How Do Banks Create Money? A Walk-Through of Richard Werner's Papers

[@mgnm2013]

Hello again, this is so fascinating, I must add another comment. Some of the highlights: 1. Although it's not giving anything in return (its asset is intact), the bank is, nevertheless, said to "purchases" a promissory note. 2. The bank "fulfills" its obligation of paying money to a client by owing that money to him!? 3. Even if nobody has deposited anything, a "deposit" magically appears on the bank's balance sheet. If not ethically highly disturbing, (and also legally in my opinion), this whole process of creating money would be actually very entertaining. Almost like a script for a Monty Python movie about banking or finance where you have multiple misconducts and frauds involved, but nobody minds, and they all seem happy.

[@wernereconomics]

Correct. I think a comedy sketch could very likely be made from the whole process! - Oli

[@aiothedat3102]

@@wernereconomics is all of that legal

[@kurtjohnston6620]

Money & its value + assets & their value have always been created. The attitude that you show is the exact reason why this process, which is central to banking the world over and always has been, is why it is hardly ever discussed publicly by industry professionals. Richard is correct though in that there are many within the finance industry that themselves cannot fathom this, and can only understand money in quasi Newtonian terms, i.e. ".....cannot be created or destroyed, only transformed".

[@aiothedat3102]

Hi have a question. still banks are limited in their lending by the adequacy ratio right ?

[@mgnm2013]

@@kurtjohnston6620 First of all, banking is not an industry because banks do not produce anything. What the process of money creation means to private bankers around the world, shouldn't concern the public at all. If everything was transparent from the start, bankers wouldn't be in that position in the first place. How long has money been created in such a fashion is also of secondary importance. The central problem is, who allowed private entities to issue and allocate national currencies (parliaments didn't for sure), and how is that beneficial to society?

[@deniseward002]

No mention that the strawman estate pays the loan to the bank as soon as a loan is signed into existence. That means the bank gets paid at least twice (from the strawman account and the borrower paying back the loan) The interest is a premium paid for borrowing money but it is several times more than the money borrowed. These convolutions are designed to make you think banks are doing a lot of work to justify all the machinations, and therefore people see them as quite impressive. When really they are nothing but clever bandits. It's all based on illusion of credibility. Money should be a simple thing because the only reason for it is to measure energy exchange. It should be a measurement somewhat like inches - we don't have to borrow inches, there is always enough. But that is too simple and easily seen if you try to hoodwink someone. However money that is designed to generate an artificial scarcity has all sorts of convolutions built in to hoodwink the customer and enrich the bandit. Interest is never issued into the economy so imagine how much of a shortfall that causes. A money system that causes people to use loans is an admission of a stupid money design.

[@mjsmcd]

What is strawman account?

[@mjsmcd]

Money created by loan is deposited to borrower from where?

[@terryreynolds13]

@@mjsmcd look up, "meet your strawman"

[@SeafloraSkincare]

Cestui Que Vie Trust needs to be mentioned…

[@terryreynolds13]

@@mjsmcd It's the Cestui Que Vie Trust. Look up "meet your strawman".

[@widehotep9257]

All money is created by private banks when they issue loans with no need for deposits or reserves. Richard Werner deserves the highest praise for proving this empirically! In one of his speeches Richard Werner mentioned two central bank admissions that the credit theory of money creation is true. The first is "money creation in the modern economy" by the Bank of England from 2014. The second was by the Federal Reserve, but I don't remember the title. Could you please tell me the name of this report and where I can find it?

[@mgnm2013]

It's called "Modern Money Mechanics". It's easy to find.

[@widehotep9257]

@@mgnm2013 No, that report uses the debunked "fractional reserve" banking model. I am looking for admissions from the Fed that banks create new money when they lend with no prior need for deposits or reserves (Credit Creation theory of money creation).

[@mgnm2013]

@@widehotep9257, You're totally right. I used it long time ago as a reference (or admittance from the highest level) that commercial banks DO create money. Maybe this quote from the Federal Reserve bank of New York is what you are looking for: "Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference whether the banks have lots of excess reserves or not." www.newyorkfed.org/newsevents/speeches/2009/dud090729.html

[@deniseward002]

@@mgnm2013 It's really a fancy shell game, that is all. It works though as just about everybody falls for it.

[@mjsmcd]

How did svb bank fail?

[@Belgium_citizen]

Correct, and this is why you ALWAYS require a deposit at the bank you take a loan from, it ALWAYS goes through your account first, and then they pay to your supplier, from your account. It also explains why short term borrowing is kept expensive, it would blow up their balance sheet too much, stretching it over many years is less inflation pressure. Richard werner, thanks for enlightening the people. As long g as the money goes into real economy, it is a blessing, but it is indeed a curse if is used to leverage financial instruments, one creates bubbles.

