Prof. Richard Werner explains how banking works. (money creation)

Prof. Richard Werner explains how banking works. (money creation)

[@mithra2396]

"Money is a belief system"

[@survileerin8912]

He's brilliant every time. We need his knowledge at high school, latest.

[@mbseeking6570]

The most brilliant commentary on how money works you will ever here.

[@crouchhill]

Good God, I am new to learning about Macro, I have to say how Richard explains it, its perfect.

[@ashwije4312]

Who else but prof Werner... brilliant

[@omBrezeeNamaha]

The question is why we let private bankers make the decision how and where they loan/create the money. If the demographic problem can be solved by banking, then it is greated by banking, which means that the private banking sector and its decion makers are the public enemy number 1.

[@toro64xxx]

In 1913 congress led by President Woodrow Wilson gave the country away. That's were decline process started.

[@Jackp2006]

Join the universal trade union

[@kulturfreund6631]

There is no demographic problem. It’s a bogus argument to scare ordinary people into private retirement insurances. Dur to automation and progress in science, per capita productivity has increased tenfold since 1900. The problem is that the wealthy want to keep as much of the productivity gains for themselves. It simply a problem of distribution and tax justice.

[@omBrezeeNamaha]

@@kulturfreund6631 Really rich can allways find loopholes in taxlaws and if you want taxjustice (wich is oxymoron) you end up taxing the middleclass out of existens. And thats what the elites really want.

[@kulturfreund6631]

I can’t detect any logic in the things you say.

[@mahanr1272]

Richard Werner is a legend.

[@adeldizz]

Brilliant explanation. How about the deposits what’s being done by those?

[@bluecafe509]

Bank credit shouldn't be a mysterious secret of the universe, something that requires big fancy theories. There is a bank on every other street, issuing credit cards. Why not just go to a bank and ask them how they create credit? ... I guess that is what Werner eventually did. Still, it really should be common knowledge how credit is created.

[@rofl-ing]

Most bankers don't know how this works.

[@avlieox]

are you for real :)))

[@aiothedat3102]

@@rofl-ing sure about that it seems crazy to me that even actual bankers wouldn't know

[@KetogenicGuitars]

Man what a golden stuff! It is very important invent method to define a loan that supports real GDP. Suppose it can be done by standard set of transparent accounting procedures.Then how about creating banking system where all the speculative loans would be only allowed on research and develpement startups and such separate departments? That would enchance all kinds of creativity on earth. Then the speculative instruments would have solid link to real human action. That is kind of what is happening in China. They first allow all and then come in and say if startup is too wild. If it is not too wild they multiply it in other parts of country or even steal it and make it big. Some big private agent could also do this as internal guidance without anyone forcing because it is good long term business.

[@pinkpalmsmusic]

As I understand it 1. „How is new money created?“ And 2. „How is creation of new money limited, so banks do not create too much credit that will go into unproductive use?“ Are two separate questions. The technical way to create new money is as Werner showed ex-nihilo, out of nothing by the commercial banks, and in that process they are not limited by their reserves per se. They do not check if there are existing reserves they can lend out, they create the deposit themselves. But still there are rules in place (basel3) that demand capital requirements and the commercial banks have to follow these. I would be very interested to hear more on that. I doubt the only reason these rules are in place is because lawmakers believe the wrong theory of money creation. It seems like even though technically commercial banks do not require reserves in the money creation process, it is these rules that make them limit their lending. It does seem these rules are in place to put a limit on new money creation, not out of technical necessity, but as a management tool. banks would create even more loans used for unproductive asset purchase and would be totally unchecked in the creation of new money as long as some borrower is found. To prevent that, rules like basel3 were put in place. So in the end, banks are artificially “constraint”. What do you think? Where can I learn about this exact topic?

[@alfredmolison7134]

Is it possible for my company to buy majority control of a "systemic" bank? I would use federal employees to run it. I would spin off small sections that were honest and profitable.

[@thereseharmsworth748]

Very interesting from around 10 min

[@DistributistHound]

I also believe that C. H. Douglas was aware of the money creation theory although it's promotors may seem to be unsure about the fractional or the ex nihilo theory

[@alfredocosta6887]

And the human bank operation mistakes risk? What is the risk of asset bubble explodes? If the bank choose the equirt market as asset and they grow years and years , the risk of grow too much can creat inflation?

