Money’s Mostly Digital, So Why Is Moving It So Hard?

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Writing by Sam Denby and Tristan Purdy
Editing by Alexander Williard
Animation led by Josh Sherrington
Sound by Graham Haerther
Thumbnail by Simon Buckmaster
References
[1] fraser.stlouisfed.org/files/d...
[2] / western-union-company-...
[3] • Lessons from history: ...
[4] • Money creation in a fr...

[@dannooo548]

Impressed that Sam was able to go from nothing to fractional reserve banking in 3 minutes

[@ibnu7942]

my brain hurts

[@Nethershaw]

Not _nothing_ really, but... fruit. Yeah, okay, that's basically nothing.

[@tiggaaah5650]

Fractional reserve banking is kinda basic, where else would you start?

[@vigilantcosmicpenguin8721]

It starts out with apples and oranges, and it's like, okay, I understand this. A blink of an eye later I realize I'm understanding the insane logistics by which our entire financial system operates. That's impressive.

[@cloudynguyen6527]

@@ibnu7942 Fractional reserve is just the central bank or government telling other banks to keep a minimum amount of money in case there are mass withdrawing, which is rare. But consider the recent China's housing crisis, you must do something fuck up so bad that triggers mass withdrawing.

[@TimeBucks]

He nailed some massive concepts in such a simple way

[@harounhajem7972]

He missed that countries can create money from thin air in exchange for future payout or taxation.

[@victorthomas5464]

@@harounhajem7972 bro.. can you help me out here.. I still don't understand how he ended up with more than 100,000.. its impossible

[@afrozritu6101]

Nice for the exam

[@satyampaul9973]

Nice

[@satyampaul9973]

Nice exam

[@emercer]

As someone who's been a fan of the channel for a while and working at Wise for almost a decade now, I'm very happy to see us mentioned in a Wendover video.

[@plainlogo3262]

And I found myself feeling like a fan of Wise ever since I discovered it's existence back in 2019. Made my exchange student life in Korea much cheaper and convenient. I don't usually get that excited about companies/products/services.

[@ChasmChaos]

I am so glad he mentioned it as well. I was rolling my eyes at ACH and was delighted when he mentioned Wise. I wish he had spoken about other UK/European challenger banks as well (Monzo, Revolut etc).

[@iamthinking2252_]

I've seen a few (ok, maybe just two or three) nutshellish or step-by-step explanations/evolutions of money, but the blender analogy - getting two blenders worth of value out of one value - is the viewpoint that had never occured to me before, thankyou

[@Brian013100]

I kind of love the stock footage of the clay balls. Also, "It sounds like a scam, and maybe it is." Awesome video!

[@gonebamboo4116]

It most definitely is

[@vigilantcosmicpenguin8721]

Yeah, using clay balls was perfect. It's like, you understand the connection to money, however abstract it is.

[@choian9953]

ok

[@wasd____]

@@franmer7 Thanks for letting us know your "joke" was funny, crypto-bro shill!

[@brokeindio5072]

If banks do it, it’s not a scam because they always get bailed out lmao

[@dacid44]

Man. You just explained in 20 minutes everything that took weeks to understand in a high school economics class, and I have way more understanding of the reasoning behind it all! Thank you!

[@OperationDarkside]

Maybe teachers will forbid youtube in school in the future, like they did with wikipedia back in the day in our school.

[@dirverslicense]

oh please, he used nice graphics but can you pass your highschool course from this video? Edit: and as others have pointed out is rife with inaccuracies. So stop being a smooth brain and go read your text.

[@nomore-constipation]

@@dirverslicense You seriously sound like a teacher. One who tests spelling for botany, and with using original Latin names. Just because you might have to use it later in life (is usually the excuse) but refuse to acknowledge a large amount of details like that are researched (books or internet). What is simple for you may not be for someone else (or visa versa) those who might gather more information on a subject from someone else. 🤷

[@arcticthehunter7099]

@@dirverslicense They don't have to pass their course from one video. But if they can pass weeks worth of class from one 20 minute video(which they said they can), then that's a pretty good use of 20 minutes. Stop trying to be some kind of educational purist and accept that this isn't the 80's anymore

[@MaximumEfficiency]

no, he didn't explain interests and money as debt

[@revcrussell]

SWIFT is not some miracle. Sending business payments by bank transfer is still a huge pain for small business owners. I have to supply the company name, the bank address, the local branch address, fill out a form in triplicate, and pay way too much for the privilege.

[@archvizninja5823]

Check out Bitcoin

[@beepboop6212]

@@archvizninja5823 better, check out monero, it's faster, lower tx fees, and very secure and private (note: a bit volatile, around the level of bitcoin)

[@Gubbz667]

@@archvizninja5823 i was just gonna say this lol

[@Gubbz667]

bitcoin allows you to transfer funds seamlessly with everyone across the globe with no restrictions

[@NoRezos]

@@Gubbz667 and then the value will either crash that you have undervalued asset or going up like a bubble that you have overvalued asset

[@osmmanipadmehum]

Nice, I would like to see someone attempt a video on how exactly the currency exchange rate of some currency is calculated by tracing the number all the way to who decides or calculates it, and how and why.

[@XaurielZ]

Currency exchange rates for floating currencies (most modern currencies) are market-derived. They're based on what buyers and sellers are willing to pay for them on currency exchanges, similar to stocks and other financial instruments. The exchange rate that your bank or Paypal or whatever gives you is ultimately derived from whatever price those currencies are trading for on exchanges that day.

[@fbrtnrsthf]

@@XaurielZthere are no currency exchanges in the way there are stock exchanges… FX is mostly done OTC although many platforms exists where you can get multiple quotes (eg. 360T)

[@XaurielZ]

@@fbrtnrsthf my mistake. However, the essential principle is the same.

[@tr0llpatr0l86]

that would be the most important video in human history

[@tr0llpatr0l86]

i think there are some person above who control the price to hold down majority poor

[@knpark2025]

Fun fact, the etymology for 'money' in Korean(돈) is 'to circulate'(돈다). It's just like the word currency, a fancy word for money, sharing its roots with current, as in flow of something. It is kind of cool, because other languages often use the material or the mint it was made for their word root.

[@kazj1728]

Omg I love this. Word roots show alot of history and truth.

[@Nukepositive]

It goes beyond current. It comes from Latin currere (sp?), which is the verb for a chariot going around in circles at the Circus Maximus. It also leads us to the English words curriculum and career.

[@enricobianchi4499]

@@Nukepositive that verb just means to run

[@dcgo44r]

@@Nukepositive chariot going around circles is just another meaning then, because chariots run and flow through streets like traffic now.. Or in the circus or whatever! Lol!

[@FlameRat_YehLon]

Meanwhile all the words that describes money in Chinese was just the names of all kinds of historically used trading tokens, and there are a lot of different words because of that.

[@Maxyy40]

Best Wendover video in a while. All are great but this breaks down an incredibly complex system.

[@PaperCash999]

Yeah my brain hurts

[@tijmenberends242]

Fact

[@arevolvingdoor3836]

Agreed, I think the pushback after the California High speed rail video has helped to spur him into making better video.

[@6z0]

This is too much for me rn

[@siddharthsrinivas6271]

@@arevolvingdoor3836 that was real life lore

[@Naviss]

No matter how complex the topic or subject, Wendover does such a fantastic job breaking it down.

[@orphax1925]

introduction is based on the Adam Smith hypothesis of the creation of money, which is widely considered false among historians and archeologists (idk how it is spelled in english), the economy before money was more one of "you give me this now and I'll get you something when you need it" (similar to how it works in a friend group or a family) instead of "you took me 3 apples it is worth half of your bunny" which is impractical and only seen in context where money was here then disapeared

[@googiegress7459]

