Understanding Money Mechanics | Robert P. Murphy

Recorded at the Mises Institute in Auburn, Alabama, on 22 July 2021. Download the slides from this lecture at Mises.org/MU21_PPT_33.
The Understanding Money Mechanics series by Robert P. Murphy, is a comprehensive overview of the theory, history, and practice of money and banking, with a focus on the United States: Mises.org/library/understandi...

[@bigchungo1399]

Jesus we need to get some Bob Murphy types up here in Canada educating people, what a legend

[@PeterQuentercrimsonbamboo]

Yes ! Clone us some Robin Murphys, a few Tom Woods, Walter Blocks,… … hey.. just double all the Mises- greats and distribute the wealth ! … ha! … but yes, we seriously need some up here ! Education is crucial to get the people to wake up and start abandoning the vote for all the fake and empty state-promises -

[@kipperedbeef2084]

indeed

[@tycer9754]

Nobody with power listens to him here as it is, so I doubt you northern folk would fare better with your insane gov

[@JaviEngineer]

@@tycer9754 lol lol at crushing Canuck dreams

[@hadensbigfatclipstackaroon2695]

Tycer, consider Mises' point about any given amount of government only being able to exist with compliance from the vast majority of people. Convincing those in power is fruitless, but also not a very good method; a socialist population would reject this new "libertarian government" anyway. I'd argue that the causality runs the opposite direction from how your comment makes it sound, that a more libertarian populace would create a more libertarian ruling class, not the other way around. Eventually, the most libertarian populace would result in no ruling class, because no one would obey them, and no one would agree to enforce their laws. It's not like Nancy Pelosi is going to come into a well-armed neighborhood full of people who reject the notion of taxation and try to rob you herself. My point is that it doesn't matter what the rulers think unless the populace imagines that it matters what they think, so I'd argue that our goal should be to change the minds of the people much more than the minds of the rulers. We can win some liberty in the here and now through convincing our sheriffs not to enforce magic mushroom laws or whatever, but ultimately the people will be free only when they themselves decide to be.

[@transon6655]

why are these lecture always restrained by time so much :( it's obvious they need more time to share their ideas

[@michelangelope830]

What can be done with the gold in reserves like in the Fort Knox in America? Only to sell it. How much cost taxpayers to protect the gold? Fortunes. To sell the gold today spares to pay for the protection tomorrow. The gold market is going to crash and i defend my word against any economist past or present. Russia could go bankrupt and end the war in Ukraine

[@psychopathmedia]

If they were smart they'd be like the bankers and pay for 30 minutes then talk for 3 hours. Call it Fractional Time Reserves or something

[@imzoltan]

Gotta love Rob Murphy!

[@stlouisix3]

Bob Murphy is a real economist💯👏👏👏

[@michelangelope830]

What can be done with the gold in reserves like in the Fort Knox in America? Only to sell it. How much cost taxpayers to protect the gold? Fortunes. To sell the gold today spares to pay for the protection tomorrow. The gold market is going to crash and i defend my word against any economist past or present. Russia could go bankrupt and end the war in Ukraine

[@AdamVassGal]

Rules only exist until they are inconvenient and breaking them is completely forgiven if any kind of crisis is afoot.

[@donaldclifford5763]

As well it should.

[@americanmambi]

See, thilese are the keynote speakers that should be traveling all of our institutions of higher education and particularly in highschools. If this was the case, all the crazy would go away.

[@edenoftheworld1090]

Bob is a real hero

[@joelscott1898]

This stuff is awesome. More young people need to know these things.

[@michelangelope830]

What can be done with the gold in reserves like in the Fort Knox in America? Only to sell it. How much cost taxpayers to protect the gold? Fortunes. To sell the gold today spares to pay for the protection tomorrow. The gold market is going to crash and i defend my word against any economist past or present. Russia could go bankrupt and end the war in Ukraine

[@vik914]

Yes! Thanks for this amazing lecture Prof. Highly highly informative and concise!