[@ef7480]

Amazing how many people still think that a bank has loads of physical cash and goes into vault and gives it to you as a loan... To those people - ever wondered why you don't see bank robberies anymore?

[@chongthamch5549]

The thing is that people do not understand the concept of money. Neither do I at the moment. It's much more than just creating money out of thin air. Many experts have raised concerns about the fragility of this system but not because of such money creation. Money is supposed to be created like this. It's just that we don't understand it properly and it just makes everyone hysterical.

[@ef7480]

@@chongthamch5549 - the concept is, you create an amount on a screen when you 'promise to pay' a loan. Forget the 'cash' myth- there's only 3% of that in circulation. The digital age can create as many numbers on a screen as banks want..as long as you firstly agree to pay it back (promissory note)

[@AleksandrVasilenko93]

Please make a follow up video showing how the bank balance sheet changes when the customer pays back its loan. Aka, the newly created money is destroyed.

[@BienestarMutuo]

Yes, because the problemof our way to create money is not the money created from nothing, because will be destroyed when the loan is payed. the problem is the interest of that money created, that is not destroyed, and the power to create money in the handfull of few, give a enormeus power over the others that dont have it.

[@Economics21st]

I can do that for you. Let's look at the lending stage too. Alice borrows $1,000 from Bank X. [A] = assets; [L] = liabilities. _Lending_ Alice: [A] + $1,000 (deposit, X); [L] + $1,000 (loan, X) Bank X: [A] + $1,000 (loan, Alice); [L] + $1,000 (deposit, Alice) _Repayment_ Alice: [A] - $1,000 (deposit, X); [L] - $1,000 (loan, X) Bank X: [A] - $1,000 (loan, Alice); [L] - $1,000 (deposit, Alice) Notice that it's the exact opposite of the lending. During lending, deposit and loan both increased (adding to both sides of both Alice's and X's balance sheets). During repayment, deposit and loan both decreased (reducing both sides of both Alice's and X's balance sheets). See economics21st.substack.com/p/money-and-banking-1#§trusted-third-party-iou for a more realistic example. (The arrow notation is explained at economics21st.substack.com/p/the-7-economic-actions).

[@FilipSoldan1]

Sorry to brrakhe illysion for you. There is no need to pay back anything and when you are "repaying the loan" It is all overpayment you can claim back. The "loan" is paid as soon as you sign the note with all interest and everything. There is no need to pay any extra banknotes to the bank.

[@stefan-stocksmadesimple5241]

Can that 97‰ credit vanish/be replaced..? Does that happen when CB's turn the printer and replace credit with actual cash, or there is another mechanism..? 👍

[@susllim]

Do development banks such as the IMF operate in the same way?

[@herbertgoldstein1156]

good question, i would like to know too.

[@vihodanyet]

I asked my econ professor why low in come countries dont do their own form of QE (the type proposed by Werner originally) and he said because Low income country cannot monetize their debt.. so they have to use foreign creditor? But why? Why cannot they monetise their own debt?

[@mgnm2013]

Sadly, he doesn't know what he's talking about. They can and should do QE in their own currency. Of course, they would use it for increasing their GDP transactions based on as much as possible domestic inputs, and not for paying their foreign debts. This is strictly an economic point of view or common sense. The problem is the political and military power structure in the world.

[@Basta11]

The problem with low income countries is that they are truly resource constrained, printing more money (deficit spending) can immediately lead to inflation. Essentially a tax on the actual purchasing power of savers. If the government were to spend it on things that increase productivity - infrastructure, education, health, housing, safety and security, etc. Those investments add to the money supply, but that spending enabled more goods and services to be created so it mitigates the inflation. Very difficult to do though. Best examples would be the Asian tigers - South Korea, Singapore, Taiwan, and Hong Kong and European countries after WW2. One of the worst things countries can do is get into huge amounts of foreign debt (money they can't print) and then don't do anything productive with it. Politicians mismanage or embezzle these funds. Lots of examples in SouthEast Asia, South and Central America, and Africa. It would have been better if they just printed their own money, cause inflation, and buy those foreign currencies they need when they need them.

[@sciagurrato1831]

Best example is China actually.

