New video: How Money is Created and Destroyed

[AceNZ]

I made a short video that summarizes the mysteries and magic behind the process of money creation and destruction:

http://www.youtube.com/watch?v=xNehYxy77RI

Please have a look, and let me know what you think.

 

[NocturnalC]

I made a short video that summarizes the mysteries and magic behind the process of money creation and destruction:

http://www.youtube.com/watch?v=xNehYxy77RI

Please have a look, and let me know what you think.

Nice job on the presentation.........very informative.

 

[Agora]

Interestingly enough : "Islamic contract law prohibits trading on credit; monetary or other exchange values (i.e. gold, silver, etc.) transactions must be made on the spot. Usury violates this principle, since usury essentially means buying money on credit."

There is good reason why global system fights it.

 

[constitutional]

Nice, simply put and easy to understand. I demand more!

 

[kyleAF]

Great video!

I would just be curious how the interest paid on the Fed loans factors into your example.

Also, the lowest reserve ratio that banks can actually hold here in the U.S. is 3%, but there are limits on the actual size of the funds in that case.

 

[ARealConservative]

I made a short video that summarizes the mysteries and magic behind the process of money creation and destruction:

http://www.youtube.com/watch?v=xNehYxy77RI

Please have a look, and let me know what you think.

Good job! you sound so much younger than I would of expected.

It would of been nice to demonstrate what happens when we do pay interest on that initial bond and how we actually are losing wealth the longer we stay in a debt based monetary system.

 

[AceNZ]

I would just be curious how the interest paid on the Fed loans factors into your example.

It would of been nice to demonstrate what happens when we do pay interest on that initial bond and how we actually are losing wealth the longer we stay in a debt based monetary system.

I'd like to do a whole separate video about the Fed.

Interest paid to the Fed on the national debt is rebated to the Treasury, which has the effect of causing loans that the government makes to itself to have zero interest. It's not quite that simple, but that's the gist of it.

Also, the lowest reserve ratio that banks can actually hold here in the U.S. is 3%, but there are limits on the actual size of the funds in that case.

Minimum reserves are based on a sliding scale, based on the total amount of deposits held by the banks. Smaller banks actually have a 0% reserve requirement. Banks are also not required to hold reserves on "time deposits", like CDs or savings accounts.

Lower reserves for smaller banks might seem paradoxical at first (smaller banks would seem to have a higher risk of failure). It was set up that way to entice small banks to become members of the Federal Reserve system.

Nice, simply put and easy to understand. I demand more!

Thanks. I was thinking I might do a series of videos. Maybe something like this:

1. How money is created and destroyed
2. The impact of inflation
3. All about the Federal Reserve
4. How the dollar changes in value
5. How government financing works
6. How the IMF and the World Bank work
7. How the military industrial complex works

If you have any suggestions for specific content or issues that you'd like to see addressed, please let me know.

 

[gutteck]

Good video. It expands the knowledge from what other videos on the topic talk about.

 

[forsmant]

Nice video.

 

[RSLudlum]

another good one:

Money as Debt
http://video.google.com/videoplay?docid=-9050474362583451279

 

[kyleAF]

I'd like to do a whole separate video about the Fed.

Interest paid to the Fed on the national debt is rebated to the Treasury, which has the effect of causing loans that the government makes to itself to have zero interest. It's not quite that simple, but that's the gist of it.

I'd be interested in seeing that.

Minimum reserves are based on a sliding scale, based on the total amount of deposits held by the banks. Smaller banks actually have a 0% reserve requirement. Banks are also not required to hold reserves on "time deposits", like CDs or savings accounts.

Lower reserves for smaller banks might seem paradoxical at first (smaller banks would seem to have a higher risk of failure). It was set up that way to entice small banks to become members of the Federal Reserve system.

Yes you're right. I missed the 0% entry up to 9million dollars in reserve. Here's the link for anyone else:

http://www.federalreserve.gov/monetarypolicy/reservereq.htm

 

[ARealConservative]

I'd be interested in seeing that.

Me too.

 

[Hoover Dog 1957]

This is how war helps the economy according to our President, George W. Bush

http://www.youtube.com/watch?v=lIbdnM8Ts88&

 

[rollingpig]

wow, well done! please make more!

 

[polomertz]

Nice video. Definitely make more! I might suggest you add a little part at the end where you show what happens when you erase that poopy little rectangle in the bottom right corner.