[@michelangelope830]

What can be done with the gold in reserves like in the Fort Knox in America? Only to sell it. How much cost taxpayers to protect the gold? Fortunes. To sell the gold today spares to pay for the protection tomorrow. The gold market is going to crash and i defend my word against any economist past or present. Russia could go bankrupt and end the war in Ukraine

[@JonVokal]

Bob Murphy is truly the man

[@donaldclifford5763]

He's a good explainer. I appreciate that.

[@Eudamonia-123]

fabulous material!

[@elvirabudda]

This guy makes economics almost....entertaining...

[@michelangelope830]

What can be done with the gold in reserves like in the Fort Knox in America? Only to sell it. How much cost taxpayers to protect the gold? Fortunes. To sell the gold today spares to pay for the protection tomorrow. The gold market is going to crash and i defend my word against any economist past or present. Russia could go bankrupt and end the war in Ukraine

[@supersam1914]

I’ve been waiting for this book 📖

[@bisiriyutajudeen5728]

I'm still waiting.

[@supersam1914]

@@bisiriyutajudeen5728 lol me too

[@testbench985]

Key Takeaways: 00:01 📜 Understanding Money Mechanics and Its Origins The history of money, from commodity money to government-issued currencies. The concept of the gold standard and its historical significance. The transition from paper money as claims on physical assets to fiat currency. 04:45 💰 Gresham's Law and Bimetallism Gresham's Law explained: "Bad money drives out good." How governments historically implemented bimetallism and its problems. The consequences of Gresham's Law and the Crime of 73. 11:09 🏦 Bank Reserves and Loan Creation The traditional textbook explanation of central bank operations and interest rate manipulation. How central banks supposedly use open market operations to influence interest rates. The relationship between excess reserves, lending, and interest rate adjustments. 14:43 🔄 Critique of Traditional Banking Models The critique that real-world banking doesn't operate as described in traditional economics textbooks. How banks focus on evaluating loan quality rather than reserve levels. The role of the federal funds market in managing reserve requirements. 20:04 🏦 Banking Practices and the Federal Funds Market How banks manage their reserve requirements through the federal funds market. The real-world considerations and priorities of banks when making loans. The role of interest rates in interbank lending and reserve management. Please let me know if you have any questions or if there are specific aspects you'd like to explore further as a student. 20:17 💰 Understanding the Role of Central Banks and Reserves Central banks don't set interest rates directly; they target them. Commercial banks determine reserve quantities endogenously. The causality between bank loans and reserves can be seen differently based on the perspective. 24:18 💳 Expansion of the Federal Reserve's Balance Sheet The Federal Reserve's balance sheet expanded significantly after various economic crises. The composition of assets the Fed purchases has evolved, including bonds, stocks, and more. The pace and magnitude of balance sheet expansion increased in recent years. 28:50 💵 Redefining Monetary Aggregates M1 and M2 The distinction between checking and savings accounts blurred over time. M1 included savings accounts after a regulatory change in May 2020. M2 also experienced significant growth in recent years. 32:27 📜 Reserve Requirements Elimination The Federal Reserve eliminated reserve requirements in March 2020. Reserve requirements had already become non-binding due to excess reserves. This change potentially paves the way for future banking practices. 38:44 💼 Understanding Capital Requirements for Banks Capital requirements differ from reserve requirements. An example illustrates the balance sheet of a hypothetical bank. Capital requirements aim to ensure banks can absorb losses and maintain stability. 40:23 💰 Banking Vulnerability and Reserve vs. Capital Requirements A hypothetical bank's balance sheet is analyzed, showing assets, liabilities, and equity. Reserve requirements, which are no longer binding, are explained in the context of the bank's reserves. The importance of capital requirements, such as the Basel Accords, in ensuring bank stability is highlighted.

[@lowersaxon]

Good lecture.

[@lisalph8922]

Interesting observation about how savings and checking accounts are basically the same as to liquidity, especially since the recent change in rules about there no longer being a limit of 6 transfers a month between the two.