[@santiago321lat]

If banks do create money "out of nothing" what justifies the charging of compound interest? (to the tune of several times the initial loan) Also, where does the money to pay back the interest come from?, as it was not issued into the economy at the time the loan was issued.

[@MrN75nokia]

Yes I’d like to know that also

[@tomaszniemy6066]

Customer's greed (need of money or rather goods he wants to buy) justifies (allows) charging the interest. The money was issued into the economy, just not as cash but as credit. The money to pay back the interest comes from earnings (production of goods and services that others need). When credit is paid it dissapears. What is left is interest and the goods or services that were bought/created with credit (credited money). Cash and credit are two different things that are the same, depending on circumstances. It's like light - it may be a corpuscule and/or a wave.

[@mmm-cake]

Smart

[@KC18788]

Hmmm quantitive easing may work in theory if the money created is truly spread among the people in order to stimulate the money chain. That however doesn’t happen, it is stored at the top

[@pox2410]

Not really. It every dollar in everyone's pockets turns into 2 dollars, then nothing happened. The real value of the dollar just goes down by 50%, prices jump 100%. It doesn't change any supply or demand in the economy. The only reason inflation does anything is the cantillon effect - some people get the new money before others. This is of course insanely corrupt and unjust.

[@tonnichiwa7603]

QE works when you use it to stimulate the economy - create growth. Like for example the central bank buys the toxic assets of the regular banks, but with the money they get for the assets,they must finance a small bussiness or use for productive purpose. If you just give free money left and right you do nothing, but tanking the currency and creating potentinal inflation (depends how you mesure inflation).

[@efdeecue]

@@pox2410 It doesn't happen overnight, there's adjustment time, and also people are not perfectly rational. The result is that QE does have an effect, and helicopter QE could work as well.

[@sadiauddin1389]

So Is the economy and world economy a zero sum game where if one person is rich it means that another person is poor

[@kissakissa4779]

Depends on the velocity of money through the system (basically the economy has to keep growing all the time or were in deep shit) It`s not completely a zero sum game it`s basically designed to steal wealth from working class to the elites ... through inflation

[@scottbradley5302]

Glass-Steagall…all things are two things. Banking is one magician, at Law is the other magician.

[@jaguarcheatcode]

15:20 How money is created. You're welcome.

[@stevieboy1567]

where can I purchase his book on this subject?

[@bryanmccrary8029]

money mechanics

[@aribbonatatime]

Sounded like he was saying when a bank "gives" you a loan what is actually happing, in fact, is that you are issuing a security for the bank to buy but instead of them buying it from you you are the one paying for it. Did I miss something? Maybe I got lost somewhere.

[@khalidnasir97]

From my perspective the bank was creating an iou and then changing it to a deposit like you actually deposited the money they lend you and you pay them back.

[@tucups1809]

The money came from you, the banks only provide the forms…you give it life by giving your signature which is usually a blank indorsement…that creates the “promissory note”. If the maturity date is 9 months or less it is a note, if it’s more than 9 months it is a security. The banks then charge you principal plus interest on that instrument you’ve created/issued.

[@santiago321lat]

"the majority of the money is created by the banks" Would this money be under license from the nations central bank?

[@DistributistHound]

Surprised that the German bank allow him to tape the process

[@santiago321lat]

I get the feeling Professor Werner is being very careful on how he explains money creation so as to avoid a red dot appearing on his well shaped forehead. For example, I have not heard him explain how taxation, at all levels, fits into this money creation scheme.

[@anthonyyawtwumasimensah197]

How does taxation cause money creation.

[@alaminm182]

prof richard werner needs to meet up with Ronald Bernard.

[@AkshatSharma1505]

Who is he?

[@jhnssch6744]

21:51 someone tell Deutsche Bank 😂👍🏻

[@mrkasirye]

What happens if they pay my IOU in cash?

[@tomjack7035]

Cash is an iou. Look at any bill in your wallet. It states federal reserve NOTE. Now lookup what is a note "at law" as he says.

[@anilrai6918]

What i did not understand is that if it is not fractional reserve system than is prof. Werner suggesting that every bank prints their own money? “Banks create money out of nothing” what does this mean?

