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How Banks Create Money and the Money Multiplier- Macro 4.8

3189 ratings | 406797 views
Money doesn't grow on trees, but it does grow in banks. I explain how banks create money and how to use the money multiplier. For more practice go to my website www.ACDCecon.com or watch the unit playlist videos. Please subscribe and leave a comment. You rock! Monetary Policy and Despicable Me https://www.youtube.com/watch?v=RaeIBeJT5hY Video about the Federal Reserve https://www.youtube.com/watch?v=qXhXnwDANXo Unit playlists. https://www.youtube.com/watch?v=HQkVO2PsxFw
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Text Comments (427)
Howard Tejeda (6 days ago)
You’re amount correct ! But not 100 % Bank application 1003 and promissory note is what they use to create the money. Banks are not allowed to lend out there capital and can only use it for their operational expense. Dollars are promissory notes created by the privet Federal Reserved Bank. Banks take your loan promissory notes and deposits it as a deposit and creates the money but at the same time they put it in their books as a liability making you the creditor and borrower at the same time. But making it look like you’re only a borrower.
your theory is wrong and outdated. thats not how banks work anymore.
shawn kip (12 days ago)
What kind of drugs are you on to say money comes out of thin air
Parker Scott (15 days ago)
"banks are ponzi schemes run by morons" - Ron Swanson
Mrs TBK (15 days ago)
Can I have your brain...wow how do you know so much..
rockstar2934 (18 days ago)
You have no idear how long it took me to find a video like this thanks heeps
Jenna Hampton (21 days ago)
So very helpful, much thanks.
GarBlaineNavy (1 month ago)
Aaaaaaaaaaand, fraud anyone? "Did you get that?!" Fraud!!!
Kundi Feng (1 month ago)
Thanks. lively and clear
guyfoxmulder (1 month ago)
This is a con.... It's a publicly accepted con that the entire world is operating under, and it is the reason no matter how much you save for retirement it will be worthless when you retire. This is stealing the value of everyones retirement and I hope you all die for it.
Dinh Nhat Tran (1 month ago)
hey, can you explain more about 400*5( money supply), while new deposits just 10
Jason Rosenberg (1 month ago)
So bankers are rich because they charge interest on money they never truly risked!!
San Khan (1 month ago)
What I understand from this video is banks not creating money infact they are circulating money.We can reserve this process. Last bank asks last borrower to return its money and next ask next to return money then finally the first depositor will gets its $100 back plus profit and all the banks in this chain also make some profit because they have circulated that money so whats the issue.If we can reverse the process then everything is alright.
Luke Morrison (2 months ago)
This is BS! This is why millenails cant afford homes, im psised off.
Yingying Zhang (2 months ago)
Thank you, Mr. Clifford!! You make the content so easy to understand!! I will definitely recommend your channel to my friends!!
xiaohan ma (2 months ago)
it helps a lot!!! I have struggled for these concepts for a really long time and this video just clearly explained everything!!!
genius (2 months ago)
this is wrong....because he explain different than robert kiyosaki...
cbrooks0905 (2 months ago)
This video is full of lies. The National Banking Act of June 3rd 1863 (or 1864?) says that banks can’t loan out money from their deposits. Modern Money Mechanics, which was put out by the federal reserve of Chicago, explains that money is created at the time of the request for the loan. Simply put, they monetize the loan application. It has all the criteria of a check, and that’s what it is, a check, which they use your social security number (account number) to cash it, and then charge you interest, of which doesn’t exist, which is how inflation is caused. Replace the word loan with the word create and you’ll have a more truthful message here. Banks are allowed to create 10 times as much as their deposits. No one said they’re loaning out the deposits, though. That would be illegal per the National Banking Act. It’s all a trick on words, really. Just like how they put you as the borrower when in fact it was your signature which created the money. ...charlatans... This man is either blatantly lying, or he’s parroting lies that were taught to him.
cbrooks0905 (2 months ago)
Basically what I’m saying is that the REAL truth is much worse than what this dude is telling us, and it’s all evidenced by the law.