[@CarterColeisInfamous]

24:00 duality in economics

[@sunking7616]

Understanding the counterfeit artist of money and its counterfeit security. Its future judgement is like jumping in a frozen lake.

[@michaellamont2605]

Nice to have Crypto mentioned. My HEX has gone crazy

[@mktwatcher]

What is the past historic ratio of M1 to M2? By Knowing this ratio you could estimate how much of that newly defined is Very Short Term Liquid Money and how much was in Longer Term Lesd Luquid Money.

[@sonofode902]

Thank you for the course. My notes, 20:09 violation of second law of POLOC. The sequence, the topological & chronological, the order of things. Text book in the past explains 1 then 2, the critics, the postmo, said its 2 then 1. About how the federal reserve increased/inflated or decreased/deflated values of currency/money. The magic trick creating values out of thin air. 27:00 The Fed created a buffer. Like a referee of a soccer match made a bet of the team that he is reffereing, by making a bet for him self through a proxy, buffer, other man. Once again it is done under the guise of crisis/emergency 28:00, manufactured consent. Gin,

[@Liberty-rn4wy]

The best way to measure inflation (devaluation of the money) is how much gold a US dollar buys. So we don't have inflation today compared to let's say 2015. You get roughly the same amount of gold for your dollar as in 2015 (about $1850 per ounce). If inflation were rampant, this would be like $3,000 or $4,000, etc.). And Bob himself said that people are "hoarding dollars," from M1. No one would hoard something that is being inflated away (I doubt that people in Venezuela are hoarding their pesos down there, they are frantically looking for US dollars or gold or bitcoin).

[@coonhound_pharoah]

Bob, I think this is partially mistaken. Based on how I understand the corridor system currently used by the Fed, the means of manipulating the rate of money expansion is by altering the interest payments on excess reserves at the Fed. The current system is awash with reserves already.

[@cyrusol]

The reserve requirements never impeded banks in lending out money. It makes sense to just drop it.

[@cyrusol]

@@hadensbigfatclipstackaroon2695 On the other hand, capital requirements are very much a constraint on money lending and the capital ratio is important in determining whether a bank has healthy numbers. At least that's the conclusion of the Bundesbank (monthly report April 2017).

[@donaldclifford5763]

@@cyrusol I think reserve requirements are a legacy thing from requiring gold reserves.

[@Castle3179]

Canada never had reserve requirements and neither did many other countries. All of which have had much more stable banking systems than the US.

[@psychopathmedia]

10:09 It's more like "fake money drives out real money"

[@abramgaller2037]

I wonder where the tipping is ,of the public understanding money mechanics and their doing something about it?

[@donaldclifford5763]

Why reinvent the wheel?

[@CarterColeisInfamous]

37:55 @misesmedia can you enable clipping so i can share this part of the video?

[@frankwiersma7980]

Governments are taking more and more advance returns on future developments when creating money. On itself this is not a problem if these future developments will occur. Problem is that there is also a shift in production towards e.g. China. So it is very likely that returns of future developments will be lower. So the money that is created cannot be traded into goods in the future. Effects will therefore be inflation both in currency as in domestic prices. Companies with low material costs like e.g. tech companies will be affected far less than e.g. car manufacturer or home builders. That is why tech stocks are now so highly priced. FED has no way out, tapering will crash stock market then later the economy, but no tapering will create more and more inflation.

[@widehotep9257]

Can someone show me where he actually explains how money is created? Seems like he talks about a lot of things, but none of them were the mechanics of money creation!

[@muchlightandlove4312]

A good one is MODERN MONEY MECHANICS - the fed corporation buys bonds from the United States Of American (incorporated) and prints money out of thin air. THE MONEY MASTRS is a great documentary on KZbin

[@kurtleimkuehler]

Only 34k views what a smoothbrained population

[@stefanwalters8381]

8

[@CarterColeisInfamous]

10:16 thats crypto

[@Liberty-rn4wy]

So the Fed's actions during and after the pandemic had almost no effect.