[@vonMeiser]

I'll try my best: Okay, "Banks create money out of nothing" means literally that. Banks have the ability to create money by issuing loans. "Printing" (as is often referred to) is really the wrong word because the printed money (notes/cash/coins) is only about 3% of the global money supply. Most money is digital, meaning that its bits and bytes in computers. Here an article and video that might help you: 1) medium.com/@jeremy_grenkowitz/on-money-and-the-stories-we-tell-about-it-cab6dd541edd 2) kzbin.info/www/bejne/f6uoYWZuh6qqaM0

[@anilrai6918]

Open Knowledge & Art if they dont use the deposit money to lend others then why do they give interest in saving account?

[@vonMeiser]

@@anilrai6918 Good question. I guess it's because, like Richard Werner explains, you are actually the creditor to the bank when you deposit money at the bank. It's the same logic for why you pay interest when the bank loans you money

[@xyzsame4081]

A bank loan (FIAT MONEY) is a legal _accounting exercise:_ the contract in which the borrower promises to pay back is booked as "asset". At the same time the bank opens an account with money in it (other side of the balance sheet) that can be used by the borrower like a savings accounts: except that the borrower never put money in it - so far. Actually a loan account could be seen as a savings account in reverse. If I lend money to someone I must have the money, before I can do so. That is not the case for banks. This is not about Banks "having" money, it is about their legal privilege to grant ACCESS to the _potential_ of the economy. The borrower gets PURCHASING power and can ACCESS the resources of the economy. goods that have been already produced. - Or are ready to be produced as soon as the client can afford the downpayment. Think ordering custom made machines, a new hall for a company etc. Or the house for a private citizens. Often the contract will require that there is some money paid and THEN the existing machines and staff of the suppliers will be put to use. The banks are the gatekeepers to the resources and the POTENTIAL of the PRODUCTIVE economy (and the additional purchasing power can get the game at the next level). Banks prefer that the unwashed masses do not understand that process, it would undermine the claim, that we "need" a) the banks b) a stock exchange or c) big financiers to finance the productive economy. Banks are of course not the only institutions that _can_ create money. Coins and banknotes play little role in the money volume (large amounts are transferred, so it is digital money, not cash) - but from time to time governments create money directly - just recently AGAIN in form of Quantitative Easing. Starting with 1,5 TRILLIONS for the "markets" (which means to bail out the speculators of Wallstreet). Note: that had nothing to do with the stimulus bills and happened before the first one was even debated. QE under Obama (and in the U.S. ) was to the tune of 4,5 trillion USD - the U.S. GDP of 2019 was 20 - 21 trillion USD just to give an idea. Around 4 trillion EURO created by the ECB and 700 - 800 billion by the Bank Of England to beautify the balance sheets of wreckless banks AFTER they had been bailed out after 2008 / 2009. This was of course to help finance - all hell would break loose if only a part of that would be demanded for QE for The People. "Capital will flee the country if taxes are too high, inflation too high, the currency exchange rate not favorable etc, etc. or: "Capital is a shy deer". Those almost proverbial claims use the term "capital", when they mean "money", but never mind. Capital = means of production (that includes patents, manufacturing plants, copyrights, machines, raw materials, ....). That is indeed needed to create goods and services. Plus the experienced staff, the infrastructure, a reliable justice system, eduction system, trade deals, international agreements about commerce, transport, security .... These necessary resources / conditions cannot be juggled around the globe at will. Or government rules can force them to be domestic (think tariffs. Or protecting intellectual property - or not if big biz is not compliant). Money on the other hand, is easy to come by for government. Govenments budgets _can_ be raised by taxation (and taxation can be a steering instrument, and also be used to curb undue inequality and POWER DYNAMICS). Or by more debt (bonds that are a popular investment vehicle for the rich and finance). Or Debt and Interest Free Money could be used to wisely invest into the future (think Green New Deal, modern mass transportation, healthcare, education). Widespread knowledge would also undermine the claim that we need to privatize the commons. Selling off public land, railway, utilities, public housing (U.K. !) .... nothing of that is necessary. The "investors" and profiteers are not needed to provide the money for government budgets (local government in many cases) - and we are not supposed to know that. (Federal gov. would need to create budgets with the Central banks and and then make the purchasing power available for the states / communities). Nor are commercial banks absolutely needed to finance an economy, at least their role could be reduced, the government could create money directly (Think public housing, infrastructure, crisis funds, Green New Deal). So: "The government cannot afford it" and "Big biz and biz finance would all flee" is nonsense. (for several reasons). The cozy arrangement between big biz, finance and politicians (assisted by mainstream media) would fall apart. A nation that controls their currency CAN expand the money volume - and making that money available to citizens or smaller businesses - provided they also start ramping up domestic creation of goods and services. And there can be some delay. The U.S. had massive debt after WW2 - and was in excellent financial shape 23 years late (1947 highest federal debt EVER 118 % of GDP, and in the lower 30 % range in the early 1970s. Before the oil crises but with all the costs of the arms race, Race to the moon, infrastructure, education spending after WW2, Korea, Vietnam war, ..... Likewise the creation of money now and bringing back manufacturing and creating the CORRESPONDING VALUE could be done over 1 - 2 decades. But the citizens are not supposed to understand Debt and Interest Free Money - even less than understanding FIAT MONEY - (banks creating money every time they give out a loan). The loan account _balance_ gets to zero when the loan is paid back, so the loan "vanishes" out of the balance sheet of the bank. The borrower additionally pays interest and fees, but those payments are booked on "revenue" accounts. They are handled differently when it comes to accounting and that is important. a loan means accessing the future, but the creation of goods and services soon follows the creation of the money. That used to function when banks still were strictly regulated and not too large - so medium sized companies were intersting clients for them.