BULL SCHEIST (2 months ago)
This video is disinfo intended to confuse you about how banks truly work. In fact, all "money" is created out of thin air when banks issue loans. This explains why 95% of all "money" does not actually exist in any true physical form; it exists only in the computers of the bankers! Banks charge you interest for loaning you something they create out of thin air after you sign the loan documents. The modern banking system is a legalized-counterfeiting, debt-enslavement scam.
BULL SCHEIST (1 month ago)
+FrostyAUT All money is created out of thin air when banks issue loans, but there ARE limits to bank money creation. The limitations of bank money creation are state and federal laws that limit how much they can create and how much reserve they must keep. Banks are frequently audited, and if they create too much, let reserves slip too low, or make crappy loans to deadbeats, they get fined or eventually shut down. So when banks fail, it is because the government shut them down for rules violations. During the economic crises that started in 2008, there were tons of defaults and foreclosures and many banks were in huge trouble because their reserves dropped below government limits. The government simply reduced or suspended the reserve requirements to allow the banks to remain legal. The rules could just as easily have been modified to allow increased bank money creation during the emergency. But that would reveal the scam, so instead the Federal Reserve (also privately-owned by banks) created huge amounts of money out of thin air, and loaned it to the troubled banks, interest-free. Banks take deposits and pay savings account interest primarily for marketing reasons, and for psychological deception reasons. 1) Borrowers are more likely to apply for a mortgage or car loan at the bank they visit frequently, so paying a few bucks in savings interest is quickly recouped when we poor suckers pay $200,000 grand in mortgage interest. 2) The false concept of "banks loaning out deposits" is crucial to this scam continuing.
FrostyAUT (1 month ago)
Answer me this: If banks can create money out of thin air (which I assume implies they can do so without limitation), why would banks ever fail? Why would they be concerned about their liquidity? Why would they be interested in actually getting their loans back? Why would they take sight deposits knowing that they have to pay interest to the customer?
Hoda Khan (2 months ago)
You talk so fast I had to watch many many times to understand it, not helpful for international students!
Space Cowboy (2 months ago)
But you didn't say anything about the exorbitant interest rate they charge and the money they make from that
Amir Estebari (3 months ago)
Thank you for such a great help!
optimistic but realistic (3 months ago)
This is step one. Step 2 is everybody who borrowed the money from the bank has to pay it back to the bank along with interest. So the bill outstanding is always bigger than the amount of available money. It's like a game of musical chairs. There's never enough chairs (money) so someone has to lose.
Fergal Downes (3 months ago)
Whats up man, extremely nice account that you have here. Nice one.
OP Sihota (3 months ago)
best explanation I've seen so far
Siddharth Kumar (4 months ago)
But this new money needs to be repaid to the bank. So its temporary isn't it?
marco saba (4 months ago)
The “accounting view” of money: money as equity (Part I) http://blogs.worldbank.org/allaboutfinance/node/916 The “accounting view” of money: money as equity (Part II) http://blogs.worldbank.org/allaboutfinance/node/917 The “accounting view” of money: money as equity (Part III) http://blogs.worldbank.org/allaboutfinance/node/918
Cool Saint (4 months ago)
This video is not accurate . Banks don't lend money , they lend credit . In other word from the initial 100 dollar deposit the banks make the 100 dollars the fractional reserve . They then loan out 900 dollars as credit never touching the cash reserves they hold .This is not legal but everyone is so used to this it never goes challenge
Billy TheKidster (5 months ago)
When government spends more than it collects in taxes, it borrows money from a central bank, and must pay it back with interest. Government never has the money when the loan is due, so the burden of this debt falls on the taxpayer, me and you. When local banks need money, they also borrow from a central bank. A $100.00 bond gets loaned out to its clients at 10 times the amount. The central bank and local banks create money out of thin air. There is nothing backing it, nothing substantial is there, but when incompetent government defaults and local banks fail, we the taxpayers must bail them all out, or face some time in jail. The federal withholding from every blue collar worker's paycheck, is not taxes, it is our weekly loan payment for this perpetual debt, a debt we did not create nor do we deserve, yet we keep feeding those parasites at The Federal Reserve, a privately owned bank, governed by a handful of businessmen, who have a stronghold on not just my country, but many worldwide nations. These men hire untold lobbyists to put pressure on Washington, to establish laws to protect their corrupt monetary system. There are more laws on the books protecting their banks and corporations, than there are laws protecting the human rights of our citizens. Banking is in the business of manufacturing risk. I say the risk is too great to allow banks and banking to continue to exist. It is time for a new global emergent society, governed by a Resource Based Economy.