The initial question "how was the value created", you missed that the watermelon grower added fruit credits to the system by growing fruit. All the fruit growers do. But in that specific loan transaction, the melon grower spent 2500 in interest but presumably grew more than 9000 credits worth of watermelons; if she grew only 9k, then when she took in the 7500 loan and paid out 9k she broke even. So let's say she actually grew 10k credits but wouldn't have been able to without the irrigation loan of 7500. Meaning that in that complete transaction, the bank earned 1500 profit, the melon grower earned 1000, and the bank received back the original 7500 loan (it was just playing with other peoples' money here). But the melon grower didn't just put clay balls in the ground and turn on the sprinklers. She had to work. If she replanted last year's seeds, and you live in an area where water is free, she still needs to physically plant, harvest, and bring the melons to market. So one source of the "added value" is her labor. The melon grower is using land. Either she owns it, or she's renting it. Regardless, the space used to grow melon and the fertility of the soil represent a source of value, a resource which can be used to add value to the system. The bank can't operate without the work of people. Someone has to research whether the melon grower is an appropriate borrower, whether the loan purpose is worthwhile, actually offer the loan, do the paperwork, receive the repayment, and do that paperwork, send out the interest payments to depositors, serve those depositors' needs like deposits and withdrawals, etc. All that labor, and the place where the bank is located, represent the same labor and real resources which allow the bank to make that 1500 credits. What I'm getting at is that the labor and real assets represent the source of value-adding. The bank may create phantom money to lend beyond its deposits. In Adam Smith's time it was appropriate to lend no more than 7x your deposits, else you risk a run on the bank. Today, large banks can get away with lending a lot more than that. Lending 0.75x your deposits is laughable. This money-creation through lending is incredibly powerful but it is a risk. As we saw in the melon example, 10,000 real melons actually got created because (a) the bank made a loan available, (2) the bank and the grower were willing to take a risk, and (c) the grower was willing to employ her land and labor to make the melons. If the loan hadn't happened, the grower would have not fully employed their labor and land. So from the macro perspective, money is a government's way to make the economic exchanges happen smoothly, hoping to get all the labor and real assets in the country as fully employed as possible. All the people who labor and earn money can take care of their own needs instead of relying on public or government support. And the more goods are available, the more can be reinvested in improving the productivity of labor and real assets (making next year even more productive), and a surplus can be exported in exchange for additional value. At the micro level you can see this happen with a household's finances. A family with no assets or education can go out and get subsistence-level jobs and then pay rent on a small bad apartment. 1. If they have tons of kids, they can employ those kids in labor. This is what families around the world have done. 2. If one of them works to gain experience on the job, they might be promoted to a higher paying position or negotiate for a better wage because of greater productivity. 3. If one of them can get an education that allows them entry into a higher-paying job, they would be willing to take a loan to get that education. 4. if they buy some materials to make something at home as a small business and sell it for extra money, the limitation is often how much they can spend on the materials, marketing, distribution. Because it's such a small operation, big companies don't want to work with them. And there are inefficiencies to working in such a small scale. But if they can get a small business loan to increase their operation's size, they can maximize their labor input and take advantage of efficiencies of scale. 5. An extended family can come together to share expenses. Instead of the marriage-age / working-age adults always moving out from their parents' home, they could stay on. The elder takes care of the kids, the young adult goes out to work, and in this way the elders are still able to perform valuable labor and the young adults don't have to spend money on out-of-family childcare. This and the next one overlap a bit with the concept of keeping money local, because the more transactions that can happen before the money gets sent out of the community, the more that community benefits from the money. 6. Several households could join together to share skills and burdens. The most common version of this in the US is roommates, where four single people can split the rent on a large dwelling and it's way cheaper for each than if each one rented a studio apartment. They must share common areas and be good neighbors for it to work. And they must rely on each other to pay their respective portions. A more involved version would be four families joining together in a deal where each night one family cooks for all four, and each day each family watches the children of all four, which frees up 75% of the time that would take for each household for those tasks on rotation. The more things like this they can share, the more they all benefit. An even deeper version would be a commune where the households exchange labor without exchanging money, allowing them to benefit from each others' skills and work even though they are too money-poor to be able to ever afford those services and also underemployed meaning their labor would otherwise lie fallow. Heck, just a shared fence line is a sharing of burdens. One fence can be built for 1000 credits, but if it's between two lots then both properties benefit from it, whereas a fence built at the back of a lot that doesn't face anything important only benefits the one side of the fence.

[@AndrewBrowner]

right but i think where youre losing the plot is 9,000 credits didnt pop out of the ground, only melons did, the melons were exchanged for credits that already existed.. physically the entire time there was only 100,000 credits in existence, but in practice there was 110,000 credits in operation as the credits in the bank were working double duty growing, mining, building, ect ect doesnt produce money, it just allows the money a place to flow and gives those people money to spend.. really the faster one person spends all their money the sooner someone else has excess money to spend and if that person spends it so on and so on people end up with alot more purchasing power, they spend the same money 20x instead of 5x they also work much harder as theyre always doing something for someone else to get that money back to give to another person to do something for them the trick to economics and economies is to convince people to spend the money and not horde it, while also keeping them working constantly to get the money back and put the value into the system to get others to let go of their funds really when a government says we dont have money to do X project really they just cant convince everyone to collectively do that extra bit of work, theres a bottle neck somewhere be it cost of energy rising due to there being a lack of it, or maybe a lack of extra funds at the banking level to lend out affordably.. you have 100,000 unemployed people but cant get 5000 people to complete this project, theres no lack of people the system is just not working fluidly enough to make the money flow in all directions.. itd benefit everyone if the project undergoers had the money to pay the workers to do it and the for the materials to get it done, the materials exist they just might require processing and extraction.. the system just got so big that its near impossible to keep everything in a constant balance when one commodity goes in short supply the price skyrockets and its like a bound up gear in a transmission it wont let anything else turn easily

[@Abigail-hu5wf]

In this thread we see: the labour theory of value and the subjective theory of value having an extremely polite slap-fight! For those who are lost... the summary is that not everyone agrees on *where value originates.* Some people state that value is created when humans put in the work to create a thing that possesses, in itself, some inherent value bestowed upon it by the creation process. Basically... if I spent one hour making a little wooden object, and my labour is worth $10 per hour, then that little wooden object's value should be roughly $10 because that's how long I worked on it. Others state that value is subjective, determined by the purchaser of the object when they agree to purchase it, and until that point an object's value is entirely theoretical. If I construct my little wooden object, I can slap a "$10" sticker on the side and sit there at the market until someone buys it. When they agree, "yes, $10 is a fair amount for this", then it has been decided: my little wooden object is worth $10. There are other theories of value! I won't explain them, or try to explain the ones I have explained further. I will also state that *nobody has yet created a "perfect" theory of value.* We do not have a single theory of "where did those $10,000 of watermelon money come from?" We have a lot of arguments and a lot of convincing cases, but it's fundamentally not as simple as saying "It must have come from here!" Some people even argue that no, Sam in the video is wrong, $10,000 was never created and we're all just deluding ourselves, in fact no money is real and all monetary value is an illusion. And you know what? They might be right. We don't actually have a concrete way of stating it. (Though, for what it's worth, almost everyone agrees that while money might be fake, that doesn't make it less real. If everyone agrees that a thing is true, and that thing isn't like... tied to some fundamental rule of nature, it's just a construction made by humans... then it's essentially "made real". So while there's no natural law stating that the dollar must exist, if we all agree it exists then it does and that doesn't make it less real.)

[@awsome7201]

@@Abigail-hu5wf Spot on Abigail!! Besides, Karl Marx's Labour Theory of Value has been discredited and prooven wrong several times over the past century, for anyone who doesn't know it.

[@googiegress7459]

@@AndrewBrowner Hi Andrew :) In Wendover's example, "fruit credits" exist as a separate thing from the fruits themselves, and since each fruit credit was originally set at 1 apple or orange or pear, it seems like the melon farmer didn't really grow 9000 or 10,000 melons. It was probably about 1/4 that because of the melon-to-apple comparison. The melon farmer harvested melons, and needed to transform those melons into fruit credits to repay her loan. So she went to the market with X number of melons, exchanged them for 9000 fruit credits, and brought those credits to the bank. The market is able to hand her fruit credits it has in its fund because it knows it can sell those melons for those credits (let's ignore that the market needs to take a fee too). It's a weird example because the fruit credits are tied to, in this early stage, the ability to exchange credits for fruit and for some other farming-related equipment. It could be a stand-in for loaves of bread. But the important thing to remember is that regardless of the currency, which is essentially just a codified promise everyone agrees to keep with each other, the reality is that this: The bank customers agreed to leave their money with the bank for a small profit. The bank agreed to let the farmer hold the money for a while. All that is just money as facilitating human action to happen. The money doesn't need to actually exist (and often doesn't). As you said, it's a trick to get people to be productive. The actual productivity happens in the irrigation dealer and his chain of events that gets an irrigation system built (which is a series of labor and real asset steps), and the farmer working the land (again, a series of labor and asset steps). So I guess it's like working out and paying someone to lead a workout class. They motivate you to show up by demanding accountability from you, teaching, leading, etc. And you end up working out harder and more effectively than if you did it alone. You might be the one physically doing all the work, but that person motivating is doing a service. And the people taking the class feel it's worth paying the motivator for it. I'm not arguing that banks don't matter or are bad, just that the value-creation is physically happening because the bank motivates other people to work hard and use their assets.

