The Money Multiplier

[@frankcui1651]

the fact that this 6 mins vid explained money multiplier better than my prof did in 30 mins

[@marksolvent3259]

Lol I don't listen in class, not because my teacher is bad, but rather because I don't feel like sitting through an hour and 30 minutes when we have access to the authors of the textbook explain the concepts in byte sized chunks

[@leviethak16_hl94]

Easy to think by image

[@otto_von]

@The Traditionalist Mind who cares

[@prinklesharma500]

😂😂

[@priyalpatel4250]

But that is a false theory of money.........😅😅😅😅

[@milenmetodiev9294]

Thank you very much, this helped me

[@mkzhero]

No mention of how this printing actively decreases the value of what you get and already have?

[@reviewmaster007]

The Federal Reserve is NOT Uncle Sam....

[@ademmustafa299]

I never leave money at the bank...well I don't have any money so..

[@Hope-dp8qz]

This is fraud

[@nickclement6274]

THIS IS INSANE! THEY JUST MAKE MONEY FROM NOWHERE! I'M SO FREAKING IMPRESSED! Also, great job explaining this. I had no grasp of the concept before watching, and now I feel like I could give a lecture on it.

[@mrblack61]

Im afraid its not quite as accurate as you suspect. Richard Werner explains here kzbin.info/www/bejne/f6uoYWZuh6qqaM0 cheers D

[@freechurchpress3571]

@@mrblack61 you are correct.

[@freechurchpress3571]

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks: • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits." Money creation in the modern economy By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

[@cancelled_user]

@@mrblack61 Also here: www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp

[@Johncornwell103]

MONEY ISN'T REAL TO BEGIN WITH. IT'S A BULLSHIT CONCEPT PEOPLE CREATED

[@user-kx4dv8vr2n]

I literally saw the light with this video, it has saved my economics mid-term!!

[@priyankasingh9790]

Thank you so much sir ,I appreciate your lucid way of explaination of this concept .

[@stevemcguffey148]

Can you explain why some channels tell us that banks make money from thin air using accounting techniques and claim to deposit a fraction with the federal reserve? Debunk or confirm this explanation please.

[@kahilsev5277]

pace for explaining the concept is adorable, luv u grandpa

[@lorettawolfgang403]

Videos like this are classic and comprehensive for one’s understanding…I do appreciate your works to the community! It’s being a year and half now I’ve been trading and investing in the market, making gains and a loss at same time while learning under Mr. Ray Perkins mentorship platform. He’s the best I’ve worked with. I earn on weekly basis having him manage my account and portfolio!

[@sneh9817]

20years of schooling and Im learning this now

[@somtochukwuuchendu1099]

Because you're not supposed to know how the government and the banks work

[@kirilmihaylov1934]

this guy is very good at explaining something 95 % of world population doesn't have a clue about ....after watching the video they still can't get it .....

[@freechurchpress3571]

And they won't get it because the video is also incorrect.

[@udontknowme154]

@@freechurchpress3571why

[@LongJ-76]

Whoever put Chinese subtitles on this video, appreciate that dude.

[@wassermannberlin9848]

At the year 2013 was discovered The Progressive Growth of Money Supply Principle, which say you how the Money Supply must growth, i.e., the quantity of money that market needs: kzbin.info/www/bejne/n5quo2CfZZdlo7s If we increase the money supply by an amount equal to the sum of interest generated by the financial system during the preceding period, the market interest rate will be the natural interest (Wicksell) Thanks to the Progressive Growth of the Money Supply Principle we know today that it is impossible to return to the Gold Standard.

[@Zghost276]

Your welcome

[@ArunKumar-yb2jn]

When you graduate, shouldn't you be giving $1000 to your grandma?

[@fergaldownes]

Heya buddy, extremely good stream that you have here. Nice one.

[@MarginalRevolutionUniversity]

Thank you! -Roman

[@balmeetsingh5080]

@@MarginalRevolutionUniversity Could n't understand from 2:10 - 3:10 because if bank lends money to tyler , tyler will suppose use that whole money for his business,so how come bank has tyler's money as checking account and how can bank give loan to others with his money if he has used that money for his business and not kept in bank???

[@wassermannberlin9848]

At the year 2013 was discovered The Progressive Growth of Money Supply Principle, which say you how the Money Supply must growth, i.e., the quantity of money that market needs: kzbin.info/www/bejne/n5quo2CfZZdlo7s If we increase the money supply by an amount equal to the sum of interest generated by the financial system during the preceding period, the market interest rate will be the natural interest (Wicksell) Thanks to the Progressive Growth of the Money Supply Principle we know today that it is impossible to return to the Gold Standard.

