Where Does Money Come From?

Where Does Money Come From?

we live in a world based on money but why do we need it and where does it come from in part one of this therapy session we talked about value creation and trade if you haven’t seen it watch it first the story could have ended right there with all of us creating our pots and Spears and trading them for each other such trade which doesn’t involve any money is called barter the problem with barter economy such as to one of ancient Greece is that they rely on the coincidence of once someone with a surplus of Spears and the lack of pots has to find its exact counterpart to enter a trade having to wait for such coincidences results in an illiquid market meaning not a lot of trades are happening the problem of the coincidence of ones can be solved with a universal dividable storage of value also known as opportunity no money no money however in a situation when the coincidence of once doesn’t work because no two parties can agree on a trade give everyone a coin and they can resolve their conundrum value can be stored trade becomes flexible and everybody gets what he wants wherever trade was common there was some widely accepted form of money in 17th century Japan for example such a unit was koku in amount of rice the Empire even tried to measure its total wealth in kaku’s and arrived at around 28 million which using the current spot market price of rice would be around one and a half billion u.s. dollars in today’s money does this conversion make sense I don’t know but it’s less than 1 mm speaker so how much money does an economy need to run that depends on the amount of value creation and trade that are happening if you live in a Bronze Age village with an economy based on bread pottery and some kettle thousands of units will do the trick scale it up to a larger city and you’ll need millions for wealthy nation billions or even trillions today the worldwide amount of money is categorized into the four MCM zeros the cash in circulation worldwide that’s currently around 6 trillion US dollars if you are saving all your money in a piggy bank then that’s the glass ceiling you’re eventually going to hit now if you save your money in a bank account you can go places because then it becomes part of em one which is the amount of money that exists in cash plus the one which exists in demand deposits the amount of M one is currently rod thirty trillion u.s. dollars worldwide now you take those thirty trillion Washington’s and add them to saving accounts and time deposits now you will have the amount of money that we refer to as m2 which is currently around seventy trillion US dollars finally add to that larger liquid assets by constitutional money market funds and a whole lot of other crap and you’ll arrive at m3 in other words m3 is the total amount of value which we are actively representing in some currency it’s currently around 80 trillion US dollars this is not coincidentally about the same as the world GDP as remember money started out as a trade enabler these numbers are just a current snapshot of where we are at where will they be in a few years well I don’t know but probably higher than they are today if the worldwide amount of money supply is steadily increasing how so there are two ways in which money is created one is through the central bank a public institution with special powers usually granted by the Parliament among other things that has the power to literally print money or created in the form of credit which then gives to commercial banks or states by buying assets or government debt from them these dollars can then be spent and or lent out which is how they end up in circulation however in most nations the central bank makes up for less than 10% of money creation most of it is created by commercial banks or as most people refer to them just banks they use a method called fractional reserve banking which brings us back to you so you said your piggy bank money of a hundred dollars in an actual bank the bank can safely assume that you won’t run into more and claim back your entire money in fact they play a statistical game they assume that of all their clients deposits they won’t have to pay out more than ten percent at any point in time so they can lend out the rest right even better they say the entire deposits are there ten percent and they can create and lend out nine times that amount of money so for $100 that they got from your piggy bank they can now lend out another $900 and money that didn’t exist before like a magician they can just make it appear now since they can’t literally print money they created in the form of credit meaning they say it’s it’s there just believe us but just don’t try ever to spend it all at once because if everyone tried to do that we have what is called the bank run and everyone would realize that in fact only ten percent of it was ever really there and because banks don’t like to be GG by their clients they will in such situations impose a daily drawdown limit praying to their God moon Eaters that the system stabilizers and the bank run stops before the bank runs out of money the extent to which the central bank can control this creation of money is only by changing those 10% the so called reserve ratio if they increase it it means the bank need to keep a higher relative reserve which means that they can lend out less thus create less new money that level of control aside money creation is largely privatized and follows the rules of supply and demand the money supply goes up the price of a currency should drop and we should expect inflation with money supply goes down we should expect the opposite money supply check what about money demand did you notice how every dollar of money is connected to a dollar of debt whichever way money is created the institution which gave it away once it or something else in return at some point well this has been the origin of many conspiracy theories it’s actually just a reflection of the fact that money has no inherent value but it’s just a representation of value if a dollar bill wouldn’t ultimately be the claim on a dollar of debt or in other words at all of value created by someone somewhere else then all it would be is just a piece of paper with a nice drawing on it so does that mean that we can never get rid of our debt as long as there are dollars in circulation and nobody can ever really get ahead no example time let’s say you go to the bank borrow money meaning you take on debt to use that money to build a house so at the end of the day you took money that didn’t exist before to create value that didn’t exist before in exchange for debt that didn’t exist before cool the money now entered the system through construction firms and whatever which means that the money supply has increased with the exception of them zero because commercial banks don’t print when you remember now you go to work every day meaning you trade skill and time for other people’s dollars some of which might as well be the dollars which you are bang created for you to build your house in the first place mind blown and eventually pay back the money meaning you cancel out your debt which means that you own zero dollars and have zero debt what do you keep at the end of all this rigmarole is the value of your house the flow of money occurs hand-in-hand with the value creation process while underlying value is being built up and the more things we create each year the more money we need to represent this value we created that year while the amount of broad money supply m3 / GDP is currently around 80 trillion dollars the total amount of build up value or global assets is currently around 260 trillion dollars so next time you’re broke and believe the Big Bang conspiracy has screwed you just remember money has no inherent value it’s basically just the trade enabler the Japanese used to have rice money lol most money creation is privatized bank runs are bad go build a house [Music]