[@googiegress7459]

@@Abigail-hu5wf Hi Abigail :) I appreciate your definitions in this. I don't deny a subjective theory of value at all. I don't think it's incompatible with seeing value as being created by production rather than financing. Personally I do hate the idea of what people describe as "perceived value". For everyone else: this would be, if you buy a pair of shoes for $100 that has no brand name, but the Nike shoes you are willing to buy for $200. The extra amount you're willing to pay is because Nike has a reputation for making quality shoes, so you trust they will be quality without having to really examine them or take a chance on the rate of deterioration when you wear them. And also because you like it when people see you wearing the shoes and they have a higher opinion of you because they know the brand is good and expensive. I hate perceived value for two reasons: (1) The same factory that made the Nike shoes could have made the brand-x ones. And while this is not always the case, such as an off-brand purse from Nordstrom vs. a high quality leather purse made by Coach, it actually is often the case especially with BS brands like Beats headphones. (2) To seize the sense of exclusivity, the producer of the branded goods benefits by raising the price higher and higher. And one could argue that the buyer's goal of gaining social status by owning it is benefiting from that. But the reality truly IS that for all other purposes the purse or shoes could be made for sale at $100 if there were no marketing and no brand status. I don't know about other people, but I would rather buy the $100 non-label but quality shoes rather than Nikes. Perversely, because I feel that I'm advertising for them by wearing the goods, I should get a kickback rather than paying extra. And because I don't like being branded by things I wear, I'd actually be willing to pay $120 for those Nikes made without any labels, in the absence of some other non-label $100 pair of comparable quality. I guess I'm, as economists lament, an irrational actor ;P Anyway, for me personally there is no such thing as "perceived value" from branding. And it's hard for me to really grasp why people do fall for it / crave social status via property display. Even though my girlfriend is totally down for it and I am constantly given opportunities to try to understand!

[@Atabascael]

As someone who worked on implementing SWIFT for a bank, I can only say it is impressive how detailed your explanation is.

[@TheBooban]

And you accept the end conclusion regarding Wise? He implies has some cheap crappy system that is insecure and that’s why its so cheap. I don’t think so. I think it’s cheap because banks have been ripping us off all this time. Wise must also have a robust system. And the whole thing is just data management which computers are very good at. It really shouldn’t cost what banks charge. And not deducting from the sender? Come on. Never going to happen. They will get that money from him in the end. And if they don’t? Just gotta man up and take it the bank, just like Wise.

[@Atabascael]

@@TheBooban Yeah, totally agree. I personally use Wise (mostly for sending money) and Revolut (mostly for spending money) because banks still haven't figured that one out.

[@coopergates9680]

@@Atabascael Can't send to Nigeria with Wise any more > : ( The regulations don't cooperate like they should

[@jasondashney]

I'm not going to fact check every single video so it's cool when people with knowledge can attest to the information.

[@justcurious1940]

@@Atabascael how western union moves money across border? is it the same way as wise ?

[@sebastianspiegler5801]

Comes down to the question, where else should I put money besides the financial market? We have a 13% RPI rate so cash is tough

[@liambracey6708]

Yep great question and that’s always the one - where would you rather be if you have an option. Personally I’m always invested aside from a small emergency fund. Financial-market for me seem the only way forward with my long time horizon (accrued over $200k in gains since 2020 )but if you don’t have that fortune of time it’s a tough market out there almost nowhere feels safe!

[@richardsoncuthel810]

Emotion is the biggest enemy of investors. Current prices are the strongest indicator of future returns, buying into a market cap weighted global index fund consistently over decades is the most proven strategy. Overthinking things is unlikely to help

[@taylorcoggan2054]

@@liambracey6708 You inspire me, I've only just started to invest in stocks over the last couple of months. I've been doing plenty of research. In fact I'm really enjoying the aspect of learning and researching. $200k is a milestone, how did you achieve that? whats your strategy

[@liambracey6708]

@@taylorcoggan2054 I began with a fiduciary portfolio-advisor by name Katherine Duffy Burke , She’s sec verified and an ISDA member . Her approach is transparent allowing total ownership and control over my portfolio and fees are very reasonable in comparison with my ROI.

[@taylorcoggan2054]

@@liambracey6708 Katherine really seem to know her stuff. I found her reachout-page after looking her up using her fullname , read through her resume, educational background, qualifications and it was really impressive. She is a fiduciary who will act in my best interest. So, I booked a session with her

[@hellmen54]

In Europe we have Sepa (single european payment area). Transfering funds between different member countries is as easy as entering the account number. It also works for foreign currencies without much fees. (Switzerland for example is a member but is not part of the EU) I think that is one of the main reasons why companies like wise and revolut are not very popular here. Our country to country banking works very well actually.

[@m0llux]

Well, it still takes two days to wire money from one account to another. At least in Germany. Also, you can't send or receive money on weekends and holidays. Compared to, say, PayPal, it still very much stick back in time. There are Real-time-Transactions, but they usually cost a fee.

[@marco.castiglia]

Revolut is getting famous bro

[@MCSROkickz]

Everyone in Romania uses revolut

[@RR-et6zp]

@@MCSROkickz they dont have the euro

[@UselessDuckCompany]

There is a technical layer under this that I find fascinating, I deal with it sometimes as in my day job I work with airline/hotel loyalty currency systems. A lot of these bank systems still run on old mainframe infrastructure that uses nightly batch files, rather than API calls. It's crazy really, and it is what can make it take 24 hours+ to process a transaction. These file formats are so old that they still have special characters in them that relate back to the days of punch cards.

[@hardopinions]

That's very simplistic view without explanation of WHY it happens. Even today, it's far cheaper to process large volumes of transactions at once (eg. credit cards and bank accounts) than in real time. Real time all you get is a notification of authorization from a processor. Settlement is some ways away. Also, these "nightly batch files" are the API. Your definition is just so narrow you don't seem to see it.

[@thePronto]

Correct. It blows my mind that the financial system still runs on overnight batches. I can see transactions that are marked 'processing' on my bank account and I want to scream: "If you know about the transaction, and can display it in my balance, IT'S NOT FUCKING *PROCESSING*, ITS *PROCESSED*, YOU IDIOTS!"

[@outerspaceisalie]

There is a fair amount of work being done to update this, and it's happening, but as you can imagine it's not that easy to convert a deeply entrenched money system even if the tech to do it is very straightforward.

[@shanewalker3273]

@@hardopinions You have the simplistic view. Moving payment processing from an asynchronous batch model to a streaming model is not noticeably computationally or financially more expensive, there just hasn't been a motivation for banks to make this switch. Countries like Brazil and India have forced their banks to make this switch, America made it voluntary. Zelle, used by most American banks is already instantaneous / streaming and not batching because the customer experience was better.

[@ilyaSyntax]

COBOL job security haha

[@AllAboutRSCC]

As a non-finance student, this *really* helps me understand just how complex our financial systems are, and for the real need for smarter-than-me finance students... Thanks guys, couldn't be me

[@nickynada-btc]

It so complicated that they don't even know how much money is created. This will all change with CBDCs, you will have an account directly with the central bank. Programmable money directly connected to your social credit score. or You can begin learning about a trustless system like BTC ( not eth or any other shitcoin) just BTC for money.

[@rillywoop]

@@nickynada-btc except no one has real incentive to do this work and connect it

[@gwyn.]

It's not that complicated when you take some time to sit down and read about the inner workings if you're interested. Just like anything else really.

[@Grizabeebles]

Money is a form of credit.

[@dex624]

As a finance graduate, I wish I just watched this video and majored in philosophy or something 😂

[@LucaWatts]

Great video, super helpful, interesting and explanatory. I’m also loving the longer form!

[@Jorgmiller]

Managing resources and making good returns is not as easy as it seems, there are a lot of things that aren't well taught in schools. The market crisis gave me my first returns, when people stayed away from hard times I made the most of it..many credits goes to Sir Trevor James Beckerman

[@andreasvankur3735]

This is superb information, as a noob it gets quite difficult to handle all of this and staying informed is a major cause, how do you go about this? Do you trade on your own?

[@Jorgmiller]

Search his full name

[@Jorgmiller]

Trevor James Beckerman

[@Jorgmiller]

You will find his webpage

[@teddy.bisson.411]

Trevor’s resume is sophisticated, and shows he was active during the last bear market, I also emailed him. Thanks for the info!.

[@nancycowell-miller4321]

Very interesting video! I was a little bummed that you jumped directly from ERMA to Electronic ACH. But you did, at least, quickly skim over MICR (Magnetic Ink Character Recognotion - also a BofA contribution). And that was my era! I started my illustrious (cough-cough) career as a Proof Machine Operator reading, keying, and encoding checks with little computer-number dollar amouts on the lower right corner of each check. (Yep! That was me!) Dreadfully boring, repetitive job - but it was Entry Level, so I was able to get my foot in the door...