[@TheBavaNeche]

What he means when he says they try to enact: That means the Government made a Law Accordingly to the Constitution and the People at the End of a Gun Barrel -- will use the new money!

[@Peacefully_Relaxed]

Watching in 2023

[@zeigbert1743]

Interesting, can crypto free us from the shackles of fiat currency?

[@johnbutler3141]

Go back to a backed (gold) currency and all the banking crap stops.

[@ImageJPEG]

You should read “History of Money and Banking in the United States” by Murray Rothbard. There’s been banking corruption much longer than you think. It’s also an audio book on KZbin. kzbin.info/www/bejne/rJPMi4aLdquWqLM

[@spitfireap77]

I'm sure this is all very clear and organized in his head....but he needs to work on simplifying his explanation. It's not easy to follow

[@osark2487]

Mosler made him gag multiple times in a debate...

[@antwalk7772]

the federal reserve is our responsibility because we elect the president that chooses the board of directors. Should've kept trump he has the most debt of any US citizen 😒

[@myessyallyahamericus8405]

You are murdering my entire family by remaining in the trap I set for you.

[@JeneralDethray]

Zombie!

[@doubleuponbob3397]

Get those warts fixed, balls.

[@se7ensnakes]

39:29 More misinformation. The Bank did not use deposits, investors or any government money to make the 90 million dollar loan. Acme Bank created the 90 million dollars based on a signed promissory note, aka negotiable instrument. Reserve requirements is important only if the loan goes into default. But then there are bailouts, mortgage insurance.

[@bisiriyutajudeen5728]

Oh i see what you mean, so the banks essentially created 90m out of thin air, then makes the mortgage applicant sign a promissory note to pay bank with interest. The bank then lists the mortgage contract as an asset on their balance sheet even though they never had the 90m in deposits to begin with. Is this what you mean?

[@se7ensnakes]

@@bisiriyutajudeen5728 No! Mr Customer goes into the bank and wants to borrow 90m. The bank approves the loan and has Mr Customer sign a promissory note. The promissory note does not say that the bank promises to loan Mr Customer 90m, instead it says "VALUE RECEIVED" and the amount 90m, plus the interest, and the time to pay the loan. The bank takes deposits this promissory note into a T- Transaction account. As Mr Customer pays the account the liability side is reduced until the loan is paid off and the accounts zeros out. At this point the promissory note no longer has any value. So you see the bank does not keep the created money BUT they do keep the interest which may larger than the money they created. Commercial banks pull a trillion dollars from the economy in interest and fees.

[@bisiriyutajudeen5728]

But if the 90m never existed in deposits in the first place., where did the 90m come from if not from thin air?

[@se7ensnakes]

@@bisiriyutajudeen5728 of course from thin air, and it is not just from thin air but by all definition counterfeit. MMT call it credit and not money. Some economist call it endogenous money. Others call it currency, but no matter the name it still draws 1 trillion dollars from the economy in interest and fees. The question is: How would the economy look like if the only thing you could lend was government money? Having the one industry create most of the money we use leads to a widening of the wealth gap and a monopoly ownership of corporations.

[@bisiriyutajudeen5728]

@@se7ensnakes I 100% agree with you. So what happens to the newly issued money(loan) if the borrower can't meet their debt obligation?

[@sportsguy569]

This guy rambles a lot. I feel like he has meaningful information to share, but I would suggest focusing on a more concise approach to the speech

[@johnapples2018]

It’s hard to boil down sophisticated ideas for the stupid.