100 thoughts on “Where Does Money Come From?

  1. I mentioned this in the previous video, so sorry if I'm repeating myself, but are you familiar with a Resource Based Economy?

    EDIT: Wow.. well since you referenced Zeitgeist as a conspiracy, I'm assuming anything that has its name, whether it relates to the ideas of the original film or not (which it doesn't) you would have disregarded/ignored. I'm not particularly fond of the first film either but again, I really hope you don't think it's representative of anything more. You don't think Alex Jones would've been a more appropriate reference?..

  2. 0:56 U don't need money for that!!
    The left guy wants the red plate and the top right guy wants the green but the bottom right guy wants the yellow
    The top right guy can trade the yellow plate
    For a red one than trade the yellow plate he got for a green plate from the bottom right guy.

  3. Thank you providing clarity. In a future video, could you please address where money to pay interest comes from? I understand it's possible to create more value than the principal amount of the loan (hence the economic benefit to take the loan and use the money), but where does the money come from?

  4. Question. you say that it is possible to escape from debt but why didn't you take into account interest rates on the debt and depreciation on the property gained through the value?

    So you take out a loan and build a house. But immediately the house begins losing value and the debt begins to raise (interest and depreciation).

    Could you please explain again and account for these factors?

  5. Where in germany are you from for the Q&A ?, and what are you studying in university and where did you learn to speak such excellent english old boy again for the Q&A ? Vielen Dank in advance

  6. best youtuber of all, you explain everything crystal clear, I hope you keep doing economy videos

  7. Do a video about Ethereum Proof of Work/Stake Network Block Creation and how it can be used for secret word wallets holding various value units created with the virtual computers which run on the internet. Plus whatever else you know about it, please

  8. I think what's missing here is to clarify that though individuals can get rid of debt by paying it off, paying off all debt it's impossible, since money is created out of debt. Another important issue is that banks are charging interest for money they are creating out of thin air, apart of their fees, this is immoral and will have to come to an end at some point in time, that time being when educated citizens demand it.

  9. The video is wrong, he forgot about interest , remember the loan needs to be paid back with an extra amount added to it (interest) how can this extra value be paid back if it hasn't been created yet? and that's the scam of banks. at a micro economic level it seems we can pay off our debts.
    But at a MACRO economic level the debt never gets paid, it just grows and grows, (like we can see in the national debt) because of interest, not to mention compounding interest which should have been made illegal a long time ago.
    Please dont spread misinformation there is no need for a debt based economy, a REAL economy IS possible, just look at nature there is no animal bank were animals ask for loans in order to expand their families or beehives, they expand as the resources become available, just like in strategy games, you can only build structures (pylons lol) when you have enough resources thus never incurring in any debts.

