if things go wrong.
I like your thinking.
Regarding the first paragraph, there are a few things to say here, but I'll keep it short: yes there is still a risk involved.
Regarding the second paragraph: I like what you have to say here and my addition is that cryptocurrencies, being public decentralised ledgers, are the solution here; the solution to the age old problem of centrally maintained ledgers by a designated authority.
Don't you need (really need) to factor in where the "government backed" money, as in Funds and taxes, comes from? Because that's also loaned money. Risk from a third party, ultimately again a bank. Of course, this would be on a global scale, then, which is why everything (those banks who are working with the currencies) is affected by a financial crisis.
Or do I misunderstand something?
On another note, I believe the EU wide minimum reserve is currently 1%. Other than that, much the same system.
Banks create money because they create new purchasing power, full stop. You just have to define "money = purchasing power whatever the form it takes". Why are you getting mixed up with all that risk analysis stuff?
Awesome series.
Does the US have something similar to FSCS?
Maxium The Hannan
5 years late but the FDIC or Federal Deposit Insurance Corporation. I thinks it's very similar to the FSCS.
However, It insures up to $250,000 per account, and people who have more money than that open up multiple accounts.
i can imagine the protest aimed at you after the next financial crisis and the government is unable to back peoples bank accounts.
hello, how r central bank reserves created ?
There is no central bank I am aware of that actually holds "hard money" (i.e., gold, silver, etc.) in reserve to back the currency in circulation. Every country today has what is essentially a full fiat currency. Its bank notes are, in effect, promises to pay nothing in particular.
Edward Dodson what i am trying to understand here is that the big commercial banks settle payments amongst themselves with CB Reserves right ?..so how did they get them ? is it the currency notes that they have in possession that determine their central bank reserves? ...which means that the objective of these commercial banks is to float around as much as credit as possible to us and get back payments in currency notes and becomes the next biggest bank to the central bank..am i understanding it correctly sir ?
***** Your question relates to whether commercial banks themselves can create money (i.e., currency balances) out of thin air. My answer is no. Banks raise financial reserves in various ways, including accepting deposits from individuals and businesses. If they belong to the Federal Reserve System they have certain borrowing privileges from the central bank. It is the central bank that under law has this rather bizarre authority to create currency balances and simply print its bank notes backed by nothing at all. The commercial bank has to meet certain reserve requirements and ratios between assets and liabilities.
The rules for all of this are complex and subject to interpretation. Part of the responsibility to telling the banks how to book its business activity comes from the Financial Accounting Standards Board, which is ostensibly independent of the industry. Banks also must adhere to rules established by other regulatory entities, such as the Office of Thrift Supervision, the Securities and Exchange Commission, the the Federal Deposit Insurance Corporation (which collects premiums from the banks supposed to be sufficient to cover the potential of bank failures, but have not done so according to most critics).
How have banks gotten very big? Mostly by mergers and acquisitions on a global scale.
+Edward Dodson ~ Well of course legal tender bank notes aren't a "promise to pay" anything, they are the payment, says so on every note and in law. If they promised something then they wouldn't be the money, whatever they promised would be the money. Funny how that works......
Dwain Dibley
_"legal tender bank notes aren't a "promise to pay" anything, they are the payment"_
People *_settle_* payments with debt-money all the time...most of the time. ;)
_"whatever they promised would be the money"_
In most cases, we are promising each other bank deposits, not cash.
Dwain, i respect your effort to distinguish between debt-free money and credit-money, but I don't think you are helping anyone by insisting that credit is not money. It only confuses people - makes credit seem less significant, when it is the most significant part of the monetary system.
Instead, distinguish between the two, accept that they are both _types_ of money, and then describe why we need less debt-money and more government money.
People need to first understand how the system actually works, before they can draw conclusions as whether it needs to be changed or not.
Thanks! ;)
Just because taxpayers take the risk doesn't make it risk free. If enough fiat money is produced to cover these fractional promises then it is inflationary hurting mostly poor consumers.