[@geochadinc.9471]

@@balmeetsingh5080 Say that Tyler used that money to start a lemonade business. Tyler will buy lemons and other supplies from a number of suppliers. These suppliers then deposit these money they got from Tyler to their bank accounts.

[@RDesai_indiancapitalist]

In my country it is called cash reserve ratio... Thanks this video helped me a lot and whole channel as well you made economics fun

[@AustroCapitalist]

based name btw

[@zenoflearning7968]

That's really a great explanation. .cover's up the aspect of detailed understanding..Thank you sir

[@mrzack888]

Bank of England has come out with a paper dispelling fractional reserve. Commercial depository institutes create loans endogenously. The loan become the deposit. Loaning reserves is only bank to bank, and not to customers.

[@susomedin5770]

mrzack888 And the banks of Germany, Norway.

[@parityviolation968]

@@susomedin5770 And McKinsey wrote a paper with the title: *Repeat after me: Banks Cannot And Do Not "Lend Out" Reserves* ... "Prof. Alex" cant read balance sheets and merely regurgitated dumb textbook stories... Would've been at least funny, if he went on to explain the infinite geometric series of ludicrous micro-credits necessary to get to the limit of the so called "money multiplier"... Of course, he conveniently left that part out and stopped after 810$... Economists wont ever understand that the causality is reversed and how that changes everything. Banks give credit *first* without needing reserves beforehand and can refinance them later if necessary.

[@l.eduardoramirez4426]

The principle behind this argument is simply the act of lending that 90% of reserves that generates money. For as money is being lend out, that increases economic growth and productivity which needs money to keep on growing. Hence it is productivity and service ces which at bottom creates money. If it were otherwise, as the saying goes "only money makes money", that would only increase inflation and the nominal quantity of money, and not the real purchasing power parity.

[@freechurchpress3571]

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks: • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits." Money creation in the modern economy By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

[@the_real_economics]

@@parityviolation968 The problem is with the liability side of commercial banks. They say to customer that they have their money as deposit - which is a complete lie. This money is not at their disposal, if they cash this deposit out, the bank would experience a bank run. The point is that if all the depositors cannot take money out of the bank at the same time - the deposits should be reported only in the amount of the reserves that are at the central banks and the remaining amount of deposit (which was lent out) should be not reported on liabilities side as deposit, but as invested deposits on liabilities side - so that customers ARE told that this money is still owed to them, but NOT AVAILABLE to them. If this money is AVAILABLE to them, you create money out of thin air. And if you tell them that they can take it anytime they want (without saying B i.e. unless all the customer try to do that), you are lying to them and it is a scam. Customer should have an option - either his money is deposited and available to them at any time (then the bank is just safekeeping the money and providing security service), the customer would pay a fee. If he does not want to pay a fee he can keep his money at home or allow the bank to lend it out so that he can make an interest on it (by allowing bank to lend it). Or split some money into deposit and investment (loan). But you cannot have the same amount of money as deposit and also loan. Full reserve banking is the solution.

[@kyleresnick842]

Good explanation of an absolutely atrocious concept

[@mehadkhattak]

Amazing way of teaching ....

[@pure_the0ry]

Loans make deposits actually but okay

[@marilynwagner5587]

You are wonderful. Thank you for the explanation.

[@MarginalRevolutionUniversity]

Thank you! -Roman

[@freechurchpress3571]

To bad its not how it actually works.

[@freechurchpress3571]

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks: • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits." Money creation in the modern economy By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

[@0xDavidCarpenter]

That's how easy money works.

[@bre9796]

great visuals!!!!

[@LyricMix788]

Geat explation dear grandpa

[@hugolachs6620]

I like your videos a lot but this video is incorrect. See "Money Creation in the Modern Economy" by the Bank of England.

[@mrblack61]

Yep, Richard Werner explains here kzbin.info/www/bejne/f6uoYWZuh6qqaM0

[@freechurchpress3571]

@@mrblack61 "In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks: • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits." Money creation in the modern economy By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

[@mrblack61]

@@freechurchpress3571 👍

[@anutiwari2120]

U made it too simpler. I couldn't understand it in my last 3 day's class lectures ! Great job💯 thankyou.

[@meghanachauhan9380]

I need to open a bank ASAP

[@vatsalnaik6046]

hahaha good one

[@MegaSandy003]

you can

[@tiempo9855]

What a bunch of nonsense.

[@vatsalnaik6046]

Thank you so much Professor for crystal clear explanation. This concept is fixed inside my head and never to forget :)

[@vignesh7117]

Please provide tamil language subtitles also.