MTheory (5 months ago)
This is not correct. Someone deposits 100 dollars to a bank. The bank then loans 90$ to someone else. In order for the 2nd person to have access to that 90$, that 90$ has to be put into an account, and when that person withdraws the 90$ in cash, new money supply is not created. The bank actually has to give the person 90$
Galang Putro (5 months ago)
OMGGGGG Thanksss broo, so helppppp
shineyourlight (5 months ago)
wrong wrong wrong, banks lend out 100x the depots they have not 10x, wake up smell the coffee! when they loan you money they create an IOU, money is not based on a gold standard anymore its just a bloody IOU. this guy doesn't get it. Central banks just restock money supplies for their client banks.
Andy Au (5 months ago)
Suppose there is a foreign reserve in USD of 300 billions in China, does that mean there are 300 billions USD in form of physical cash in China?
Andy Au (5 months ago)
Can we say that the following is true: That reducing the reserve ratio equals to increasing monetary supply and that increasing the base money base with reserve ration held constant are acts of increasing money supply.
Andy Au (5 months ago)
Is it possible for the China government or monetary authority to type into its computer 1 billion USD and get way with it? How can anybody be sure this does not happen?
Jj Chen (2 months ago)
http://www.cqandyedu.com/uploads/allimg/151111/1155235c8-1.jpg
Jj Chen (2 months ago)
I suppose it is possible for any country to counterfeit money. And there would be no way to catch them doing it if it was good enough. All you need is a printing press that can beat the scanners. But we do know China holds a lot of american debt due to trade deficit to China. So that money would have to be real. China usually just prints their own money.
taimoor arif (5 months ago)
Does credit ever become actual note if there where hundred notespapers of 10$ and country banks created credit total of 300$ so new thirty notespaper of 10$ must be created so they do they created notes physicaly b seeing credit or not
F Sharp (5 months ago)
long live FED
Gen Mystical (5 months ago)
It does not create anything additional. We do not count it like that : 90 + 81+72.9..... Let's talk about the first 90+81 That is not logical. It is not a new 81 to be summed with the original 90. This 81 is just the same original 90 but 9 taken out. Look at it with me If Josh has 90 $ and Ahmed has 81 $. The total here is 171$. But if Josh has 90$ and Ahmed has nothing (0 $) so he just borrow 81$ from Josh. Then here, Josh has 9$ and Ahmed have 81$. The total is 90$. No new money created in that way, which you said it is the way banks creates new money. Everything here is obviously wrong and make no sense. What is the key that all you guys have to understand this??
Saku Papu (2 months ago)
Gen Mystical you are correct. The explanation in the video is incorrect. If this were to be true, then bank runs would not happen.
Ayushi Panjwani (6 months ago)
you literally saved my grade
Justine Jolliffe (6 months ago)
I was driving myself nuts trying to understand this concept and now I'm 99% closer to getting it!
FASEH 15 (6 months ago)
i hate accounts
paramp pamp (6 months ago)
Here dreams come true, join.. https://mercury.gl?ref=id_230605
simran dogra (6 months ago)
Very nice and easy to understand
Terry Albery (7 months ago)
Same happens with Motgages EXCEPT. Every Mortgage has a SECRET power of Attorney(PoA) clause in the T&Cs. The PoA is used to create more loans in the MORTGAGERS NAME, which gets Copyrighted and Trademarked as a Patent. With the PoA Signed over to allow them to LEGALLY do whatever they want. Plus they NEVER lend you any money. Plus they demand Interest, Legal costs, Insurances, ect to be paid, and then Rig the economy so a % of people have to default, then Claim the House Back As FREE CLEAR PROFIT on top of ALL THE OTHER SCAM......