  10. Banks loan out money they don't have and hope that they are able to keep the world economy stable, we can make a religion out of this.

  11. You are seriously MISREPRESENTING Fractional Reserve Banking! They don't suddenly get 9x the amount of money deposited in order to lend. They can only lend out 90% of the money deposited. But when they lend this 90% out, it gets deposited in other banks who lend out 90% of those deposits AGAIN! And when THEY lend it out, it gets deposited by the borrowers into their banks who lend out 90% again and so on… After this whole process has worked its way around, the money supply plateaus out at a little less than 9x the original amount of money created.

    So the end result is not much different than what people often imagine from your scenario, but the methods are VERY different. If the methods were as you've described here, then inflation would be literally infinite as every loan (which is always, of course, deposited right into someone's bank) would cause a 9x increase in money (which would grow to 81x, 729x, 6561x, etc.).

    The rest of the video is very good though!

  12. You've missed an enormous consequence of a debt-based monetary system – continual inflation, i.e., continual exponential growth of the money supply (on average over time), caused by interest. Inflation is a tax on saving that shifts wealth from the ordinary, responsible folks who save it (since their savings become less valuable) to those who are closer to the money machines like bankers and other elites (since the money doesn't become less valuable until after it's put into circulation). This is of course highly corrupt and a form of theft on an enormous (global) scale. So why do you rule out the possibility of a large conspiracy? Maybe you'd rather call it something else like greed, corruption, theft, etc, but since it involves many greedy, corrupt thieves all over the globe, is there any meaningful difference?

    In case you don't know why a debt-based monetary system requires continual inflation, remember that virtually all debt comes with interest. When debt-money is created, it has to be paid back with interest. So the money for that interest then has to be created, which means creating more debt and more interest and the cycle continues ad infinitum with no way out aside from a global revolution.

  13. The central bank aka the federal reserve is NOT a public institution it is a PRIVATE bank that the government empowered in the 1913 federal reserve act to print money.

  14. This time you fucked up. There is a big lack about interests and the central bank system, and a great misunderstanding of the fractional model.
    I don't even think these numbers are real. That's a pity

  15. Federal reserve is private everybody knows that. And a private bank prints us dollars not the government. Rothschild family probably owns it.

  16. First Point: not all Central Banks are "a public institution" or are "publicly owned". In fact, most of them are privatly owned like the US Fed.

    Second Point: when you get a loan, you are expected to pay the principal of the loan plus an interest. Where did the money to pay that interest come from?

    Third Point: the GDP of a country doesn't grow according to a country's money supply. The GDP is measured according to the money in existence in the system (if banks – central or commercial – create more of it, the GDP grows). How is that possible, you may ask? The GDP is equal to the quantaty all variaty of all products (goods and services made by an economy) multiplied by the prices of each of those products. If more money is created the prices rise, because there is now more money chacing the same products and so the "value" of the money drops; and this causes both inflation and the GDP to grow. If the amount of products rise (in quantity or variaty), then there is the same amount of money chacing more products and so the "value" of money rises [this means you can buy more stuff with the same money 😉 ]; and this causes deflation and a stable GDP. How does the GDP does decline or grow in the same proportion of the new stuff created? Like you said in the "1st part" our GDP are currently measured in US-Dollars (USA) or Euros (EU – in my case), not in rice, sea shells or gold coins anymore!


    P.S.: I like your videos and your work, but you should try again on this topic. It made me question your research and your opinion on other subjects that you aproached on your videos. Keep up the good and fun work. Good luck.

  17. Fallacy in your explanation, If debt is created for consumption and not to create value then no, the economy does not grow and you have situations like many third world countries, Greece, Venezuela etc…

  18. great videos (part 1 &2) that quickly summs up what I learned in school.
    yes, of course everything could be described even more and in details, but then we wouldn't have just 7 minutes of video. thumbs up for good work that does its job well!