+Serban V.C. Enache
There is only 1 simple change needed for honest banking..
1.We need to take the power to create money from the banks, and return it to the PEOPLE individually. Returning to a FULLY backed receipt currency based on resources not debt and fraud.
A fiat/fractional economy weather it is created by the state, banks, or an independent committee is simply legalized counterfeiting. Don't be fooled this video offers more of the same
Yes the late 1800's was riddled with insolvent, state charted wild cat banks that was part of the problem not the solution. That doesn't mean there hasn't been honest metal standards thru history. Going back 2,000 years 1 gold solidus today still has the same purchasing power as it did for the ancients. (stability) There is no record of any fiat economy existing for more than a generation or two, (chaos) and all fractional economies ALWAYS degrade into fiat.
www.google.com/search?q=gold+purchasing+power+chart&biw=1366&bih=643&source=lnms&tbm=isch&sa=X&ved=0CAYQ_AUoAWoVChMIi8Li5bWsyAIVUC2ICh1XHwON#tbm=isch&q=inflation+chart&imgrc=k9bNV4FNuRFn3M%3A
In America I think it is called the FDIC and it guarantees like 100k I think
250k actually
Yeah it’s only backed up if you apart of that scheme ,
illogical. government money comes from tax payers. they finance the government, and the government is backing the banks with - whose money? so if the banks lose tax payers money, then the government will repay them with - tax payers money? wtf, this just pisses me off.
1984 grace commission report
Google Modern Monetary Theory.
money is safe and guaranteed? ever heard of inflation?
Good point.
Psssst...it doesn't really matter...when it comes down to it, the banks and government will do whatever they feel like. It's really that simple.
It is money because we ultimately back it. When you say its not credit because its backed by the central bank which in turn is backed by the government .. you forget to mention that WE tax payers are the Government. Summarising, the numbers in people's bank accounts are money because we tax-payers back it
Angela Merkel speaks German. Adolf Hitler spoke German. Angela Merkel is Adolf Hitler! Bank credit is guaranteed by government. Money is guaranteed by government. Bank credit is money! I suppose when you're on TH-cam, basic logic does not apply.
Hello and thank you for this amazing information, but you have a really important question that I did not understand so much from your video:
You said it was a closed system the central bank and the 46 banks with which they have a joint account and you said that if there was ever a bank that would end the day with a lack of cash there would be another bank that could lend to it.
If I understand correctly from you then we will take an example that there are 10 banks and a million dollars in the system which means that at the end of the day they will transfer between them what is needed but there will still be a million dollars left.
You also said that the bank can lend money to the public without having a reserve because it knows that at the end of the day there will be someone to lend it, but if that bank lent "other" money to the public it causes it to make more money than there is in the system. Will not be worth and will not have enough money for another bank to lend to him, I would be happy to help please ??
Take it this way, the Bank reserve that banks have at the Central bank is an asset to the bank. It is part of money just like cash or bank deposits.
The system is closed based on the one million dollars being held by the central bank. The other forms of money like cash and deposits can be increased when banks receive deposits or grant loans. But their savings at the central bank is closed looped(used to settle transactions).
Sure, money the bank gives you is not credit, it's just money. But where do banks get that money? They package loans and sell them to other people, and these packages are credit, as they have a risk. These packaged loans can be used as a sort of money for REPO, but they always remain credit
When it comes down to it, the bank has buddies in government who make the laws that are enforced by sheriffs with guns. Eviction notices are served by armed men, more than you can resist.
Poorly reasoned and factually incorrect.
Bank deposit accounts are nothing more than bank managed records of legal claims held by account holders against the legal tender money that is supposed/assumed to be in the bank's vault. That's why deposit accounts are categorized as liabilities of the banks and why account holders are designated as "the creditor" and banks are designated as "the debtor" in all deposit account contracts. A deposit account (a.k.a. record of bank debt, a legal liability) is not, and cannot be money in and of itself.