 

[AceNZ]

Nice video. Definitely make more! I might suggest you add a little part at the end where you show what happens when you erase that poopy little rectangle in the bottom right corner.

Thanks.

I wanted to talk a little more about the Fed and how bonds are paid off, but I ran out of time with that darn 10 minute limit on YouTube. I'm planning to talk about it in detail in the one of the later videos.

Here's the short answer: interest paid to the Fed on the national debt is rebated to the treasury.

Say the interest was $100 on a $1000 bond. Paying off the national debt could be done as follows:

-- The Treasury creates a special zero-interest $100 bond that has to be paid off on the same day it's issued.
-- The Fed buys the bond by creating $100 in new money, which it sends to the Treasury.
-- The Treasury sends that $100 to the Fed as interest on the original bond, along with the principal, which it collected via taxes as shown in the video
-- The Fed rebates the $100 in interest to the Treasury
-- The Treasury sends to the $100 back to the Fed to pay off the second bond

It's all a big shell game. "Borrowing" from the Fed is really just an illusion that makes the arbitrary creation of fiat money become politically acceptable.

 

[Cooter]

i posted this on another board that i go to and someone said "thats wrong" i said "what part" and their responce was "About where the money is created out of thin air with bonds. Investor buy those bonds from the govermnent and the goverment pays a insterest on the bonds."


any responce to that because im not so sure i understand it all anyway?

 

[AceNZ]

i posted this on another board that i go to and someone said "thats wrong" i said "what part" and their responce was "About where the money is created out of thin air with bonds. Investor buy those bonds from the govermnent and the goverment pays a insterest on the bonds."


any responce to that because im not so sure i understand it all anyway?

Yes, investors can buy the bonds, and yes, the government pays interest on them.

However, the Fed can also buy the bonds -- and when it does, new money is created. That is one of the key functions of the Fed's Open Market Committee actions: buying bonds to create new money, and selling bonds to destroy money.

The video does simplify the process slightly, since YouTube only allows 10 minute long videos (I made a version that explains the same scenario in more detail, but it took around 25 minutes). The Fed doesn't actually buy directly from the Treasury. Instead, they buy from specialized dealers. That approach lets the market set the price (interest rate). However, the net effect is exactly the same as what the video shows. I also used a 0% bond in the example, which is another simplification -- but the interest paid doesn't impact how money is created or destroyed; it just complicates the final destruction of money, which I explained in my previous post in this thread.

 

[rollingpig]

a question on the part about the bank reserve.
you said in the vid the 1000 dollar in YOUr checking account is the back reserve so that the bank can loan 9000 to businesses.
Are you sure about that? I thought they can only loan 90% of that $1000 and the $100 left in the back is the bank reserve.

 

[AceNZ]

a question on the part about the bank reserve.
you said in the vid the 1000 dollar in YOUr checking account is the back reserve so that the bank can loan 9000 to businesses.
Are you sure about that? I thought they can only loan 90% of that $1000 and the $100 left in the back is the bank reserve.

Yes, I'm sure. Loans are not made from reserves. Loans consist of newly-created money.

I've simplified the explanation in the video somewhat. Banks would normally loan 90% of their excess reserves at a time, because they can't be sure where the proceeds from those loans will be deposited. In the example, there's only one bank (which behaves like the whole banking system in real life), so they know the funds will come back to them.

The multiplicative effect works like this:

$1000 in initial reserves means that there $900 in excess reserves (90%), so a $900 initial loan can be made (new money), which "consumes" $90 of the excess reserves (10% of the loan amount), leaving $810 in excess reserves. That allows a new loan for $810 to be made, which consumes $81 in excess reserves, and the process repeats until the minimum reserve ratio (total reserves divided by total deposits) of 10% has been reached, at which point excess reserves will be zero.

Or, as the Fed itself says in "Modern Money Mechanics":

http://landru.i-link-2.net/monques/mmm2.html

Carried through to theoretical limits, the initial $10,000 of reserves distributed within the banking system gives rise to an expansion of $90,000 in bank credit (loans and investments) and supports a total of $100,000 in new deposits under a 10 percent reserve requirement. The deposit expansion factor for a given amount of new reserves is thus the reciprocal of the required reserve percentage (1/.10 = 10). Loan expansion will be less by the amount of the initial injection. The multiple expansion is possible because the banks as a group are like one large bank in which checks drawn against borrowers' deposits result in credits to accounts of other depositors, with no net change in the total reserves.