[@uncreativename9936]

It's not really QE, but they can and have done what Werner talks about here kzbin.info/www/bejne/b6isdIeHhq6YpKs Qaddafi did it to create the "Great Man Made River" without the use of any foreign credit. They just assembled the man and materials to build the project and printed the money to do it. The reason this doesn't create inflation, when done correctly, is that this money is first going to the supply side of the economy and increasing production before going to the demand side in an equal amount, thus supply and demand grow roughly the same amount. What would cause inflation would be to give this new credit to something non productive which would increase the demand side of the economy more than the supply causing inflation.

[@BigFish-ii8zd]

This is incomprehensible!

[@ef7480]

it was around 15 years ago......

[@akribischerbeobachter7756]

How does the central bank fit into this? If commercial banks are free to issue lones to their liking independent from interest rates or reserves, what is the central bank needed for/ how does it influence the process?

[@Basta11]

Private banks are constrained from lending by regulations, competition, and the need to be profitable. They have capital requirements as defined by regulations - the ratio of good liquid assets like cash to less safe assets like loans. If they lend too much relative to the liquid capital they hold, they might be considered undercapitalized. Meaning that they are at greater risk of default. They might not have enough liquid assets in case of a sudden massive withdrawal of cash. Profitability and competition. They charge interest on the loans they issue. Banks want people with good credit. People with good credit want the lowest interest rates. The lower the interest rate, the less profit. Banks still have overhead expenses like payroll. Banks compete offering the lowest interest rate they can. If they go for riskier borrowers, they could earn more, but also risk having to write those debts off as bad debt expense. If they write off too many bad debts, they could be insolvent. Banks must be regulated as there is always risk of contagion. A run on a bad bank can still affect more prudent banks. Bank deposits are insured through the FDIC up to $250K (as of this writing), which means they are effectively government backed money. The Federal Reserve is what regulates these banks along with other agencies. The Federal Reserve is also the source of all currency and reserves, they are their liabilities as bank deposits are liabilities of the bank. Reserves are like bank deposits only banks can own. They settle transactions between them with these reserves.

[@DistributistHound]

This is sort of a back and forth answer, leaving the commercial and legal aspects on the side. So banks cannot print notes but create digital currency, however the central bank cannot simply handout to the public those notes so the PB holds some cash and request any additional when people makes cash withdrawals. Then government always needs to borrow money because taxation is not enough besides not being allowed to spend directly the cash it creates so they create bonds to exchange with the PB for digital currency and then spend that money which they have to repay using taxes or issuing more bonds. Finally private banks need the central bank to bail them out in case of too many defaults since the government is "protecting the deposits of the public".

[@23drcharles]

According to the new book, The Bubble that Broke the Bank, Dr. Werner's theory of bank creation is critical to solving the impending real estate crash. The massive real estate crash in China has alarmed world markets. The fallout of Chinese Banking and its role in saving the Chinese economy. The USA will face an impending real estate crash which will challenge our traditional banking roles. Banking and real estate are Siamese twins.

[@moneymo6417]

Do you have a link to that book? A pdf or something similar?

[@Anza_34832]

Thank you for explaining the accounting & legal intricacies of today’s (Debt-) Bubble Economy!

[@wernereconomics]

Of course, I'm pleased you found it helpful.

[@Anza_34832]

@@wernereconomics Ich hoffe, daß Sie mit Ihrer ökonomischen „Aufklärungsarbeit“ auf möglichst viele offene Ohren stoßen. Geldschöpfung aus dem nichts heraus funktioniert nur so lange gut, solange das neue geschaffene Geld für produktive Investitionen eingesetzt wird. Ich werde die Unterscheidung zwischen realwirtschaftlich produktiven „Real Economy Investments” und überwiegend spekulativen „Financial Investments” in meine Vorlesungen integrieren. Viele meiner Studenten und selbst so manche Experten sind sich jenes entscheidenden “Details” nicht ausreichend bewusst.

[@mjsmcd]

Cam u explain svb bank failure when they lent out customer deposits or did they merely purchase treasury securities rhat devalued when interest rates rose causing the failure to repay depositors ? Thanx

[@ma2i485]

Yeah SVBs case was more related to the current issue facing banks holding Treasuries with sub par market value due to bond yields rallying. SVB had to bite the dust back in March as they ran out of cash reserves to honor their depositors withdrawal requests, it was the closest we were this year to a banking crisis hence the FED stepping in just briefly to stabilize the bond market sell off but not entirely reversing its hawkish course. At this current pace of sell off in bonds we could see more banks at peak distress levels as Powell continues to hold his hawkish stance much longer than expected but I do think his done hiking though, he is showing alot of concern with the poor state of banks at the moment.