[@disser3849]

Oh man hats off to you. It was extremely important work. Gotta admit it feels extremely lucky to live today where most of it is digital.

[@abhimalekajay2722]

I was also help by clearing the irts created by check and any error deposits created in ATMs by bank of america,very difficult job as we.shiuld check for fraud,clients etc

[@setbac]

5:17 Interestingly In March 2020 the Federal Reserve set the reserve requirement to 0% in response to a liquidity crunch caused by COVID. It is believed that banks would be able to meet any withdrawals by borrowing money collateralized through high quality assets if necessary.

[@arthurclery5731]

That seems like a bad idea

[@setbac]

@@arthurclery5731 I like the phrasing from the video with people "ending up happier than when they started". If there is sufficient trust in the system and it largely results in a net positive material gain it might not be such a bad idea. Banks at least having access to lines of credit to do normal day to day operations is another one of these abstractions discussed in the video that increases the velocity of money.

[@disser3849]

@@arthurclery5731 the reason its not a bad idea is that the system is filled with reserves, hence a bank can get required reserves at anytime easily (hence the name ”ample reserve regime). This is how the Fed has dropped federal funds rate to zero (now they are increasing it through deposit interest at the Fed).

[@SkiDaBird]

@@arthurclery5731 It’s actually very low risk. If the bank I work at needs more liquid funds, we borrow against our own assets to get those funds. In our case, it’s our mortgage portfolio we use as collateral, the exact same way you use the a house or car as collateral for a personal loan. As long as we make more money on our loan portfolio than we are paying in interest, it can even be profitable. Obviously the underlying asset needs to have value, but as long as it does, there is almost no risk to the FI or the lender.

[@cracknigr6065]

@@SkiDaBird "Obviously the underlying asset needs to have value, but as long as it does, there is almost no risk to the FI or the lender." That's a pretty big IF. So from 22020 on when the housing market crashes it's not even only the private banks that handed out money for overvalued property anymore that feel the hit, but around 2 corners then also the reserve banks will feel the hit because they indirectly also handed out money for overvalued property. Or am I missing something here?

[@West_Anderson]

Absolutely love your videos. Always showing just how incredibly complex everything in our modern world truly is and that we have no idea. Can't wait to see what you cover next.

[@iainmalcolm9583]

Great video. I worked in IT for a large UK Nationalised Industry in the 1970's. When we processed the weekly payroll for the manual workers (they were paid cash weekly) part of the process broke down all the payments into all the required notes & coins. These were sent to the company bank branches so that what was required for each location would be withdrawn and then collated at each pay office into individual pay packets every Friday. This was stopped after a few years as all the weekly paid staff were paid by computerised bank transfer. The stat I was told at the time was that as the cash didn't leave the company account until the Friday (pay day) instead of the Wednesday/Thursday this resulted in saving of around £1,000,000 a week just in interest. There was also knock on saving in staff, security costs etc.

[@herdek550]

It would be nice if you also talked about SEPA payment. It's international payment system like SWIFT, but only within EU. Very cheap for the end user, it costs between $0 and $10 depending on your bank policy. But every year more and more banks provide this service for free. Edit: By recent EU regulation, banks are not allowed to charge more than they charge for demestic money transfer. So basically 99% of banks in EU charge less than $0.2 per transfer, most of them charge nothing.

[@TechCellfish]

Came here to state this too. SEPA has revolutionized money transfers in the EU and EEA.

[@jeromep5294]

actually SEPA transactions, by law, cannot cost more than a national transaction

[@pettahify]

There are of course competing systems, but if he would mention one more, then why not two more, or maybe three? You get my point

[@vurpo7080]

@@pettahify SEPA is the system that is used by all banks within the Eurozone, so it's not really just a competing system, it's the _default_ system that everyone who uses a bank in the Eurozone uses.

[@raylopez99]

I deal with EU banks all the time and they are a pain in the ass. Bank of America charges me nothing for outbound wires since I'm a preferred customer but with EU banks, despite wiring over 100k a year to and from them, charge me a 27 Euro transfer fee. EU banks are evil. Terrible. Actually all of the EU is great for tourism and if you are an exporter, but the people get reamed. I recall once reading the poorest state in the USA (Mississippi) makes more money per person than the average Englishman. As for culture, that's a different story, but I'm talking money.

[@scharpmeister]

You have officially reached a new order of magnitude in terms of the animation complexity, great video

[@AndyChamberlainMusic]

I highly recommend Hidden Brain's episodes on money, particularly Money 2.0 Emotional Currency it challenges this common idea of where money's value comes from in the first place, as in the explanation at the beginning of this video. It was something I never thought to question until I heard the podcast, but its worth a listen

[@Liam-iq6qe]

What an absolutely INCREDIBLE video!!! This was explained so well, the visuals were both stunning and extremely helpful for understanding. Keep up the great work!

[@TikkaQrow]

10:01 can we take a moment and appreciate the rotoscope overlay of a regular door that's been drawn over with a bank vault graphic? Filming the scene, developing the film, drawing over each frame, making new negatives, cutting, splicing, etc. That probably took literal weeks for that little effect.

[@jekizer]

Buster Keaton was a master filmmaker. Check out Every Frame A Painting's video on him.

[@DavidCiani]

And Sam likely got it for practically nothing on StoryBlocks.

[@jekizer]

@@DavidCiani Nah, it's old enough to be public domain.

[@RobbbbC]

This is amazing! This is the best description of how money works that I have ever seen.

[@imveryangryitsnotbutter]

The intro explaining the invention of money inspired me to look up the old Schoolhouse Rock short "Trade and Barter". Roughly 8 seconds in, I regretted my decision.

[@moritzzoellner]

You should check out ColdFusion. His „who controls our money“ video is equally interesting and fairly easy to understand

[@Lukusprime]

Great job explaining how money is just a placeholder for something with actual value. That’s why I have such a disdain for theft and why I don’t understand why one would steal outside of pure necessity (I.E. a homeless person stealing food in order to survive). Money is social credit in a sense, saying “I have something of value” or “I did something of value”, such as working at a grocery store. If I work at a grocery store for a week, then at the end of the week they give me money, what the owner of the store is really saying is “you did something of value for me, this money let’s people know that, so someone will do something of value for you in exchange.” So I can go pay my electric bill, and instead of saying “I’m a good citizen, I helped the owner of a grocery store stock shelves for a week!” The electric company doesn’t have to take my word for it, because I can just give them the money. Therefore, if I were to steal someone else’s money and used it to buy something like a flatscreen TV, I would be basically lying, saying I did something of enough value to earn this TV, when really I’m just profiting off of someone else’s work while reaping the benefits for myself. It’s so dishonest and illogical that I just can’t see how people can rationalize it in their brains.

[@curtisevans8413]

Simply not giving a fuck or not being intelligent enough to see it that way is how people can rationalise it.

[@dmitrirudder4878]

There is also a point which, If a person is downtrodden enough, and internalized the thought "this system will never let me succeed/ accomplish anything", they will want the system to burn. Even in a Capitalist Utopia, you have to maintain minimum welfare and a bare minimum of SoL for the poorest. People with nothing to lose, everything to gain, and a entrenched desire to win in a system they see as bent against them are a danger to themselves and everyone around them.

[@dmitrirudder4878]

As dark as it sounds, giving them a little dribble of hope on the short run may just stop them from flash mobbing an Aldi's

[@damianbailey6484]

This was an amazing video. I'm not sure which I'm more impressed with: 1) explaining a topic I thought I knew but didn't 2) that the fruit trading video was made for this topic or 3) that someone found footage of that exact fruit trading scenario. Stellar job!

[@Tential1]

Hopefully, this helps people understand the valuable role banks play. Banks "create" wealth as long as the loans are good. If they are bad, it destroys wealth just as fast.

[@wilconboofie6748]

Banks are currently implementing a multigenerational debt plan which has pretty much already enslaved most of humanity. Thinking the banks are our friends is like worshiping your own chains.

[@bboyjunyor]

Would be great if we actually cared about the good of the people.. as politicians.. and eliminated lobbying!!!, sent corrupt jerks to jail (nancy the fossil nd the one eyed jerk (plus many others) for insider trading.. all presidents and high level politicians plus military and pharma complex execs for genocide.. banks and insurance companies execs for the cryses along history.. etc)

[@TrollerzTV]

Ahhh 2008, classic

[@tryep5567]

Unless the bank is big enough. Then it can be as reckless as it wants to be and the government will just bail it out.

[@cageybee7221]

@@tryep5567 it still destroyed wealth, it just didn't take the bank with it because the government came in with emergency loans.