Terry Albery (7 months ago)
Inaccurate, misleading, are you paid by the banks to cover up their REAL SCAM.... all of a sudden I see various videos ALL spouting the same rubbish !!!
Travis Hudyma (7 months ago)
bullshit, banks can't lend your deposits
Immortal Legends (7 months ago)
to stop this, banks should be banned to generate new currencies. instead they should be made to provide money to costumers with the existing money they gave to bank.
Luis Harry Lomboy (7 months ago)
My sense: some people donate it to the bank and people get the money from the bank .-.
MsJim70 (7 months ago)
Money creation for the Euro area according to Deutsche Bundesbank, both video's are in English. The Origin of Money - Part III: Central Bank Money https://www.youtube.com/watch?v=ddFadEwS4ck The Origin of Money - Book Money https://www.youtube.com/watch?v=mbrjSSFJoMo
Daniel Rosagrata (7 months ago)
The question towards the end of your video - If the money multiplier is 5 and the amount in question (deposited amount) is $500, then shouldn't the amount be $2500 (of new money)??
Michelle Wu (7 months ago)
Omg thank u ur a life saver!
Dhai Zayed (8 months ago)
GOD BLESS YOU FOR THIS AMAZING VIDEO.!!!!
music gives life hope (8 months ago)
You are ECON videos are excellent but this is so wrong . From the comment section , you could have gathered that people want you to spell out the facts. I'm sure you know "multiper concept " is baseless, why do you think our educational institutions and main stream media are hell bent on propagating this myth ?
Lone Wolf (8 months ago)
Banking sure is a nice scam, isn't it? Notice how the truth of it is never, ever discussed by the mass media or politicians.
THANKS A LOT
Hawk Who Knows All (8 months ago)
BANKS Should be LOANING to NEW COMPANIES or INDUSTRIES Instead of GIVING it to INDIVIDUALS. ........ If they dont Do it then It is DECEIT and LIE SYSTEM which is USA but Not GERMANY
Nikos Korexenidis (8 months ago)
The reserve requirements must be in cash owned by the bank and stored physically in the bank vault (vault cash), plus the amount of the commercial bank's balance in that bank's account with the central bank (what is called M0 money) . The bank multiplies that money by x10 and creates the M1 money (which he loans). He can't use the M1-M0 money to create more money . The total cash reserve of all banks are fixed, to the amount defined by central bank. Only the central bank creates money from thin air but this is another topic.
Emily Chan (9 months ago)
THANK YOU by the time 8th period starts I'm basically brain dead and this makes it really simple
Fred Bruyns (9 months ago)
It seems to me that only the original reserve in the example is real. Subsequent reserves are from borrowed money. Only the original loan is real money. If you start with $100 you end up with $100, but since any loan against this must be repaid with interest, the government or its reserve bank will have to inject new money into the economy constantly.
Robin (9 months ago)
And then people pay their loans back and the supply is down to it's original state again, no? I mean basically all you show is that if loans aren't paid back, but treated as if the money was still in the original person's hand then you get more total money in the supply, but by definition a loan is something you have to pay back eventually, thus reversing that chain of events eventually
Robin (8 months ago)
By earning more than what you were originally loaned. (I mean the point of a loan is that the person can establish their own business which will have its own income stream, right?) Maybe I misunderstand the question though
Lone Wolf (8 months ago)
How can you pay back interest when the interest was never created to begin with?
Genya Lyons (9 months ago)
Thumbs down all the way if u know the truth. Look at ur bill closely .
Genya Lyons (9 months ago)
This is absolutely fails. Bank will never default. . he is not talking about fiat currency. Our money is not backed by anything.
aaronmoravek (10 months ago)
You failed at explaining it accurately. The deposits only act as an arbitrary limit. They don't literally use your deposit, they simply create the money based on the limit set.
vikram (10 months ago)
you look like a high school student that works at the local carwash
Doll Alex (10 months ago)
oh now i get it, so when we are paying with the credit card, we are just passing the bank's debt for us, to another person.