[@mjsmcd]

You said recieves money from a banks credit for borrowers acount so its not created from nothing is it?

[@FilthyHedgeHog]

So if I have understood the video well, that means that the credit creation theory is at work only when the business and the supplier in this example have a checking account in the same bank.

[@Belgium_citizen]

If a bank scales up this practice, its asset side keeps growing. How do they deal with this growth?

[@JohnDaniels]

30 year home loan in the USA, the interest for the loan is about the same price as the house. If the house is $200,000 then the person will need to pay the bank back $400,000, so the person has to work and pay the bank back for 15 years to pay the interest, for the bank just tying in a journal entry on their balance sheet. 😕

[@summondadrummin2868]

That money is so ephemeral that its created through bookkeeping entry, would seem to throw a monkey wrench into any economic theory about a ‘rational, sensible and meritocratic system’. It appears a system more founded on a hidden act of magic or trickery then reason or rationality.

[@why_forever4400]

Truth

[@deniseward002]

It is a deliberate act of theft without one knowing. And it embellishes itself within the mind to think that banks are credible, solid businesses. They are nothing more than gifted bandits.

[@cyberft]

There is no magic or trickery. There is also reason and rationality in this process. Where it goes off the rails is when This process is used to purchase existing assets as opposed to fund an increase in the goods and services in the economy.

[@deniseward002]

@@cyberftThe whole thing is a rort. Nothing makes sense about it, it's all in the bank's favor. You defend it. This is why they mock us.

[@Regional-fc9vo]

Indeed!

[@mjsmcd]

Lcr % rate must be maintained so that lo Iimits amount of loans it can make of even created money does it not?

[@5133937]

Are US, EU, and other nations’ banks also exempt from their home countries’ Client Money Rules or equivalent? Seems like they must be, just checking.

[@mjsmcd]

So bank loans reclassified as customer loan to bank?

[@hasancoool]

In my understanding, when dealing with other banks, credit is not being created since actual cash is being transferred to the other bank. Can you elaborate?

[@DistributistHound]

This os how I used to understand banks work, however that system is called full reserve banking that is 100% of the money comes from customers whom agree to lend the money and banks tell them that they cannot cash out their funds after let us say 28 days for instance or a (defined time period) in that time frame the bank expects to recover their costumers money lent to the borrowers sometimes that time can be 1 day, which means you cannot cash it today but you can tomorrow. I used to think that every bank works with a fractional reserve system which means they can lend a 50, 60 or 90% of customer funds but they have to keep the rest 50, 40 or 10% in cash reserves. With this explanation banks have 2 kinds of money that is the funds of their customers and the debt-money or financial credit(however you want to call it) that they create everytime someone uses their credit card or takes out a loan, in case you want to cash that loan then banks can ask the central bank for printed currency in case they don't have enough cash.

[@Basta11]

Credit is still being created in the banking sector as a whole. When you pay somebody from another bank, your deposits are decreased by the amount of the payment, the target bank gets reserves from you bank, the receiver then gets his bank deposit increased. While there is a transfer of reserves from one bank to another, the banking sector has more credit overall. Banks are always making loans and transferring reserves to each other.

[@bengraham5699]

Money is not created out of thin air ... money is created out of the security. The security backs up that newly created money and gives it value.

[@hughmccall7832]

when you have paid your loan back to the bank in full do you have a right to make the bank return your loan agreement to you?

[@agmiddleditch777]

So how do the banks get away with not showing that their ledger balance is zero when the loan was issued? How do they move the accounts payable liability 'off ledger' to only show the accounts receivable of the loan owed to them? They take the account payables side 'off ledger' so the account doesn't show zero, it just shows the amount of the loan 'promissory note', under account recievables, which shows you as the debtor. If they brought the account payables side back it would show you as the creditor! Is this where escrow accounts come in? or does this happen when the funds appear on our account? this last step is still not explained and is obviously how they are getting away with showing only an accounts receivable (asset) exists for the bank in the form of the promissory note, which is a debt we then owe, when in reality this is not the case. We created the funds, we are the creditor, and the books balanced when the bank processed that loan, meaning, there is nothing to repay, we've created the money, it's ours. This is fascinating, and life changing knowledge.