[@Rizhiy13]

I would say the final conclusion is too strict. The global banking system is quite resilient and if someone does make a mistake, there is usually a way to fix it. Otherwise, any bank no matter how small would be able to crash the entire system. Also, consider that creation and destruction are linked, but if I burn a dollar bill nothing much actually happens, therefore a few extra dollars here and there probably also won't create much of a problem.

[@jonathanodude6660]

burning a dollar bill is illagal in most countries. the value that your dollar holds is still held by the bank that issued it, but it cant be redeemed anymore. youve essentially removed money from the economy.

[@Grizabeebles]

Where the usefulness of money as an approximation for value starts to fail is in the energy sector. According to the unbreakable physical laws of the universe, energy cannot be created or destroyed. Money is created all the time. This means that if global energy production ever peaks, energy will only ever get more expensive. And since energy is used at every step of every physical and biological process on the planet, this creates a runaway feedback loop as the rising cost of energy makes everything cost more dollars, which forces stagflation. Eventually, human civilization needs to adopt a currency based on joules of energy or we're headed for mass extinction based on our accounting practices alone.

[@LameMoviesInc]

@@Grizabeebles There's a few key things you miss with that assessment. 1. The amount of energy in the universe is nearly infinite. Especially when compared to the quantity needed by humanity. 2. Not all energy is usable for humanity given current technology or its location. Sound energy emanating from a distant star is completely impractical for conversion into starches stored in my pantry. 3. Money represents the accepted value of certain types of energy at a given moment. Electrical energy is quite valuable today but 200 years ago, holds nearly zero value. 4. Sometimes value is found in the removal of excess energy at a given location. Ie, heat energy in your home during peak summer months. "Expending" electrical energy to move the heat via fans and compressors IS valuable.

[@Grizabeebles]

@@LameMoviesInc -- I take it you don't see how #2 cancels out your other 3 points. All energy useable by human civilization is a fixed and finite quantity unless we use some of that energy to find and tap new sources. That's just restating the first two laws of thermodynamics. Do you know what the third law of thermodynamics is? An Absolute Zero temperature exists. In other words: *PHYSICS DOESN'T RUN ON CREDIT.* All money created through fractional reserve banking is created as debt. Can you see the mismatch yet?

[@overwrite_oversweet]

@@Grizabeebles if we haven't broken the energy-GDP nexus by then it will be "stag" either way, I don't see why the "flation" part will matter much.

[@DrakiniteOfficial]

Holy cow, this was an impressively easy to understand explanation of something insanely complex. Massive props to you and your writer(s). Thanks for such a good explainer, I feel I have a much better understanding of how money works.

[@B4CK4REVENGE]

This is by far the most educational video on banking I’ve ever seen and it’s blowing my mind. Fantastic work!

[@mehmedmaloparic]

Possibly your best work to date. This is excellent! Explained gradually by introducing a system, presenting a problem then explaining the solution is a phenomenal way to teach.

[@RFalhar]

I would say the issue is less about the inherent complexity of moving money. And more about banks using outdated systems and not willing to invest in innovation unless absolutely necessary. It is common knowledge in IT world that many banks still run on mainframes that are 30+ years old and that they are unwilling to migrate to newer systems. Systems which would provide end-users better experience.

[@richmelchr]

it’s not just that, IBM also has billions invested in mainframe tech and has an incentive to lobby for regulations to keep their technology mandatory. plus all the coders still programming in old languages

[@imveryangryitsnotbutter]

@@richmelchr "Open the doors for technological innovation, IBM." "I'm sorry, Dave. I'm afraid I can't do that."

[@James-gm9cs]

I've heard that for some banks it would cost billions to do. Imagine the complexity of transitioning from the old systems to the new one seemlessly and without any errors. A lot of them aren't willing to risk it with so much money and customers involved.

[@ma-moomoo]

They do want to use modern tech. But it’s really hard, expensive, and risky to migrate a core banking system to a new one. Not to mention the cost of developing a completely new one. You do not want to take a bank offline or have mistakes in your financial data, so a lot is at stake. At many banks it is hard to justify the business case for modernising all at once, so I think they just stick with a stalemate of keeping and maintaining the mainframe systems but deal with the complexities of innovating on top of that. In the long term they tend to run into issues with offering more advanced products and systems. So yeah, it’s a bit broken. Not for bad intentions but because, well, shit’s complex.

[@xbmcme9768]

True, but I've also learned that some of these mainframes use completely different chips from what we are familiar with. The whole systems down the chip level are engineered to meet specific criteria to avoid glitches and odd bugs. When dealing with money, the machines have to be perfect. If anyone has coded before, they know just how difficult it is to create 100% bug free software. Mainframes help avoid this through their custom hardware.

[@benurm2390]

I loved the game-like explanation. But I saw the money being created in the market, not the bank. Eg: the first clay ball that was created was when a person traded an apple for a fruit credit. The bank didn't create anything. The people only had 9000 credits each, not 10000. The bank *supposedly* had their remaining 1000 credits, but actually didn't, since it assumed the people wouldn't all want to withdraw all their credits at the same time. So the money that existed was just that that remained in the bank after the loan was given. No money was created there.

[@scpdatabase969]

At any one time, a local bank is likely to have $100-250K on hand. They will move about $500K-$1.5M worth of money that day as people come to deposit and withdraw money. You have to remember that businesses also use banks so they tend to deposit a lot while people withdraw a lot. It generally balances out to more cash/money in the bank than our daily.

[@Toledoblade326]

This is insanely complicated and well made, amazing job

[@Thebreakdownshow1]

Maybe we should all start burying our money under the apple tree. That's where I park all my millions of Adsense money.

[@arjunmohanakrishnan7365]

*Laughs on the sand*

[@Thebreakdownshow1]

@@arjunmohanakrishnan7365 this is not a laughing matter lol this is more secure than banking with chase or JP Morgan. As taught by the 2008 crash lol

[@yess6783]

What’s your address and do you have a shovel?

[@richteffekt]

Thank you for at least removing some cash from the system; it seems however this is not enough to stop inflation from happening. So maybe get digging support a local pear farmer.

[@idrismahmood6532]

Or just buy btc

[@thunderfire741]

This is one the best explanations on how transactional banking works, it oversimplifies a bit but captures most of the implications of each process,

[@VaraNiN]

Great video! Really helped me further my understanding of all this stuff!

[@fireattack1]

The first example is wrong. At the end the 10 individuals have 8100*9 + 15600 = 88500, not 98500. Adding bank's 11500, it's still 100,000. The author says "they each (9 out of 10, to be exact) have 9100 which 1000 is sitting in the bank", this statement is correct. But, if you want to count them as having 9100 in the calculation (as he did) , the bank no longer actually has 11500, because 10x1000 of the money is these individuals'. He's basically double counting this amount, which gives "10k out of thin air".

[@joethompson14]

I think the other issue is that the toy example did not correctly count the additional watermelons and associated clay balls that were created when they were traded into the market. If a clay ball is tied to one real grown fruit, then additional money was "created" when more fruit was grown.

[@sconescrewdriverson]

Pin this. This is true, but it actually highlights a different issue. Imagine being an overworked salaryman at Goldman Sachs or Black Rock and you double count on accident.

[@DustinKingen]

@@joethompson14 I think the video forgot to mention the transition from asset backed currency (Gold) to fiat currency. The fruit and vegetable banking system is 'backed' by physical production of goods while the modern banking system is backed by faith in the system.

[@joethompson14]

@@DustinKingen In the initial closed-loop scenario, the only thing possible is asset-backed as that is the thought experiment that was built. All I am pointing out is that not all of the farmer's outputs were measured as a result of the loan.

[@profwaldone]

That is the point. Inflation cannot exist if the world doesn't gain value. The world cannot gain value as no new resources are imported into it. If supply and demand actually decided the price of things than accessing a new oil well would lower the the price of all the others so the total would remain the same. If a shift in culture or tech would create a new market with new resources then the other demands would lower in value to make space for the new one. But they don't. Instead they print more money to fill the gap between fictional (as you put it, dubble counted) value and the actual amount of money in the world. With as a result that not the value of resources but the value of money goes down. And who exactly has the resources and who has the money?

[@MrTheBigNoze]

Probably the best Wendover video to date. Excellent and easy to understand explanation of the financial system and how money is moved and value created. Awesome work!

[@thestockfother]

Wendover, Ive been a several year follower of ur work. I would wager that THIS is one of your most beneficial videos to the average Joe regarding understanding money distribution. It's a video people don't realize they need to watch

[@danlei88]

Mate I can't believe how approachable and understandable you made this subject. Even I could follow along and get the gist of it.