[@se7ensnakes]

In order to understand the economy you cannot have a religion. No matter. You have to sift through MMT. You have to sift through Austrian Economics, through the END the FED readings such as that propose by Ron Paul. You might get some hints from a university doctorate economic degree. You might end up with some studies by Richard Werner, Michael Kumhof and Steve Keen but these only give you half the story. In the end you will realize that there is a tax on the money that private commercial banks create out of nothing and we are force to use. It is not called a tax. It is called interest. and in the next 30 years these banks are going to extract 30 Trillion dollars from the economy approximately. These banks dont create anything but computer databases. They dont make cars or houses. They only offer digital paper. They get a free vital inventory. Not one of these aforementioned economic religions systems address that simple fact in its entirety. Remember private banks create money out of nothing essentially.

[@d68st90]

I really appreciate your ad hominem use here LoL 😂

[@se7ensnakes]

@@d68st90 Not ad hominem pay attention. On 13:56 he speaks about learning. But unfortunately Robert P. Murphy is either lying to you or misinforming you. You call it an ad hominem because you are not informed as to the reality of the economics. FYI: Mr Murphy misinforms you on 39:29: The Bank did not use deposits, investors or any government money to make the 90 million dollar loan. Acme Bank created the 90 million dollars based on a signed promissory note, aka negotiable instrument. Reserve requirements is important only if the loan goes into default. But then there are bailouts, mortgage insurance.

[@LL-cz5ql]

@@se7ensnakes and they also try to buy money from other banks no? What are your Assets in? Who would you recommend to learn from?

[@se7ensnakes]

​@@LL-cz5ql Unfortunately you wont find anyone to explain all the intricacies that they banks use when they issue loans. The most accurate I found has been Positive money (positivemoney.org). But they too are feeling their way through the complex commercial bank system of endogenous money. You get bits and pieces from everyone and try to figure it out. Richard Werner and Steve Keen tell you half the story when they talk about endogenous money. But no one had ever done a study of what would happen if commercial banks were only allowed to loan government money and not create their own, that is eliminating endogenous money and only circulate exogenous money. I was looking at this paper www.sciencedirect.com/science/article/pii/S1090944319303606, but i cannot say I agree with it entirely. Here are four facts that you cannot dismiss: 1) Commercial Banks create their own money when they issue loans. This is called endogenous money by some economist. The mechanics of this is as follows. Buyer goes looking for loan to buy a new car. He gets an approval from a commercial bank and the bank then has the buyer sign a promissory note. The promissory note is suppose to be a bilateral promissory note but if you read it it does not state that the bank is loaning this money but merely puts the amount of the loan and writes "value received". Now the seller bank creates a special transaction account and deposits the promissory note as if it was money into that account. The bank then writes a check against that account and hand it to the buyer. As the buyer pays off the loan the amount is reduced accordingly. When the buyer ends up paying the amount of the debt the Transaction account zeros out, and the promissory note no longer has any value. Fulfillment voids the promissory notes value. As you can see the bank do NOT keep the created money but it does keep the interest, which is sometimes more than the created money. Is a business which gets a free inventory. What exactly happens after the Buyer gets the loan and buys whatever it was that the loan was for is not so clear. Now the MMT people argue that the buyer Bank has to clear the check from their excess reserves (But the numbers dont add up, there is more issued credit than there are reserves). Then again the buyer commercial bank can do an interbank loan to balance their books. There are interbank loans within interbank loans so things are not so clear. Remember that there is already extra money in the economy because the check has already been spent or will be spent. If the loan goes into default there is mortgage insurance, government back loans and Bail-outs for the buyer banks to balance their books. 2) Government created money in the money stock is 2.4 trillion update. The total official amount is around 21 trillion. How does it jump from 2.4 trillion dollars to 21 trillion dollars? Austrians economist explain this multiplicity to Fractional Reserve Lending. But Fractional Reserve Lending has been debunked due to the excess reserves vs credit created. There appears have been a redefinition of the base money supply. It used to be strictly dollars and coins but now it has been expanded to include commercial banks demand deposits. I use to find the old M0 here: www.federalreserve.gov/faqs/currency_12773.htm. The M2 is here fred.stlouisfed.org/series/M2SL. 3) Re: BANK OWNED HOMES. Between 2007 to 2014 banks foreclosed on 10 million homes. Where did these banks get the capital to loan and acquire 10 million homes and stay solvent? 4) Personal debt is at 14.5 trillion dollars but exogenous money is a mere $2.4 trillion. The average interest rate is 9% which means that these Commercial Banks are pulling some 1 trillion dollars from the economy on just interest alone per year. "Financial markets in the United States are the largest and most liquid in the world. In 2018, finance and insurance represented 7.4 percent (or $1.5 trillion) of U.S. gross domestic product." www.selectusa.gov/financial-services-industry-united-states. It appears that the ultimate goal of these bankers is the monopolization of corporations. A study has shown that there are common shareholders. www.forbes.com/sites/bruceupbin/2011/10/22/the-147-companies-that-control-everything/?sh=795396855105