[@adilworth6807]

Thank you very much, this helped me

[@anahata2172]

economics cannot be explained any simpler than this...thanks

[@DistributistHound]

Nowadays tgey would say: Nonono is not the reserves it is capital constarained and the fractional reserve explanation that was used for many decades is now invalid. Nonetheless its now been proved that they don't need to respect the reserve they can simply create it without making any calculation see prof. Richard Werner's explanation

[@DistributistHound]

Why the government allow this? Like what is the function or the purpose in economy?

[@animationwork4178]

ok, I got it. the whole economy is a scam.

[@thePot_]

Banks do not loan out deposits. Actually loans create deposits, not the opposite...

[@ahmedhaddad94]

And Remember Inflation is too much money chasing after too few good

[@economicsonline]

Update: the required reserve ratio has been 0% since March 2020.

[@MetalLunar]

I'm here because my professor did not explain it adequately.

[@andrewstravelupdate5298]

This video is NOT accurate. Fractional reserve banking is 0%

[@homesweetcooking939]

Fuck, i really regret choosing this course, i don’t understand

[@sumsumiho]

Can someone explain where did we get $90 if all the $900 were lent out

[@idkjustleavemebeplease]

So is this what we are seeing with the stock market with high leverage trading accounts?

[@chelseaquach8352]

Can you be my professor? D:

[@cscs616]

but what if the person want to withdraw their deposited money and the bank doesnt have it?

[@hamayoonshah1990]

Great Teacher

[@yenimustikasari2365]

nama : yeni mustika sari nim : 041434029 UPBJJ-UT jayapura trimakasih vidio yang di berikaan

[@joelopez3552]

Thanks grandma

[@alizaidi2083]

Wonderful vdeo with animation nd best explanation... cleared my all doubt about money multiplier...thnku sir...

[@aren1939]

Ok professor teach me about money 🤑💰

[@nazarttgoh333]

Confusing! Don't quite understand some logics listed below. Hope someone who know well, best with banking background, can enlighten me? 1. "But banks often has higher reserve ratio" Who set the ratio? Fed or bank? . Are you trying to say "Bank can reserve money higher than the ratio given by FED"? If so, what is the advantage to a bank for putting more than required money at FED? 2. If the reserves (10% of each deposit by a bank's customer) are kept at FED( I supposed), over some years, the amount would be accumulated very huge, can a bank claims back or uses these reserves on demand? if yes, then why bank bother to borrow from other bank? What is the mechanism of money flow between bank and FED in terms of reserve? If these reserves kept at FED, are they sent to FED once a bank seen deposit comes in? 3. "If Grandma had instead deposit by check, transferring $1000 to to yours, which will not be creating new reserves? " You means money "Transfer"( or deposited by check) from other bank-account to your bank-account not considered as "deposit" (into your account) ? Confused! Appreciate you time. Thanks!

[@unboxingorreviewph7879]

But banks can not control CRYPTO ha ha ha

[@musicbox193]

So a loan counts as a deposit but not a transfer?

[@aradhanatiwari3869]

musicbox193 same question 😑

[@mrblack61]

Yes, that right. Loans create deposits but theres no reserve required as this video suggests. Richard Werner explains here kzbin.info/www/bejne/f6uoYWZuh6qqaM0 Cheers D

[@moumitakar6496]

keep upload new videos

[@SuperReddevil23]

If A borrows 100 Dollars from B, then is the total money in circulation equal to 200....? Please can anyone verify?

[@venjaminschuster2797]

Wonderful! Your channel has the best explanations! Keep going!

[@armendibishi7985]

Actually no new money is created

[@karanpatel1346]

UPSC wale hit life button 😂

[@RaviBhatia89]

This one is a fantastic explanation, strange that had to wait so long for a credible and meaningful video on a relatively common topic.

[@bradleyshimels492]

If you ignore ForEx trading for modern big name banks you'll never really understand how most banks make most of their profits in the Forex market!

[@tomasnobrega8087]

best video on this topic, thank you and looking forward for more content

[@lukeh4901]

Anyone know the song that starts at 0:28?

[@mahmoudgalal5220]

thank you sooooooooooooooooo much

[@tilleternity]

Brilliant

[@tilleternity]

Very thankful for this video

[@dunningkruger9122]

So banks are guilty of electronic counterfeiting? If not wouldn't they be guilty of loaning at interest money that does not exist i.e. perpetrating a con job?

[@digitvl]

Mick Schmick basically

[@emperoralvis6559]

You hit the nail on the head. “Fractional Reserve Banking” or a more accurate term, electronic counterfeiting, is nothing more than legalized fraud.