[@cynicalskeptic]

I think that the part "bank purchases a loan contract" needs to be further explained. It implies that there was already some money which enabled the bank to purchase a contract, which further implies that the bank is just reshuffling existing money, ergo no money creation. One other thing that I find confusing is what happens when the credit is taken in cash? Professor Werner said somewhere that in that case there's no money creation. But I still wonder... When the bank creates new money they don't know whether the customer will use his credit card or will take it in cash, so money creation happens no matter what. If a customer takes it in cash, then bank's reserves are depleted, but what happens to the money that was newly created? My guess, I would appreciate if Werner could correct me if I am wrong, is that bank transfers the new money to the central bank's account (every central bank has an account in a bank under it's jurisdiction). In that case the reserves would get replenished and it's only the matter of technicalities for those reserves to become cash again. I guess the same thing could apply if the bank needed to transfer its reserves to another bank (via CB) if the customer used its credit card?

[@nat6106]

About your second point, as I understand it cash is only issued by the central bank, it's central bank notes. The bank can't produce cash, that'd be counterfeating. Still the bank clients want to be able to withdraw cash from time to time (ATM, etc). Also the bank needs to have access to these central bank notes to exchange money to other banks. It can't give out a piece of its balance sheet, it needs a neutral instrument to settle the transaction: the central bank reserves/notes, here represented as cash. One of the ways the bank is able to get cash/central bank notes is by funding its deposit account at the central bank. The bank is going to provide an asset (generally some government debt) in exchange for cash. Another way is by using its past earnings (as shown in this animated video). I hope that helps :) If someome with a great command of the subject could confirm my explanation, that'd be great. As for your first point, it's precisely the "magic" of banking that you're refering to ^^

[@cynicalskeptic]

@@nat6106 When it comes to my first point I still do not understand what sort of purchase is going on. The way I understood it, a bank just denominates a loan in money terms and records it as a deposit. This is the reason why so many banks ask for a deposit from a customer when issuing a loan because they need to put that money into mandatory reserves as if the money was put into savings. Size of the deposit always correlates with the percentage of the CB requirements. So the way I understand it (and I might be wrong) there's no "purchase" taking place. For my second point, I never implied that banks are into counterfeiting. From what I have experienced every central bank has its own account within a commercial bank. CB can and does act as an intermediary when it comes to settling payments. But if commercial bank puts 100,000 into a CBs account in its own books, the CB will have to credit the commercial bank (also create money out of nothing) with the same amount of money in its reserves. Now this reserve money can be used for settling transactions, the bank can withdraw it in a form of cash or the CB can sterilize it to meet its reserve/interest rate goals.

[@chaddy2409]

@@cynicalskeptic Lol this stuff is so complicated. And i have the feeling its all fucked up.

[@Basta11]

If the customer takes the loan in cash then there is no money creation (or rather bank credit money was created but then quickly destroyed as well as the bank no longer owes money to the borrower in the form of a deposit). The bank only has the loan as an asset. When that borrower spends, much of that money will go back into the banking sector. The bank takes the money, and then owes bank credit money (deposits) to those people. So money was recreated if you will. As the bank has the cash money but people also have positive balances in their in their bank accounts which count as part of the money supply. So in the end. The borrower owes the first bank. The people who sold him stuff have money in their account. The cash simply switched from one bank to another. Of course, today most transactions are not even in cash so it’s just direct bank to bank transfers, instead of cash they settle differences in reserves which is in their accounts with the Federal Reserve.

[@cynicalskeptic]

@@Basta11 you see, the part where the money is instantly created and then destroyed is not clear to me. The cash is bank's asset, but also someone else's liability, so some changes are needed there to make the double-entry bookkeeping work. Also since repaying the loan destroys money that means that you would have a double money destruction, which doesn't make any sense. Money originates from a contract, and only when the contract is fulfilled/being fulfilled does it get destroyed. Please correct me if I am wrong.

[@Xanderbelle]

Only govts create money The banks are licenced agents of the govt. Their activity is entirely part of the money supply calculations.

[@Lisa_M_V]

Apparently government only creates coins not the notes. The notes are created by central banks who then loan the money to government so it uses people as collateral for the loan

[@Car-guy307]

How do banks make a loss on loans which are not repaid if the money was created rather deposited ?

[@Lisa_M_V]

They don’t they commit fraud and lie

[@mgnm2013]

Excellent presentation, except the last half minute. Holding the client's money as part of the balance sheet (de facto as your own) is one thing, but re-labeling newly created money as a deposit, is something quite different. Are the financial auditors blind or under a spell? If a firm would try anything similar, persons accountable would surely go to jail. And for a long time. The same applies to counterfeiting banknotes. How is this different? It's not. The technic of fraud is different, away from the people's eyes for many decades, or even centuries. If there's no Internet, that would still be the case, no doubt.