[@cauhxmilloy7670]

Great video. I really enjoyed the fruit closed system demonstration in the beginning. However, it can certainly be argued that the claim that the bank makes the net increased money, at 4:30, is incorrect. Instead, it seems that no money is in fact created. The $10k extra came from double counting (bad accounting). It is said, at 3:59, that the 10 individuals have $98.5k. But $10k of that is in the bank. At 4:02, it is said that the bank has $11.5k. But, again, $10k of it belongs to the 10 individuals. Both the 10 individuals and the bank can't simultaneously claim ownership -- thus double counted. If you allowed for it, most of the demonstration is pointless and you can say that it's fair to double count at the moment they put their money into the bank at the start. This of course wasn't easy to see, like many accounting tricks, and the whole exchange was made harder to follow by omitting the tracking of a few non-liquid / less liquid items, namely a $7500 irrigation system and $9000 worth of watermelons. If those are taken into account, it does bring up an interesting point about how creation of new goods (which have higher value than the goods that went into them) generates more overall -- between $1500 and $9000, depending on if it is said that the irrigation system is consumed or not in the process of growing the watermelons. Arguably the true value of the bank is in wealth consolidation to facilitate easier loans. Without the bank, the equivalent set of steps to get the same balances and 🍉 would is much more weird to each investor. Something like "chip in $750 to help buy an irrigation system for this other farmer, and you'll later get $900 in watermelons." Putting your money into the bank, and pretending that you can access it whenever you want, sure does sound nicer (although you have to pay $900 for the watermelons).

[@michaelmadsen1222]

Ya, the math is wrong. Total gross financial assets (not considering liabilities) was increased when deposits were made, but net assets (and money) remained the same. Wealth is created when the bank, that has now created profit of $1,500 from interest on the loan, assigns a monetary value to the business. It might offer one of the farmers 10% of the business for $1,000, thereby assigning a value of the total business at $10,000. That $9,000 is wealth creation. This is how people super get rich. They started businesses that make profits (or the hope of making future profits) and people pay to own a part of that business. The person who sold the farmer equipment also has a valuable business increasing her wealth as well.

[@FlameRat_YehLon]

My guess is that's just describing the buying power. The same money can simutanously be used by the bank to give loan, and by the depositors to wire to someone else. Basically that means the total amount of money is more than the total amount of value, and money in that sense is no longer representing the value you own, but rather flow of value you can control. And also I think that's why account balance is called balance rather than possesion -- it can deviate from your true possesion value so long as other people trust that you can balance it against the possesion value in a later day. And I think money always works like that. It's just that money is not the only medium for trading -- you can just send or receive IOU notes and have everyone sit together to cancel all of them out once a while, and in fact maybe even pay for an exchange facility to get that resolved.

[@Summer-xu8qu]

Brilliant. Some people argued that they melon farmer grew melons so they added money into the system, I wasn't entirely convinced. This answer is the most convincing one

[@dipendrasingh352]

That's spot on.

[@catsupchutney]

This is the first video explaining Fractional Reserve that I have seen which is not written from the perspective of a Libertarian Gold Bug. For contrast, see "Money as Debt" (which is a fun view). Thank you!

[@faikcem1]

It is fascinating to see banking being shown as is, and not automatically demonized. I do believe most of banking started for the greater good, but somewhere something went wrong

[@SineN0mine3]

@@faikcem1 It was around about the moment that bankers realised that everyone else's ignorance was the only thing standing between them and limitless profits...

[@BestChelClips]

This is a great video, good work Sam! Keep it up brotha

[@Epinardscaramel]

4:51 That’s a nice way of explaining this, I’ll need to remember that one 😀

[@yakkalaviswa1]

Love this video. Sam actually nailed some massive concepts in such a simple way that explains both the complexity and vitality of the modern banking system

[@bangscutter]

I've always thought that value was added to the system through primary production. We dig up minerals from the ground and the sun making crops grow, and these add money into the system.

[@stiffori]

lol, no, primary production is one of the least value adding activity

[@genentropy]

It's part of it. Primary production, refinement, and other forms of "value adding" are the true ultimate source of "value", but you need debt creation to allow that value to be captured in the form of exchangeable money.

[@navin750]

In net it generates most value, but to exchange them between vendors you need tokens, and the fractional system is what generates the tokens.

[@zunuf]

Value is purely what people decide it is. I could put just as much paint, and canvas, and time into a painting as the "Starry Night" painting, but people will probably decide my painting is worth far less. Even if I put in far more time and materials, if it's ugly it won't have any value. (It could have sentimental value to me of course, but that's different.) To use your example, if some new plant or metal were discovered, but no use for it was found, and people didn't even like to look at it, there'd be no way for it to add value to the system. In reality, very few things don't have some value. And they can be transformed to have more value. A piece of metal can turn into a car part, which then turns into a car and it's a lot more useful than just raw metal. Garbage is one of the few things where demand is dramatically lower than supply.

[@VineFynn]

The value itself is not money. Money only represents the value.

[@adrianc.6891]

You say that SWIFT members can fulfill international transactions without actually moving money (15:35) . This isn't completely true. They may not have to move money immediately but they have to move money at some point when they rebalance their Nostro-vostro accounts. It's similar to your earlier example of moving gold across the basement of the correspondent bank (9:14). The more one way the flow of money the more often the rebalance has to happen. The smaller the size of the Nostro/Vostro account the more often the rebalance has to happen. Physical money has to move at some point.

[@lucashfaria98]

This is (once again) such a great video by Sam. Also, as a temporary expat, Wise is a lifesaver.

[@brujua7]

I wish this was a series! Thanks a lot, greatly done

[@jotdog9357]

Another way to think of the fractional reserve system is keeping the incoming and outgoing funds separate. In Australia, for example, the capital requirements are 12.5% of highly liquid assets. So in other words, for every $1 in deposits the bank receives it can then lend out $8. It's this mechanism that makes the banks asset books to market cap ratios look so crazy (often assets are 8-10+ times their market caps) - most of these are loans repayable to the bank, so the majority of this asset book is principal the bank has already lost (via loaning to customers) and needs to recoup just to break even.

[@DroneStrike1776]

In America, banks are only required to hold 10%. If you deposit $100, they only need to keep $10 in their vault and lend out $90. If your Joe Biden, you get 10% because you're the big guy, own $500,000 in taxes, and print money

[@pikasnoop6552]

This comment triggered a thought in me and it's very weird. If you deposit 1$ cash into a bank under those requirements, the bank could either lend out 7$ into someone's account or $0,875 in cash.

[@fusion10sg]

Bro I feel so dumb reading this.

[@fusion10sg]

It's not your fault though, I just need to educate myself

[@woodneel]

... so are you saying that the banks and the fat cats therewithin are actually starving ferals just like the rest of us, but they just have a lot more imaginary/potential catnip that we owe them?

[@erictaylor5462]

In the 1970's my dad's flight instructor took a job flying (In a cargo plane) checks to Los Angeles from the San Francisco Bay Area every night. This was a great gig, then the banks started sending checks digitally and they no longer needed to physicals move the checks. The flight instructor them removed the radar equipment form his plane, removed all of the electronic equipment from the boxes, then replaced the empty boxes where the radar equipment was suppose to go. This gave him a place to put the drugs he was hired to smuggle. An inspector would open the compartments where the radar equipment was suppose to be and see what on the surface looked like radar equipment. There was just one problem. The Cartels had worked out a deal with the police where the cops would look the other way for most of the stuff, but they cops still had to catch smugglers from time to time. So for those flights selected to be busted the cartels would hire a new pilot for this one time use. So the police knew exactly where the drugs were, even though the equipment looked just like a working radar system. So the pilot flipped on the cartel to get himself out of trouble with the police, but got himself into trouble with the cartel. The last my dad heard, he was hiding out in Alaska. But if my dad knew this, likely the cartel had heard this as well....

[@mostiFarahat]

Great video, thanks for modling the community scene, I built this model once in my mind and it was rally hard to imagine, you made things easy for me now. But, I guess that money wasn't created out of thin air and also it wasn't created within the bank, the real creation of the money came from selling the harvested crops at the market, the agricultrual activity is the reason for the new value created.

[@NaNdgate]

Great video but it starts with one of the most pernicious myths in economics. The "multi-way trade" myth of barter does not actually represent the historical origin of money. As a system of exchange, barter is a degenerate form of currency that only forms in communities that have already had some exposure to currency (but no longer do, for whatever reason). Pre-currency exchange was always done on debt. In pre-currency communities, if I have apples and you will have oranges, I just give them to you on loan and expect something of relatively equivalent value later; maybe oranges, maybe a service, maybe we forget about it but real life does not operate in clean thought experiments. Currency forms out of this arrangement when we start to quantify the value of things being borrowed (using another commodity good like oxen or grain as a standard unit of measurement, but this good rarely actually changes hands). Once we all start using the same unit of measurement and passing around IOUs (using my IOU from the orange guy to pay for pears), then we have currency. Keynes tried to bust this myth but quieted down when it made him unpopular. Even Adam Smith who popularized the myth of barter would eventually concede that it had no historical basis. Source: Debt by David Graeber

[@Weaver271]

Why isn't the comment at the top?? Also, for more info loop up L. Randall Wray's lectures on the origin of money.