[@anilrai6918]

Xyz Same thank you so much for your commitment to enlighten me. 😊 🙏

[@jayabrams400]

Welp, this is true. US banks love asset backed / consumption lending, not so much innovation, technology, and productivity increase lending. So we get these stupid asset bubbles.

[@karfar8029]

I can't believe people actually buy into either the financial intermediary theory or fractional reserve theory of banking. So ridiculous. It's as outlandish as the quantity theory of money as an explanation for inflation.

[@toro64xxx]

QUANTITIVE EASING=STATE CAPITALISM

[@lotjedewestie]

Dank voor het bericht, hierbij nog een YT met uitleg over schuld. kzbin.info/www/bejne/Z3_Oqohmitdko6c

[@santiago321lat]

Technically money is not created "out of nothing", money is created out of someone's future labor, be it an individual or a group such as citizens of a nation.

[@simeon-1383]

Or by future money creation...

[@tomjack7035]

No, when a bank gives you a loan it CREDITS your account but it is a DEBIT(or liability) on their side of the books. Your promise to pay (or perform) is evidenced by the contract(bond instrument/security interest) which has value in and of itself. That's why he is saying the banks PURCHASE securities.

[@simeon-1383]

@@tomjack7035 liabilities are credits in accounting terms

[@abc33944]

is someones future labour created toady? no it isn't, whereas a 'holder in due course' can

[@DistributistHound]

Hence the reason why financial credit does not reflect real credit (present day labour) money should reflect present day or cycle of economic production.

[@jorgegomez524]

and people still think that is Bitcoint that is fake

[@bryanmccrary8029]

"youre creditors ..:! Bingo

[@kellylindholm6871]

Interesting that he puts the blame on the commercial banking system... Yet it's QE by the central banks that are giving the banks the necessary liquidity to keep the asset prices growing. Central banking is the root of the problem.

[@karfar8029]

QE actually just changes one form of asset to another. It doesn't add any value to the economy at all.

[@kellylindholm6871]

@@karfar8029 true, it doesn't help the real economy, but it's being used in asset prices, because of the liquidity trap it creates. So Wall Street is getting richer because of the Fed. And most people don't care because most have retirements, investments, etc. All is good until the bubble, the Fed created, pops.

[@karfar8029]

@@kellylindholm6871 how exactly does increasing reserve levels cause the liquidity crises?

[@kellylindholm6871]

@@karfar8029 there's been several reliable studies regarding QE and asset prices. Essentially, with bond rates low, it's easier to borrow, and banks are more willing to lend to financial institutions for investing into asset prices, and not into productive businesses, since that is much riskier at low rates. Even Prof. Werner stated how after the GFC, Central banks rescued the commercial banks by purchasing their financial instruments, making their balance sheets stable. Yet, the banks went back to doing the same thing, and the Fed keeps fueling them. They've created another asset bubble, and haven't solved any banking financial issues that caused the bubble in the first place.