[@wernereconomics]

I'm pleased you enjoyed the presentation. Deposits are just a classification of debt to the public. Banks create more of this debt when 'extending loans' - they create a liability (we owe you money because we've purchased a promissory note) and it is classified as a deposit. Both are on the BS and are indistinguishable. - Oli

[@mgnm2013]

One need to distinguish between a true meaning of words and terms from, let's call it, "bank's internal use and description/justification". We all know what "to deposit" means. The process refers to existing money, always. That is self-explanatory. So, deposits cannot be, in any way, created out of thin air, or appear just like that in the balance sheet no matter what bankers tell us. This is simply logically and physically impossible. How can a bank be at the same instance a creditor and a debtor to the same client regarding the same transaction/item? It's ludicrous. This should immediately raise an alarm, and not be taken for granted. In other words, how bankers label items, terms and processes is of secondary importance to us. That is meant for their internal use. We need to understand what they are ACTUALLY doing and creating. And they certainly DO NOT create deposits, even if they use such a label. If this "something", this "amount", this "nominal value" they create and put into circulation (camouflaged as a deposit) behave like money in every aspect possible, then it is money. They could label it "Mickey Mouse" as far as the public is concerned, it would still be genuine, liquid money. The real questions are: Why is this process so secretive and generally unknown, even till today, to the public, to lawmakers, even to economists, etc. What banks ownership has to do with all of this? Is it normal, and desirable for a society, that some private person/entity (a bank owner) create and allocate a national currency, and charge interest on top of it? Is that a reason for so much secrecy?

[@summondadrummin2868]

Imagine your a Banker in the middle ages or earlier and you discover that by simply making up reciepts and tokens, supposedly representing stores of gold, that people will use these, trade with them and go on about their business entirely unconcerned with the process of the tokens origin. This would be a eureka moment and its concealment would be essential to maintain its power over the public.

[@chaddy2409]

@@summondadrummin2868 intensified hand rubbing

[@olubunmiolumuyiwa]

@@summondadrummin2868 wow, this is such an easy way to put it, thanks. To add to this, would this mean that our current system would be equivalent to: The banker in the medieval time, just using tokens now as the population has gotten used to them and no longer cares about how much these token are worth in gold?

[@subzbus33]

Yes. Banks can commingle funds as we do not restrict our indorsement on the loan contract/promissory note. If we wrote something like "non negotiable" after our signature and included "special deposit to [account number of the mortgage account]" then commingling would certainly not happen. Also, I do not think banks really create credit, that is the surface impression. What creates credit is our signature. That is why banks "borrow from the public"; they borrow our private credit through how they account for promissory notes, as said in the vid. I have emailed you, Richard, on your Linacre address, fyi.

[@daviecrockett2272]

good job done by the sons of Country. Isn't the debt created by the signature supposed to return to source for destruction? How can a corporation create anything?

[@subzbus33]

@@daviecrockett2272 yeah it has to return to your estate somehow. They will tax you to death to pay your own estate back, lol

[@joecurran2811]

Can you please explain what you mean by commingle here? I googled it and it means mix/blend. How can banks mix loans when as we've seen credit is created out of thin air upon agreement with a customer. When you say funds do you mean things like a mortgage backed security?

[@subzbus33]

@@joecurran2811 there are 3 types of deposit: general deposit, special deposit and specific deposit. By understanding these terms you will get into the differences between a bailment and a loan, bailee/bailor relationship arises in the case of special/specific deposits and creditor/debtor relationship arises in the case of general deposit. This happens due to the fact there is always a title that is attached to money/credit not just a nominal value. The depositor starts with the title to the credit as they have created/authorised said credit, but whether they retain said title is dependent on the type of deposit (the three aforementioned types). See if you can find a PDF online of "The Law of Deposits" by Fred W. Weitzel, 1910, and read through the introduction. It will outline the laws, mechanisms and relationships of this topic. Hope this helps.

[@Navak_]

this is kinda how gift cards work, yeah? you give the store money and it gives you an IOU. your gift card now represents a "deposit" with the store. so they have both your payment and your deposit - the $25 worth of outstanding credit they owe to the holder of the gift card. the original $25 is now $50 - $25 in dollars and $25 in gift cards. and if you go trade your gift card for something, and the other person accepts the gift card as if it were money, you're effectively using "money" created when you bought the gift card. you just made a purchase worth $25, meanwhile the card still has $25 on it and the store still has your original $25. the extra money is destroyed when (or if) the gift card is finally used, as it forces the store to repay its debt to the holder of the gift card. similar to how repaying debts destroys money in the banking system.