[@archerelms]

I don't think Sam was trying to claim this was the real origin or predecessor of currency, but you make an excellent point that maybe we shouldn't perpetuate the myth. I assume the myth started for the same reason Sam used it: it's a simple explanation that makes sense to everyone, even if it's not entirely accurate

[@AileTheAlien]

@@archerelms We absolutely shouldn't perpetuate the myth; It devalues other forms of exchange as barbaric, and it's not even needed for the video at hand! :)

[@eusebiusthunked5259]

@@AileTheAlien It's a bit trite to simply claim that its not needed, having not attempted a simpler alternative explanation without introducing the basic transaction without barter. Without barter, which simply assumes a one-to-one basic assumption of commodity value, you get into far more complexity, requiring explanations of psycho-social dynamics, concepts of honor and social duty or obligation which varies based on social status, etc. None of this is remotely as simple as "an apple is worth roughly one piece of fruit" regardless of who wants the apple, who is the current chieftan, who is my brother, who is the guest, etc.

[@swizzysaf9914]

He does allude to this when he labels the clay balls as "credits", which is what they are. Could probably be clearer though

[@Pr00ch]

Speaking as financial professional, I must say Sam is just excellent at conceptually presenting the money market in an approachable and easy to understand manner.

[@Schindlabua]

Can I ask you something. Say I deposit 1$ into bank A, in a country that has a fractional reserve requirement of 10%. So now the bank has a money supply of 10$ of which it must keep 1$, and it can lend out 9$ to others. Say bank B is interested in taking a 9$ loan from bank A. That means bank B would now have 9$, which means it can lend out another ... uh... 81$ to debtors. We've just turned 1$ into 81$+9$+1$ = 91$ and we could just keep going no? What's keeping the money supply from spiralling out of control?

[@zanokuhlemabuza3762]

@@Schindlabua no, the bank has $1 of which it can loan out 90c, the next bank 81c, and the next bank 71,9c (and so forth). If I'm not mistaken it adds up to $10 in the entire system from that initial $1 deposit ($1 / r where r = the reserve ratio).

[@Schindlabua]

@@zanokuhlemabuza3762 Weird, usually people say things like, fractional reserves allow banks to lend out more money than they have etc. But you're saying that's not true for individual banks, but maybe just for the system as a whole? I guess the maths checks out, it's a geometric series innit. 1 + 0.9 + 0.9² + 0.9³ + ... = 1/(1-0.9) = 10

[@uhohhotdog]

@@Schindlabua no, they’re wrong. Banks don’t loan out money deposits. The money deposits basically act as collateral for them to take out loans from the federal reserve. your money is never lent out. The bank takes loans from the fed.

[@JLKin277]

@@Schindlabua Deposits with another bank are not considered liquid assets for most reserve requirements. Even ignoring regulatory requirements, you can't really back deposits/loans with deposits because you can't pay them out if someone demands their money. Without regulation, I guess they could try, but the result will be either collapse or only counting deposits with ultra-reliable banks where all banks have deposits (one origin of central banking).

[@donovanstanton5211]

Didn't see learning about Global banking and better understanding monetary markets on my Sunday todo list but glad that it appeared. THIS VIDEO PROVIDED SO MUCH CLARITY.

[@mystycfyremaster2299]

Fantastic video. Did a great job of explaining money and the way it works, and your examples and metaphors are on point.

[@Dynasty1818]

I only recently found out that some 86-90% of ALL TRANSACTIONS ON EARTH are done in USD. Even in your own country outside of the US. Most businesses even in the EU buy in USD. So when the USD value falls or rises, most of the World is affected, as opposed to when a single country's currency changes.

[@Tinil0]

There is a very small part of this that I feel needs to be heard and understood by everyone who ever wants to understand anything about economics, and it helps dispel a very simple and overwhelming misconception people have about life as a whole: Your blender example was great. You have 1 blender but you have 2 blenders worth of value. This is actually true with a LOT of things, and it points to the concept that resources are NOT a zero sum game. So many "individualists" start buying into terrible economic and geopolitical theories because they simply make the mistake that because resources are limited, if you benefit then someone else does without, and if someone else benefits then you must, in some way, be losing out on something whether you care about that something or not. While it is true about SOME things, there is so much more of life that it simply isn't.

[@prpr8904]

Yes, all great human achievement is based on coorporations

[@ajrobbins368]

Criminally underrated comment

[@andrasbiro3007]

@@prpr8904 Did you mean "cooperation"?

[@ajrobbins368]

If economics were a zero-sum game, quality of life would only ever decrease as global population grows by the billions. But that is simply not what has happened over the last hundred years. Overall human suffering has trended downward (and prosperity trended upward) for years.

[@teosandev6116]

The blender would suffer double wear and tear and would consume twice the electricity given doubled usage. No free puree for lunch for ya, folks.

[@13igPooh]

Few pointers on the video. 1) Once you "deposit" money into the bank it is technically/legally a loan to the bank, so the bank owns the money and it is no longer yours. While they have an obligation to pay you the principal plus any interest, as a customer you would rank similar to most other creditors of the bank and not have any special rights in the case of a bankruptcy. This is mainly due to the client money rules that are unique to banks. 2) On the topic of money creation, it is created when money is lent out by the bank because it did not use the money that it was originally lent when lending it out. I.e. when it lends out money the cash reserves of the bank are not reduced. 3) The fractional reserve theory is not true. While it is commonly thought to be true, and most of the infrastructure and rules are set up assuming it is true (i.e. rules on capital reserves etc.), in general banks do not behave as this theory presupposes. Check out the economists Richard Werner work and his paper on "Can banks individually create money out of nothing? - The theories and the empirical evidence".

[@cortexauth4094]

This just walked me through so many questions I had, thank you!

[@Joshua-c]

I am genuinely amazed by this video and even I learned new things - I used to work in an international bank that prides itself for payments for 6 years.

[@blu_pi]

It's videos like these why I'm always excited when I see a new Wendover productions video in my recommended section.

[@mattlau04]

It's crazy how well made those videos are

[@agustinvenegas5238]

Sam this was legitimately awesome, I had an economics class in high school and didn't know anything from what you said, yet I understood everything, cheers to your writers and you for how comprehensive and fun this video on a very slogish dense topic is

[@michaelnelson2976]

What an absolutely phenomenal opening metaphor. Gosh, that got right to the heart of everything going on

[@relatively_random4903]

I love how it made it obvious that money is just a tool for tracking credit: who did a "favor" to somebody and now has the ability to ask for a favor from someone else in return.

[@professionalamateur417]

In my opinion, it’s always good to have more payment options. It would be great to have a good balance between cash, digital (online transactions) and cards and not rely on one too much.

[@Hideyoshi1991]

I just keep a small amount of cash saved up just in case something goes wrong and I'm not able to get into my account for a bit.

[@orangeqtym]

@@techtutorvideos anything but cash is terrible for privacy, isn't it?

[@outerspaceisalie]

@@orangeqtym its a spectrum, i think blockchain tries its best to make tradeoffs of a little of the downsides of each to create a greater net result, but its really hard to make the argument that it is sufficient at that. It is, however, interesting as a notion and it's wonderful that it's being tried, even if it ends up failing (for now or permanently).

[@chrissmith3587]

@@orangeqtym generally speaking the big advantages of cash is the non existent processing fee, the privacy aspect has little advantage to the average person in the west unless you are a tax evader The only people who can see all your transactions are your bank (or payment provider, doesn’t work if you use multiple banks) and who your bank trusts to handle your information, if you cannot trust your bank to protect your data why are you trusting them with your life’s savings

[@garrettgreen242]

Easily THE BEST explanation of banking history and systems I have ever seen! Thank you!!!

[@SkiDaBird]

I just want to clear one common misconception. We don’t carry a cash equivalent to our liquid reserve in our vaults. The amount of cash in the vault is purely an operations decision. Those are two separate things.

[@jasondashney]

By the fact I have to call days ahead if I wanna withdraw a measly $10,000 cash to buy a used Corolla, I damn sure hope it's an operations decision, ha ha. They damn sure better not be that close to the line.