[@karfar8029]

@@kellylindholm6871 I get that the banks are lending to cover asset acquisition and that the cost of banking is really low but I don't see how banks having more reserves automatically correlates to greater lending. Reserves are an asset to banks, as are loens. To balance their books, they would have to increase their liabilities. As I'm sure you know, banks do not lend reserves, unless of course you do not subscribe to the credit creation theory of banking, which is the only empirically proven theory of banking.

[@ben11628]

23:45 I'm shocked that Porf Richard Werner actually agrees with the idea of creating money out of nothing.

[@BoardgameBaker]

The thing that surprises me the most is that he presents this like it’s some big secret. Anyone who has taken a macro economics class at university level knows this…

[@efdeecue]

It was not taught this way until recently and at good programs. Money multiplier was the theory for a long time.

[@bashydee4936]

Yh they talk about banks creating deposits but they didn't go into detail this way

[@alexyuzvak1712]

Taking macro right now. We got taught the fractional reserve/ money multiplier theory just the other day

[@bashydee4936]

@@alexyuzvak1712 its none sense trust me i am in my third year studying econ and this is what they have been teaching me for 2 years. decided to go on to the bank of Englands website and it stated that money multplier/ fractional reserve theory of banking basically isnt how the monetary system works/banking system. just to clarify they only published this once a certain economist paper gained attention from the public. prior to this they spewing the same bs that we are taught in university. fucking joke this shit is

[@ahsanmohammed1]

Confusing

[@MrTrollBeast]

the bank gives you what they owe to you and you pay it back... you lost me

[@huizenmarktzeepbel7619]

Hi, this is van der Vaart. I don't understand it either..

[@vonMeiser]

It can be a bit hard to "switch" the perspective, but it's actually very simple. It's not that the bank "takes care of" your money (i.e. stores it in a vault until you want it again) but when you go to a bank and deposit money, they "money" on your account is the promise of the bank to pay you back. In legal terms in this case you're the creditor. Does that help?

[@karfar8029]

Actually, banks never lend deposits or reserves. When you have money in a bank, that money is actually a liability to the bank as it is something the bank pays you interest for. The bank uses your deposit to balance its books, it's cheaper than using reserves. Banks don't need your money in order to lend, they just prefer to have it because the discount window at the Fed and lending reserves from other banks in order to balance the books is more expensive. Loans are assets to the bank. In an interesting twist, when a bank is having troubles with its books, they often fix it by making even more loans.

[@AnthonyZboralski]

@@karfar8029 when you take out a loan you are making a promise to pay back the loan. The bank writes the promise in accounts receivable (legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for), shown in a balance sheet as an asset. A normal business would then write the amount of the loan in accounts payable (amounts due to vendors or suppliers for goods or services received that have not yet been paid for.), shown as a liability and then pay the loan to its recipient. Private banks however are exempt from the client money rule, so your bank account is the account payable. Werner explains the process in "How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking"

[@alexd7466]

"the balance-sheet quadrupelled. It doesn' t create inflation"... what drugs is he on?

[@ProseStylist]

He means CPI inflation not monetary inflation.

[@alexd7466]

@@ProseStylist sure, the CPI is a slower process, so you don't see that reflected directly. But efficiency and higher production has gone up a lot in last decades (because of digitalization), that should have resulted in much lower consumer prices, but that is not happening. Why not? because we do have CPI inflation: efficiency and higher production is *compensated* by monetary inflation. For example cars: even though the production is 50% cheaper as 25years ago, you still have to work the same amount of months to buy a similar car.

[@vonMeiser]

Well, the balance sheet of the central bank... why would that create inflation? (Not being ironical, serious consideration)

[@keenanjay5570]

Investing in crypto is the only big chance of making money

[@danfish8740]

For real crypto is profitable

[@cliftonwatkins2734]

Crypto is the new gold

[@nguyenluke743]

I wanted to trade Crypto but got confused by the fluctuations in price

[@ezekk207]

This is misleading and wrong ... He just sounds intellectual and confident but he doesn't actually seem to have an idea of what he is talking about...

[@ezekk207]

This is misleading and wrong ... He just sounds intellectual and confident but he doesn't actually seem to have an idea of what he is talking about...

[@thereseharmsworth748]

Yes he seems to think it is wonderful that these criminals are doing this😅 .