A Too (10 months ago)
Where does the original 100 dollars come from..who gave that printed paper value
Lone Wolf (8 months ago)
It was done by fiat.
A Too (10 months ago)
Lol sound like a jugg to me
Abdullah Al-Muhaya (1 year ago)
Man this is very clear! Love this! For those who are complaining, if you don't understand basic math, don't blame him please 😂
Nexia Robert (1 year ago)
very useful, thank you very very much. i did banking and finance back in college, but this short video help me understand it to the simplest, but not simpler. thank you =)
Akafun666 (1 year ago)
Sir you are a GOD, thank you for the help!
Muhammad Karkoutli (1 year ago)
I love you mate
Walt (1 year ago)
How many ACDC belts do you own bro
Tsering Choetso (1 year ago)
why did you go there lol
atia sharmin (1 year ago)
thanks a lot, all of your videos are so simply explained. Very useful!
MsJim70 (10 months ago)
Oh No!. Not the money multiplier myth again. If you really want to understand how modern banks work then I suggest the following :- The Bank of England - They should know as they run the show in the UK. As part of their Quarterly Bulletin for Q1 2014 they published :- "Money creation in the modern economy" is now ref https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf The Federal Bank of Chicago - Published back in the 60's and unfortunately no longer available from their web site entitled : "Modern Money Mechanics" A Workbook on Bank Reserves and Deposit Expansion available from http://www.rayservers.com/images/ModernMoneyMechanics.pdf The UK based campaign group positive money have a good series of video's explaining things although not always perfectly. http://positivemoney.org/how-money-works/banking-101-video-course/ Also worth a read from the BOE :- https://bankunderground.co.uk/2015/06/30/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters/ and from CNBC an article Entitled "Basics of Banking: Loans Create a Lot More Then Deposits" https://www.cnbc.com/id/100497710 Happy reading and eventually you may see the light, it's not complicated at all when you realise how it works in real world terms and it all makes Logical sense.
Lone Wolf (8 months ago)
+Mind Stretching You're either a moron or a shill. I'm leaning toward you being the former. You heard your superiors in the business world feed you a bunch of bullshit so, being dependent on their good graces, you swallow it whole. Money "backed" by good credit history or any other intangible "asset" or even tangible ones if there's no lien, is backed by nothing. You think the Bank for International Settlements creates money from all the assets they have? LOL
Mind Stretching (8 months ago)
http://positivemoney.org/how-money-works/how-banks-create-money/
Mind Stretching (8 months ago)
Wow, such an intelligent response. With the smallest amount of internet searching/research, you would know that the money supply is overwhelmingly created by commercial banks through loans, not the FED. But, go ahead and bury your head in the sand if you like.
Lone Wolf (8 months ago)
It's not a myth. Thanks for shilling, though.
Mind Stretching (10 months ago)
I try to explain to people this is all wrong too, but the money multiplier myth has been perpetuated for so long that people believe it's gospel. Most, if not all, bankers know that loans create deposits. The FED has a powerful role to play in interest rates and bank reserves, but 90% of all money is created by commercial bank loans. So sad this lie continues, especially when those in finance know it's fiction. Commercial banks have up to 45 days to find the required reserves to back up the loans they make...that pretty much says it all, the FED will back stop those requirement through their operations. Game, set, match.
Biffcheese Spinoccoli (1 year ago)
This is great! Thanks for making these vids.
Dwain Dibley (1 year ago)
This video is full of shit. Banks don't loan money, period. All money deposited into a bank is held as reserves, that's all. And reserves are held to meet depositor demand for their money, reserves are never loaned. Banks generate credit as deposits and call that a loan and they can do this regardless of reserves held. There is no such thing as the 'money multiplier', it was a retarded notion when it was first concocted and it's still retarded and thoroughly debunked today. Neither the Fed or the banking system possess the legal authority to create money, and they don't. http://carl-random-thoughts.blogspot.com/
Crystal Jawiche (1 year ago)
why will the 90$ become part of another bank?