[@DistributistHound]

Good analogy

[@adamjovicic9006]

I thought it’s like you buy a voucher(money/iou) from with an IOU, meaning you have to return it because you payed with an IOU. Loan system ya get me?

[@candorsspot2775]

Except the $25 your paid was not created into existence. It's really just a regular loan to the store that they pay back whenever you go and shop there..

[@mjsmcd]

Money created by loan is deposited to borrower from where?

[@mjsmcd]

Where do the dollars u withdraw after receiving the loan come from?

[@jconrad8585]

It comes from thin air

[@mjsmcd]

Nah i dont think so Whe i withdraw from atm its green paper but from where?

[@prabhat4177]

​@@mjsmcdit's the 3% physical money the banks hold. About 97% is non physical

[@Sokrabiades]

This was very interesting. But, I found the transition at 8:45 a little jarring.

[@JohnAdams-mu7xd]

I tried to print my own money like banks do and went to jail🤣😂🤣😂

[@deniseward002]

With digital technology, we individuals can issue the money ourselves. We have everything we need to do that. It would of course be based on propriety and not on criminality and so it would not have the overriding intention to create scarcity. We would have money to do what we needed. A bit hard to get one's head around since the debt system has embossed a massive illusion in the collective mind.

[@JohnAdams-mu7xd]

@@deniseward002 I know exactly what your say!!! It's kinda sad that the wealthiest on the planet literally try and push everyone else into artificial scarcity and poverty.... 🥺

[@deniseward002]

@@JohnAdams-mu7xd We have the means to choose. There is nothing stopping us from developing an alternative currency, but everyone is so used to letting someone else do the walking. They do try to trick people into using their currency but now that we know this - and there is a slew of videos about it and have been for years now - what are we going to do? Just keep talking about how bad the banks are?

[@WilBremers]

Many people create money when they do something for someone else and let them pay later for that. Let's say you give a piano lesson and let the pupil pay later for the lesson. That pupil is in debt to you and when he pays you he has no debt anymore to you. So in that sense you have created an extra money supply for your pupil in the sense that he could spend more until he paid you. You delivered a service (piano lesson) while a bank does not when they created the money out of nothing.

[@Lisa_M_V]

@@WilBremersif he paid you cash it’s a debt instrument an IOU. There is no money it’s all fake and fraud

[@Magic_10001]

I am new to this topic but fascinated - so excuse my ignorance. Are the accounting processes described in this video, the same way that QE (what gets stated as money printing) gets into the system? Or is this an entirely different process?

[@vijinho]

Q. E. a term coined by Richard Werner, is simply the creation of credit (or new non physical money) by the central bank, electronically, because they CAN do it in whatever quantities they want to. Werner intended QE to be for productive GDP+ purposes only, ie. not financial transactions and speculation which is what central banks have done largely, for example propping up stocks like Apple and BMW (Bank of England) or monetising or buying up government debt.

[@olubunmiolumuyiwa]

@@vijinho hold on, if the government can borrow money from the central bank, which basically create money, then pay it back and destroy money through revanue from government projects, why do we pay tax?

[@vijinho]

@@olubunmiolumuyiwa Because the whole system is a scam of trickle up usury / credit to the power elite, based upon our centuries of ignorance. See work of Margrit Kennedy on how "interest" is paid and who to.

[@adamjovicic9006]

Is there any other way of banking so we don’t have to pay so much money

[@toranderson8141]

Bank meaning commercial FED member bank?

[@shabanamahfooz7380]

We need another video on how central banks create money and reserves.

[@Economics21st]

It's exactly the same. They simply create a liability, called "reserves". Only banks and governments can have an account with the central bank. They can then withdraw these reserves, exchanging them for cash.

[@EddieMao]

Great video, thanks

[@scott7948]

You left out the second half of this which is when the customer pays off their loan. The liability and the asset disappear back out of existence.

[@FarfettilLejl]

And the bank pockets the fat interest on the money they created out of nothing

[@Regional-fc9vo]

Excellent! 👍🙏

[@wernereconomics]

Thanks Regional 2000.

[@generalyoutubewatching5286]

This has bothered me for quite a while, so if banks create money out of thin air, why do they need deposits? Like why attract deposit by paying me an interest?

[@Interstellar111]

That's because the banks need the deposits or more precisely the "excess reserves" to clear transactions between banks. If we all did banking at the same bank or the banks are big enough then no excess reserves would be needed. This is a phenomenon more visible in the UK as there are a few big banks there.