[@GustavoRivasMendez]

It would be counterfeiting if they kept that money for themselves. But once the loans are payed back, that created money disappears. They only keep the interest, as payment for their work and to compensate for the clients that defaulted on their loans. The money supply is a breathing entity, that expands and contracts. We learned through many mistakes across time that central manipulation of that flow is very important and necessary.

[@mikemelligan4410]

What is COUNTERFEIT? In criminal law. To forge; to copy or imitate, without authority or right, and with a view to deceive or defraud, by passing the copy or tiling forged for that which is original or genuine. Most commonly applied to the fraudulent and criminal imitation of money. State v. 11c- Kenzie, 42 Me. 302; U. S. v. Barrett (D. C.) Ill Fed. 309; State v. Calvin, It. M. Charlt (Ga.) 159; Mattison v. State, 3 Mo. 421. thelawdictionary.org/counterfeit/ Banks are making legitimate and legal loans through deposits (liabilities) and the excess reserves in their vault (assets).

[@sabiiladinakamila9627]

Terimakasih ilmunya

[@Noksivs]

I've heard that the US have changed the rule of 10% reserve some time ago... Is that correct?

[@annisanurlaily9213]

indonesian subtitle plisss :"

[@kevorkdedeyan3337]

I didn't get the federal thing

[@sanyamahajan9068]

what happens to money multiplier and reserve ratio during financial crisis

[@melvagijo8456]

Great explanation and presentation of the content! Very easy to understand. Thank you!

[@tunnis7us]

anybody know how much banks pay to create the coins and bills to be use by people ???

[@iustinoprisan]

Just one question. What do the banks do if they hold too much in reserve?

[@StatelessLiberty]

I've been listening to a guy called Steve Keen and he makes the following criticism of the money multiplier (in my own words) and I hope Mr. Tabarrok or Mr. Cowen can explain where he's wrong. If a person wants a loan of $X, what's to stop the bank from just marking up their account by $X and looking for reserves later? After all, this does not change the equity of the bank so no foul play. To see how this works, imagine someone were to come to me and ask for a loan for $100. I could just write them an IOU for $100, and they could use that IOU to buy what they need. Reserves are only useful as a guarantee on the value of the IOU-if someone wants to come in and cash in the IOU, I need some cash in reserve. But once a reputation has been established for redeeming IOUs for real cash, people treat the IOU like it's real money and there's little need to cash in the IOU. (For a bank the IOU is the money that appears in your current/chequeing account. And a bank run is what happens when people lose confidence in the redeemability of the IOUs.) In principle, if people did all transactions in terms of the IOUs and nobody ever wanted to redeem the IOUs, the bank could operate without any reserves at all*. And the bank is free to print as many IOUs as it wants, constrained only by profit maximisation. In this way, banks do not need to look for reserves when someone asks for a loan. So the recursive series of transactions, each subject to a fixed "reserve ratio," doesn't seem to occur. You could always argue it's "as if" these transactions occur, and define the reserve ratio as Base money/Total money, but that turns the money multiplier into a tautology without any empirical content. When you view banking this way, it's totally predictable that the massive increase in reserves by the Fed didn't lead to hyperinflation. After all, reserves only exist to convince the public of the redeemability of the banks IOUs, to facilitate the occasional withdrawal, and to facilitate transactions between accounts belonging to different banks (see below). Once these functions have been fulfilled, more reserves doesn't lead to more loans. *This is not quite true since if a person with a Bank A IOU deposits it in Bank B, Bank B will want to redeem this IOU and there will be a transfer of reserves from Bank A to Bank B. Reserves are needed for this situation.

[@davidglynn3009]

What are the constraints on the bank? How does the profit maximization work? What is to stop banks lending to everyone?

[@xxczerxx]

@@davidglynn3009 Capital requirements. Basel III and the CRR put an ungodly crackdown on retail bank balance sheets in particular.

[@mrblack61]

@@davidglynn3009 There are non other than the banks willingness to lend and the clients willingness to borrow. Richard Werner explains here kzbin.info/www/bejne/f6uoYWZuh6qqaM0

[@Johncornwell103]

What do you think money is? It literally was a IOU for gold and other precious metals...

[@sophiazhang4369]

dude explained it in minutes yet my tutor couldn't in 3 hours 💀

[@DavidEVogel]

Just a minor correction: there has been no fractional reserve requirement since March 26, 2020. Essentially a bank can create an infinite amount of money from a $1000 deposit. I say infinite because my math teacher told me that the world will end if I divided by zero.