Lone Wolf (8 months ago)
It could be at the very same bank. It doesn't have to be at a different bank.
Zero Hero (1 year ago)
Thank you very much! Help me alot
venjer wang (1 year ago)
omg it's very helpful!
Sachin Chhetri (1 year ago)
No words to say.. Yours videos are simply amazing... Thanks
Mr DFK (1 year ago)
What? 😂 (Wonders how he ended up here)
Nathan Kapsimallis (1 year ago)
Your videos are brilliant - no one explains these concepts as clear as you. I have watched many of your episodes, absolute legend thanks heaps.
Therrawbuzzin (1 year ago)
Would it not have been simpler just to state that a bank which takes in $100, can loan a $1000 on the strength of it?
Ivan Bošnjak (1 year ago)
where does the money to pay back the interest come from if most money is created this way??
Hago Mal (1 year ago)
When I buy and sell stuff. Lets say grocery bussiness , dont we create money?
Hago Mal (1 year ago)
frankly you need to explain better than that. Its very hard to convince these stuff to people. Yes I believe banks create money out of this air.
Attila Hun (1 year ago)
you create transactions. But the actual money is the total amount of money the govt has printed.
DumbledoreMcCracken (1 year ago)
Nope, the bank loans out money they made from nothing without any reserve. You have everything wrong, and you don't even do your own math correctly.
Jake Macri (1 year ago)
Always helps so much and I can't thank you enough for your enthusiasm :)
danish hassan (1 year ago)
god bless you Mr Clifford. its remarkable; amount of effort you put in. great
eric thefathead (1 year ago)
wrong. the $90 DID exist before the loan occurred, and the borrower received it. LOL. it simply changed ownership. banks cannot "create" or print money, only the Fed can do that. do you really think a borrower would give a bank a promissory note, and receive nothing in return? ROFL. you're an idiot.
Jason Smart (10 months ago)
It didn’t change hands tho did it?? If I put my money in a bank account, it’s still, in theory, mine right?
DumbledoreMcCracken (1 year ago)
You have some ideas, but most are wrong. Deposits in the bank are called bank liabilities. These liabilities are loans the bank took from (not gave to) the depositors. Once the bank took the loan from the depositor, in the form of a deposit, the depositor no longer "owned" the money, at all, all that is left for the depositor is a piece of paper that says "IOU, love, Your Bank". The bank then spent the money they received as a loan from the depositor, partially by giving the money out as loans to other people, and those other people spent the money they received, and then the merchants who took the money from the people who received the loans, those merchants deposited the money in banks, and the whole cycle repeated. A loan that a bank gives to a person is a bank asset, not a liability, because loans make the bank income (in truth, the money in the loan never existed except for numbers in a computer, and once the loan is repaid, the principal is destroyed - as if it never existed because it never did exist in the first place).
eric thefathead (1 year ago)
banks cannot "create" money. only the federal reserve can print or "create" bank notes. banks LOAN preexisting money for a profit (interest), it's that simple.
Attila Hun (1 year ago)
calling money made out of thin air through fractional reserve lending is semantics.
eric thefathead (1 year ago)
the Fed wasn't established for retail banking, so your question is stupid and irrelevant.
DumbledoreMcCracken (1 year ago)
I'm sorry son, you are just not smart. I can't help you.
eric thefathead (1 year ago)
money loaned IS real money, or the digital equivalent, it doesn't come out of thin air. ROFL. there's nothing magical about a loan, it's a contract. you believe in fantasies.
DumbledoreMcCracken (1 year ago)
No they don't. I talked with a friend today, who's wife was formally educated in this, and she told her husband: "the rules changed in the 1990s, and banks may issue all the credit they wish, limited by the amount of risk they're comfortable with." She is going to ask an industry friend for more details, to satisfy my continuing curiosity. I'm sorry, but you believe a fib. I'm not sure you understand that the money created by the bank's assets become real deposits in (sometimes other) banks. Money loaned becomes real money. And the loans issued by depositors to banks are also money (callable) on demand (CDs have penalties for early calls, but they can be demanded). Banks create money without the Fed's interference. The question you should ask: why doesn't the Fed lend money to individuals, in this computerized age, since the Fed's profits go back into the Treasury? Because retail banking makes enormous amounts of money. I admit I don't know what the stress tests measure, but I can guess they measure nothing, it is all computer modeling of the asset risk exposure and has nothing to do with the "reserve" amount held. If you know exactly what the metric is, then tell me.