[@generalyoutubewatching5286]

@@Interstellar111 the "big" banks in the UK also take in deposits. so yeah.... either i am dumb or this is bs

[@Interstellar111]

@@generalyoutubewatching5286 I actually had another message that was more complete, but I think I either there is a glitch or I got "censored" because my comments keep getting deleted.

[@Interstellar111]

@@generalyoutubewatching5286 If you pick up any textbook, the above is exactly what happens--no one is hiding anything. I'll try to elaborate more later if my messages don't get deleted...

[@Interstellar111]

Big banks take deposits too but as Samuelson explains, if we all bank at the same bank; then deposits are not needed to create credit. Reserves are needed to clear transactions between banks, this is also explained in the video at eight ten.

[@DistributistHound]

Now I see why the explanation of fractional reserve is no longer valid, since no-loan money put in the banks is treated separately to loans.. Aaaand this explanation does not take into consideration the interests that the borrower has to cover

[@himanshisingla1031]

Now credit growth is very low private sector is de-leveraging.So now not much banks create like before 2008 now money is created at treasury.

[@bombombecker5222]

Shared !

[@Ratigan7891]

Very informative. I just wish you didn’t record it through a drainpipe.

[@ArmandoCalderon]

Also the government know that they can't tax on the new assets.

[@Robis9267]

This is not controversial, bank of England wrote a paper about it. Banks cannot though do this at infinitum, as they their profitability will drop if borrowers default, and they will run out of cash, and will go bankrupt

[@sadearchibald3158]

So we the people are technically creating a service for the banks b/c the banks borrow from the people??

[@MikelSyn]

yes. That's why they pay interest. We lend money to the bank. In return for you being able to choose when the loan expires at anytime, the bank chooses how much interest they pay you at any time.

[@erastvandoren]

Missing money hierarchy here. Interbank payments are done with the Central Bank money, not the local bank money. See Perry Mehrling for details.

[@superviola88]

what happens when the loan is gradually paid back (with interest)

[@wernereconomics]

Hey Superviola. The opposite - credit is destroyed. Gross credit created stays high, but net credit falls as credit is paid back. - Oli

[@danielchukwuemeka7621]

@@wernereconomics thank you so much you just stated it clearly....I saw it at the bank of England's website and also on positive money's website but needed to confirm it from you because I have been following your videos lately and I must confess you are the smartest economist I have seen so far.....

[@vihodanyet]

@@wernereconomics does this mean inflation can be reduced by paying down debt?

[@comediavietii1245]

@@vihodanyet yes. See Japan

[@aiothedat3102]

@@wernereconomics what does it means its destroyed

[@detectiveofmoneypolitics]

Still watching Frank G Melbourne Australia

[@joecurran2811]

97% of the money creation comes from this. I understand the other 3% comes from physical money printing that is put in a bank vault as physical cash. Am I right?

[@prabhat4177]

Yes

[@mjsmcd]

So loan to client is relabeled as loan to bank?

[@stronzer59]

Al Capone would be all over this business opportunity were he living

[@Davidalan.Parsons]

The Banks doesn't loan you any money they get you a lender and that lender over writes your trust name and your account is a very important thing to understand your borrowing from your own trust the SS number is a trust setup for us and your paying back twice and not setting off all accounts with the SS number you are the holder in due course their is no lawful money it's prommsery notes promise to pay notes for the credit of the trust account setup for us you don't know how to use it properly just saying

[@glenn9576]

share wide and far....

[@nigelcarter7740]

FRAUD you would think

[@alinadjzu8873]

когда все блага мира они скупили за свои бумажные листики они решили избавиться от ненужной груды денежной массы и ввести CBDC, и привязать СО2 след к каждому продукту, чтобы никто больше не смог скопить блага или не дай бог стать независимым.

[@zedeyejoe]

Well Fractional Reserve system is what banks actually use. They are bound by governments to maintain a percentage of deposits to cover depositors demands for withdrawals. If they cannot, then the bank goes bust.

[@justforthelols286]

No! that theory is outdated. That's not how money creation works.

[@zedeyejoe]

@@justforthelols286 No, Fractional Reserve system is what banks actually use. Feel free to look it up.

[@Interstellar111]

Not sure how this is different from good old fashioned fractional reserve banking? This appears to be describing exactly the same process.

[@alrey72]

Banks cannot create money out of thin air. Issuing loans need to be covered by liquidity as withdrawals can happen as soon as the loan proceeds are credited to the account.

[@ljj7904]

lost me

[@tjij-mbai]

Deutschland

[@hughmccall7832]

When you have paid your loan back in full to the bank do you have a right to get your loan agreement back?

[@Lisa_M_V]

Exactly but you can’t because they SOLD it