[@josephkumar9056]

How can the bank give money to janet when it gave Taylor already

[@archdukeofautsland1457]

Wow, this is extremely asinine. Banks don't lend out deposits, banks create loans and then wait for deposits.

[@archdukeofautsland1457]

+Joe Nolan Check out the websites of the Bank of England & the St Louis Fed. Both clearly explain that the money multiplier is a myth. Banks create money whenever they write loans. They're required to have a percentage of the money they lend out in reserves (deposits at the central bank + vault cash)

[@MsJim70]

Brett Marshall. True Banks expand the money supply when they grant a loan to a customer ex-nihilo. In the case of the USA and EU Euro zone, but not in the case of the UK there is a reserve requirement associated with the aggregate sums of the sight deposit accounts associated with the said bank group. Sight Deposits are a result of loans granted and transfers from other banks and physical deposits of cash If in retrospect the reserve requirement is not satisfied the bank will need to obtain extra reserves. These may come as a result not just from customer deposits of physical cash or wire transfers from other banks, but from borrowing on the financial markets (other banks) or from the central Bank. Joe Nolan. Customer deposits are a liability of the Bank. An entity cannot lend a liability, only an asset.

[@wiretamer5710]

@Joe Nolan You completely missed the point of the entire video. Banks do not 'lone' money to customers. Banks pay a customer's debts with abstract money they create. The principal debt then becomes the customers debt to the bank. The customer then becomes a source of future income for the bank, and the bank treats this future income as an ASSET. Every payment toward a debt is pure profit for the bank. On top of the principal debt, the bank then has to hide to charge interest... so they get paid TWICE

[@mrblack61]

The bank accepts the promissory note (clients demand for a loan) then creates the deposit. Richard Werner explains here kzbin.info/www/bejne/f6uoYWZuh6qqaM0

[@rayniishara1897]

Market failure plz

[@tasvirmahmood3558]

I have to submit an assignment today, so frustrated!

[@samuelmehinsan_]

What's the name of the symphony used at the beginning

[@LaytonJones-f7j]

this is so confusing

[@aribokengbnare9545]

why uncle sam lol

[@himkghimire4654]

Wow, excellent explanation for a novice like me

[@gtmunch]

Is this related to hypothecation?

[@SomeOne1121]

Wrong, sorry =/

[@turkishcollector8419]

Very professional video, thank you.

[@shaktimangru5343]

Luv ur videos, thank you Sir great explanation...can listen to you all day long...

[@Mayster1775]

Great Video, thank you!

[@vikashkumarthakur5081]

Thanks sir...

[@Quancept]

Great explanation Prof. Alex!

[@mrc2176]

So in larger terms, if the banks are making large amounts of loans using the FRB method, they're giving out money that doesn't exist, so if there was a sudden event that caused a shock and creates a recession where everyone is trying to pull their money from their savings, the banks won't have the money. Is this what happens when the government has to bail them out? Any explanation would help, I'm just a HS senior trying to understand money. Thanks!

[@Johncornwell103]

That's what was one of the causes of the great depression

[@shammaalali352]

what about multiplier effect in economics ;(

[@sebster9562]

Great video

[@gabrielanavarro1070]

I wish you were my professor :(, thank you!!

[@se7ensnakes]

Bank no longer create money in this manner. This is outdated information. What banks do is to have the customers seeking loans sign promissory notes. The bank take these promissory notes and deposit them in a transaction account. The bank then converts this promissory note into endogenous money which is then used to create a check, or exchange for cash. THE MONEY DID NOT COME FROM ANY EXISTING DEPOSIT. It was created based on a signature. Once the promissory note is paid off the promissory note is void, and the money supply shrink accordingly. The proof of what i am saying is in the empirical data in 2007. Bank reserves were in the tens of billions and consequently if you follow this model it should be in the hundred billion (about 200 billion if you follow this video). But instead we have credit upwards of 7 trillion. BANKS DO NOT LEND FROM DEPOSITS, THEY CREATE THEIR OWN MONEY BASED ON A DEBTORS SIGNATURE.

[@macsnafu]

So? There is still an effective money multiplier effect. What's the ratio of loans to deposits? And what do the banking regulations say?

[@kirilmihaylov1934]

this is not true ...they do lend money from deposits ! that how commercial banks operate ....

[@vess6934]

@se7ensnakes - incorrect. Fractional reserve baking is very much alive and well.

[@ashwink680]

you are confusing even more

[@lugundamMUD]

i'd say once bank receive any amount of money, it becomes the reserve of the money deposited in central bank which create loans(money); sigature is just finish;

[@JacketAnnDaxter]

2:50 to *