[@AmoghA]

This video hits all the points almost perfectly: Coincidence of Wants, Fractional Reserve Banking, Cheques (Checks in US), Swift payment orders. Now, more than ever, money has become as virtual as one can imagine, yet still having the same purpose: buying and selling stuff. Best videk yet!

[@mikemartin6748]

At 6:38, I learned that 1975 was actually between 1871 and 1879.

[@italnsd]

The math in the example does not make sense, because the amount of credits needs to be counted in the same way in both the initial and final situations. At the beginning the total is computed by summing the credits held directly by the farmers, which are 9,000*10=90,000, with those held by the bank, which are 10,000 (all owned by the farmers) for a total of 90,000+10,000=100,000 credits. At the end there are 9 farmers, each of which holds directly 8,100 credits and one farmer (the one who sold the irrigation equipment) who holds directly 8,100+7,500=15,600 credits, for a total of 8,100*9+15600=88,500 credits held directly by the farmers. The bank holds 11,500 credits (10,000 of which are owned by the farmers). Hence the total number of credits, computed the same way as before by summing the credits held by the farmers and those held by the bank, is 88,500+11,500=100,000 which is the same number of credit as in the beginning. There are no extra 10,000 credit as claimed in the video, which are only the result of the trick of counting twice the amount of money the farmers have in the bank (and of doing it only in the final situation, why?). Listening to the careful wording used, it does not seem to be an oversight, but in that case glossing nonchalantly over what justifies such double accounting, which is the basis of the whole concept of "money creation", does not help at all as it makes the example look very deceptive.

[@The_Viscount]

The introduction of telecommunications did so much for finance. It's impact is incalculable. I mean, being able to wire money to England from New York or San Francisco? It really is incredible and the fact we take it as a given even more so. It's my understanding telegraph is still used for international finance in many cases.

[@kleinfossil3137]

This is really good. I work exactly in this industry and you found a way to really simply explain the history of payments. It's so perfect that I will use it to share with newcomers on the job :) . Just if you would have explained the two cycles of bank to customer and bank to bank payments a bit more (MT1xx vs MT2xx or in ISO20022 pain and pacs) it would have been even better(but I guess I am asking to much here) . Also if you are already on the payment topic, maybe making a video about target2 clearing.. That has also an interesting history ;)

[@nezzee]

The example of when the money appeared is wrong. Value is not created at the time the loan is handed out. The value is created by the fruit of the farmer's labor (eg, with that loan, it's not till they create more watermelons and bring them into the world did value get created). This line of thinking is how we time and time again end up in financial issues because the finance world, value is not created in a vacuum, despite them thinking it is. If the farmer never creates said watermelons and defaults on their loan, that value is gone and realized as a loss (the value only appears on pen and paper, at the time of the loan, not accounting that it's very often not a sure thing). It's how every dozen years or so, banks start handing out garbage loans and then when the loans default, they get a slap on the wrist and crack down until they loosen up and repeat the cycle. Financial institutions do assist in value generation, it just doesn't create value.

[@NorroTaku]

that machine at 13:43 (analogue signature copyer or sth) looks awesome! its a crazy circumstance in wich you need it but it looks awesome! (I would use a stamp and not a signature but hey now we dont need either)

[@mohamedabduweli5091]

Amazing educational video by Sam. This is the difference between underdeveloped nations and developed nations. The importance of the Financial system is not understood by many, this is what makes most people to get up and work.

[@wayneerickson10]

The Automated Clearing House (ACH) is a private organization driven by contract called the ACH Rules. While the Federal Reserve does participate as an operator and regulator, the ACH network is operated by it's members and governed by an organization called NACHA. When the US Government switched from issuing checks to ACH transactions, it required financial institutions agree to be bound by the ACH rules before their account holders could receive government payments.

[@thiagopepper]

You should make a video about the brazilian banking system, how they moved money fast enough to beat daily inflation in the 80s, and how they have today an universal, instant digital transfer of money between all banks in the country

[@3117ism]

We have similar banking in South Africa. Almost everything is digital. Its funny how 1st World Countries can take a long time to adopted new technology. An example of this would be the high use of fax machines in businesses in Japan to this day. Or the slow inter bank transfers in America. (Which I’ve heard is because they still send cheques of some sort to each other as stated in this video. But I stand to be corrected)

[@davidmizak4642]

The remarkable information you provide to your viewers needs to be applauded. I sincerely appreciate your effort to expand your viewers knowledge. A sincere thank you!

[@vertigq5126]

This was a great explainer, I always wondered about why transfers took so long. Seemed unreasonable for a digital process

[@app2bs]

Thanks! Your channel is very interesting and informative.

[@masterimbecile]

0:59 “… then it all starts to get just a little bit …” Me: “…bananas?” “… complicated.” Me: “damn.”

[@torjusaanderaa3749]

just wow!! :O best explanation of money and banking I've ever seen! So factual, understandable, and positively neutral. Not loading it with personal interpretations and agenda! keep it up! :D

[@joshuashires]

That was epic. That was the best explanation of what currency is and how it came to be, ever! Sterling Job.

[@adamplace1414]

Really really interesting. I was thinking that the excess value created at the beginning came from the outside of the closed loop through the addition of the irrigation system that the loan procured. Which, in a sense it does I suppose, but not in the strict accounting sense that makes the system work.

[@orangeqtym]

This is the comment I was looking for! The additional money comes from the nutrients and water that become the fruit. A true closed system wouldn't generate any additional money? Can someone explain this to an old fool?

[@pettahify]

Of course it does. And it's when new money doesn't equal new stuff that we get inflating prices. And that's why banks need to be regulated so that they don't give out loans for crazy shit.

[@elic-c8239]

You're conflating money with value. You're right, the new /value/ in the system comes from the irrigation system and the extra watermelons. If everything goes right, new money=new value. Otherwise we get inflation. But inflation is a whole other topic just as complicated as this topic, so he skipped over it. Here, we're only talking about the /money/ being created, which did appear the moment the bank made the loan, and only then.

[@Tim3.14]

@@elic-c8239 That's a very helpful distinction (money vs. value), thanks for pointing it out! I think that's related to why accounting rules (e.g., GAAP in the U.S.) require businesses to report revenue when it's earned (when they delivered the product or service), not when they're paid.

[@relatively_random4903]

Sure, some _value_ came from the outside, but we're counting money here, not value. The point is that there is more _money_ in the system now, when you sum up all the account balances and cash, even though nobody minted any new clay coins. The trick is that the bank is "lying" when saying that everyone has 1000 clay coins in their account, when in reality only a fraction of people could cash out. But the "virtual" coins in the accounts really _are_ as good as the real thing, as long as everybody believes that not everybody will want to cash out at the same time. So if you trust the account balances, which basically everybody does, there literally is more money in circulation now, created by the bank out of thin air. Just not physical money -- the extra can only exist on paper, as account balances.

[@quuaaarrrk8056]

Let me guess: Planes have something to do with it.

[@Activemeasures2023]

Dancing students on the roof.

[@jmlinden7]

After 9/11, banks were stuck with millions of untransferred checks because flights were all grounded. This forced the government to allow banks to send a scanned image of paper checks instead of having to send the physical check itself.

[@chandambao4751]

This is one of the most informative videos I've ever watched on KZbin. An all time fave.

[@satyabobby1]

I am surprised you didn’t bring up UPI system that is very widely used in India for instant money transfer. At zero cost. Would be curious to know how UPI is making it possible given all the complexities that you mentioned in this video.

[@MrVictorU]

hot damn this is one of the most important concepts and its complex infrastructure being explained clearly in just 20 minutes. great job

[@fiddleriddlediddlediddle]

When I watch Wendover Productions explain things so concisely it makes me bitter at how bad every other teacher on any other topic is at their job.

[@rakino4418]

You get a good general feel of how things work from these kinds of videos. Other teachers have to make sure you retain and can apply information to specific kinds of problems and can prove it (in an exam etc).

[@jasondashney]

I swear to God schools seem like they are trying to make simple concepts difficult. I want to take a finance course many years ago and I'll never forget this passage: "interest represents the savings for consumers from deferring consumption from today to tomorrow via savings". Can you think of a more complicated way to say "if you borrow money to have buy something now instead of saving your pennies first, you'll have to pay more back than you borrowed." My six year old can understand the concept of interest, but never if I explained it to her the way the textbook does.

[@harwooda]

Wendover is my favorite channel and I’ve watched all your videos. Sam, I think this is the best one you’ve ever done. Bravo!

[@cliffbarbier4918]

This is an amazing history of banking, especially in the USA. I love it! 10:20 When that check flipped around and I caught a glimpse of the back with all of those endorsements, I knew it was gonna be a long routing! FYI, some of your video could use de-interlacing.