When you write a check or use a debit card you are directing the bank to transfer a specified amount of 'money proper' to a designated recipient. Debiting your account signifies that the transfer of money has been made, and crediting the recipient's account signifies that the money has been received and is available for immediate withdrawal or for use in other bank administered transactions.
That the banks resort to debiting and crediting user accounts with the amounts without effecting the transfer of money as directed, is perpetrating a fraud upon the account holders. That the banks do not have the money and do not possess the means to get the money, and referring to that condition of insolvency as 'fractionally reserved banking', only compounds the fraud.
Regardless of anyone's acceptance of a bank crediting their account in the amount as payment, by law, claimed or not, money is still owed to the account holder by the bank. Crediting a deposit account with the amount and payment are two separate events, especially so in a banking system that is chronically necessitous of the money it owes.
People are confusing a means of payment, the transfer of a debt obligation (credit), for the medium of exchange, what is owed as payment (an asset). By legal definition, United States coins and currency, including Federal reserve notes, are legal tender money, the medium of exchange (the asset) by law. Checks as well as debit cards, credit cards, money orders, etc., are a means of payment, referred to as a generally accepted (institutional) arrangement or method that facilitates the delivery of money from one to another. Payment has not been made unless or until actual money proper has changed hands. All credit is debt outstanding.
All you’re doing when you use a debit card (credit) to make a purchase is, transferring your obligation to pay the vendor, to the bank, payment has yet to be made. The bank deducts the amount from its debt to you, as represented by your account with them, and adds that amount to the debt it owes to the vendor, as represented by his account with the bank. There was no money or currency of any type, digital, electronic or otherwise, used or exchanged in that transaction, it's just the banks transferring their legal obligations to pay from one account to another. In other words, You Are Not Spending The Claim, You Are Spending The Money The Claim Represents, even when the banks do not have the money.
The notion that we’re using ‘digital money’ or ‘digital currency’ or ‘digital dollars’ or 'credit dollars' or 'credit money' (terms made-up by ignorant people who believe in magic) as a medium of exchange is nothing more than a trick of the mind, a figment of our overactive imaginations, a deception, it’s how we rationalize the transaction, and it's how the banksters get away with stealing our labor and wealth.
Yeah I was going to comment, it's a nice distinction to make, but basically irrelevant. No one gives a shit whether I have "central banking money" or credit or whatever when I go to buy anything. It's just money, and it's all pretty sketchy anyway.
Like we're supposed to feel better about backing by the full faith and credit of the government...yayyy...governments never fail.
When you conflate the words money, debt, credit, and currency the end result is one very confusing video that doesn't help promote true understanding of the subject matter.
anything over 87k is credit.
As per my comment on part 4 of your video again. This is FALSE. Since the 2008 crisis, as per BASEL III, the bank's regulator (the PRA for the UK) stress tests banks regularly to check that they sufficiently solvent during a crisis scenario. This solvency includes banks' ability to meet the FSCS requirements. The stress tests require that the bank categorise all their assets by how risky they are and this categorisation (RWA) is used to check a bank's solvency. If a bank fails its stress test then it will be required to increase its liquidity buffer and so the bank will ultimately reduce the number of risky loans it creates. STOP MISLEADING PEOPLE. Also next time you need answers on how banks create money, speak to someone who actually works in a bank rather than a civil servant. Stop you BS Marxist propaganda.
Basel 3 was Nov 2010, and was not even originally scheduled to take effect until after this vid was made. Surprise though, it keeps being put off another year, or two, or three... It still has not even gone to full implementation, though plans have been drafted.
www.bis.org/bcbs/publ/d510.pdf
en.wikipedia.org/wiki/Basel_III
I'm sure there will be no gaming of the system by banks and things will be much safer, especially post COVID when they have ample propaganda to squelch it.
www.risk.net/our-take/7719551/never-mind-the-buffers-covid-reveals-deeper-flaws-in-basel-iii
Yes, purported "Positive Money" is highly misleading and it's obviously intentional. People should study Mathematically Perfected Economy instead of blind following these people because they have money to make videos. Then they would be able to see through their lies.