Kev Kong (1 year ago)
How is it new money? If someone deposits £100 and the bank loans out 90% of that then how is that new it's from the original £90 minus the 10% reserve. I know the banks create money but I'm struggling to understand.
DumbledoreMcCracken (1 year ago)
Because the total amount of money that flows out of the bank, with each successive loan, built solely on the original £100 deposite, adds up to £900. You can do the math on a spreadsheet to see this result, as I have done. However, according to a professor at the London School of Economics, there is no 10% reserve requirement. The banks make money from nothing.
Edward Dodson (1 year ago)
This presentation ignores the fact that when a bank is chartered, it begins operating only after raising cash from subscribers. This becomes the beginning capital of the bank, used to acquire facilities, hire and pay employees and begin operations. Another point to be made is that very very few borrowers leave the money they borrow on deposit with the lending institution. The cash goes to third parties. The lending bank now has a loan receivable on its books. Only if the bank sells the receivable to another bank or investor does it then have additional cash to loan out, assuming (unrealistically) that no additional deposits are received from its customers.
Ike (1 year ago)
Really helpful! Think you helped a lot of people understanding this subject as well as all the other subjects you post videos about. At least you helped me;) Keep up the good work!
DumbledoreMcCracken (1 year ago)
His explanation is full of mistakes because he doesn't understand the math.
Nana Koranteng (1 year ago)
You have this flawless way of explaining economics! You truly are a genius! Your in depth videos have contributed immensely to my 'A' in macro, thanks so much!
DumbledoreMcCracken (1 year ago)
His explanation is full of mistakes because he doesn't understand the math.
Mohan Gurusamy (1 year ago)
Thank you for this. Please make a video about negative interest rates.
Sam Santiago (1 year ago)
What if they withdraw
Attila Hun (1 year ago)
If everyone withdraws their money and places the money under their bed. Then the banks would fail and would be forced to close since they wouldnt have enough money available to them to give everyone's deposit back. The govt would most likely intervene and print more money to rebuild their reserves and meet withdrawal demands.
DumbledoreMcCracken (1 year ago)
Doesn't matter, assuming the withdrawals are deposited in another bank. However, if everyone withdrew and stuffed the money in their mattresses, then there would be an issue, because the banks would have to take loans out from the Federal Reserve to issue the cash, and that would cause the bank to fail (because that would force the bank to pay for money, instead of getting it for "free" from depositors). However, most people don't have more than $1000 in savings, so this isn't likely to cause a problem even if it did happen. Good question.
Zanzi Kanuck (1 year ago)
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf Paper by Bank of England that says that there is no such thing as money multiplier. Or am I wrong?
DumbledoreMcCracken (1 year ago)
They make money from nothing. There is no reserve constraint, it is a lie.
Dhawal Desai (1 year ago)
What this guy is telling you is not true.Hear it from the horse's mouth. http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
tumbi97 (1 year ago)
Question : you say the $100 you deposit isn't new money. But how come the $90 of the hundred that's loaned out is "new money" . Isn't that the same money, just changing hands ? how does this increase money supply if it's the same money ?
DumbledoreMcCracken (1 year ago)
zanzeh teh hero Yes and no. There can not be a bank run because no one saves money any longer. There are no bank liabilities to tap. You have the story correct, but there seems to be no reserve constraint.
Zanzi Kanuck (1 year ago)
None of the money you deposit is loaned out, neoclassical economists (for some reason) have the story wrong. If I understand it correctly, when the banks make loans they create all of the money. Then they go out looking for deposits at around 10% of what was loaned out. Purpose of these reserves is keep banks afloat for long enough for authorities to step in in a case of a bank run.

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