[@se7ensnakes]

@@LL-cz5qlI own real estate but I regret it. If I needed to park my money and did not want to be bothered I would buy gold. Owning property is a business that you need to cater to. Owning property will keep you busy. Rare collectibles such as car or artwork can break, rust, rot. These collectibles are good if you are going to use them. Playing the market you need to know what you are doing because you might lose it all.

[@joethethunder4906]

So far all the misses institute spokesman don't know what they're talking about.

[@Dowell318]

Not particularly impressed by this topic, frankly. It's EXTREMELY dry and boring. This guest takes like 10 minutes to explain that whether the Fed pushes excess reserves to banks (buying Treasuries), or banks pull them from the Fed (by taking out loans from Fed), the effect is the same - greater reserves in system, downward pressure on interest rates. He takes EVERY BIT of 10 minutes to explain that, from about 14:00 to about 24:00. I can't do it. I can't listen to another 10 minutes of him explaining some other basic monetary mechanic concept, which should take 30 seconds.

[@michaelmee9246]

no one cares whether you watch it or not. you are not so important. watch what you want and be quiet.

[@Dowell318]

@@michaelmee9246 Did I get your goat or something? I wasn't talking to you. Maybe you should be quiet.

[@transon6655]

@@Dowell318 these lectures aren't only for people who already are very knowledgeble in economics. Bob often tries to explain his thoughts in a way the laymen can also understand it. I remeber when I was a beginner in economics, Bob was my best teacher, very easy to understand, interesting and sometimes some humour.

[@sollyismail1909]

One of the worst presenters I have listened to. He takes so long to come to the punch line. Did others have a different experience?

[@MHjort9]

Damn, this is boring

[@connorism69]

There must be a video full of explosions and gunfire somewhere...

[@donaldclifford5763]

Funny, I find it riveting.

[@se7ensnakes]

with so many errors in this lecture you barely can get anything usable.

[@WackyIraqi777]

Ok Krugman whatever you say buddy

[@se7ensnakes]

@@WackyIraqi777 Ad Hominems not allowed. Stick to the subject. Krugman = propaganda. Bot Robert P. Murphy and Krugman ignore facts.

[@se7ensnakes]

There is a lot of misinformation and antiquated understanding in this presentation.

[@myessyallyahamericus8405]

What you are doing will only lead to death and horror for all involved. You are way past prime. You are beating a dead horse. You are making fools out of yourselves and making me suffer your foolishness

[@zachrike]

Robert, you are missing something on inflation. A spike in the money supply, as defined by current M2, lags about 18 to 24 months before inflation spikes. This hypothesis has been proposed by Dr. Friedman in the 1960's and then updated in the 1970's and then tested and reviewed here: www.lancaster.ac.uk/staff/ecajt/inflation%20lags%20money%20supply.pdf Thus I think we are just on the precipice of an inflation rate (as measured by CPI that understates the rate) that I think reaches 10% by the end of this year and could reach as high as 20% in early 2022. And I think we are already there with Housing/Rent, Food, and Energy (gas), the 3 most basic purchases that Americans make. I predict this will be the highest inflation in the USA since the end of the civil war and we are just months away from it.

[@Castle3179]

Thanks for the link.