  19. I really enjoy your videos, this one also being superb. I do think the fiat element of money you describe is really the difference between money and currency. Although both are used in the same way, money itself has enduring value (e.g. gold) where a paper coupon is just a promise or right to exchange against something of value based on trust.

  20. I'm glad someone is calling out all the conspiracy theoriest for there lack of understanding of how the economy works.

  21. the best channel i subscribed to in a long time ! thank you for the tremendous amount of knowledge your giving us 😀

  22. The bottom line is that our money system in the USA is a scam. Banks create ALL our money as interest-bearing debt owed to THEMSELVES. They have no Constitutional right to do it but a kept government does the bankers' bidding and we all suffer under this fraudulent and parasitic system. Trillions to the bankers, debt to the people!

  23. You manage to explain the premises of economics in a few minutes better than my professor can in an hour and a half lecture, definitely subscribing 👍

  24. Money is just a convenient form of barter exchange accounting.
    Here is how our service economy works. I shine your shoes for a buck. Then you shine my shoes for a buck. That is one buck changing hands twice for two dollars of economic activity only now the governments have taken 40 cents from both of us. So from the original buck each of has 10 cents left. You can't just be willing to work hard in the new world order's economy. China still has half a billion peasants that just want the chance to work hard and get off of the rice paddies.You have to be willing to learn and train to be able to work smart. One thing the election of Hair Donald Drumpf proves is there is nothing Americans find more burdensome than education and learning. Just as well because you can kiss public education good bye in Drumpf's America.

  25. Brilliant presentation! The first time I noticed how rogue the reality of money is, was, as I watched "Money as Debt".

  26. Why a country don't create a lot of money and buy military equipment, make better salaries and make the country a lot beautiful with more things?????(i can't watch the video).

  27. Commercial banks can legally create money out of thin air but they cannot create net financial assets by lending. (No bank has ever said to a customer: We're out of money today, you should've come last week when we had money, try again next Monday) To understand this consider the banks balance sheet. When the bank loans you money, they deposit your account with money. This is done by simply keying in the value in the banks accounts. The bank creates an asset (the loan) and offsets it with a liability (the deposit created) of equal value and therefore the banks balance sheet has the same value in net assets. On your end, the loan is a liability and the deposit is an asset so you have no net financial gain. The only institution that can create net financial assets without an offsetting liability is the central bank. You can learn more by visiting the federal reserve website. – I'm an economics grad student.

  28. Please consider making a video on "MONETARY
    REFORM – A BETTER MONETARY SYSTEM FOR ICELAND" a paper by FROSTI SIGURJONSSON commissioned by the prime minister of Iceland; possibly as a continuation to this video series?

  29. usa are suck pay on Japan machine then usa rich no 1 donal trumpz…suck that hye usa or British long ago stole treasure from Malaysia…& now Malaysia poor usa rich next generation

  30. This system is great for promoting rapid growth, but it is EXTREMELY UNSTABLE. It's like a giant pyramid scheme. Debt just keeps building and building, and eventually society will collapse. I look forward to when the world plunges into utter chaos

  31. Absolute rubbish. Money did not come about as a result of barter. You need to study some history. Adam Smith saying it doesn't make it so. Credit came first. The story you tell leaves government out of the process. Which is simply unsupportable. It presents government as a latecomer to the money project. You need to do some reading. https://www.youtube.com/watch?v=1dFF5Qsg7mM

  32. So would it be correct to say that the money in the world is not limitless thus for a country to be rich (accumulate money) other has to be poor (let go of money)?

  33. I don't see how this video poo-poos conspiracy theorists. You've partially (and excellently) explained how they screw everyday people over. To talk about how FRB, fiat currencies and financialisation of the economy serves only to enable fast-paced economic growth without talking about how open to abuse the system is may be a little disingenuous.

    Although I get that the anti-bank Youtube video market is a little saturated and it's counterpart is wide open.

  34. ah yes where does money come from…….watch " money as debt " the message is we don't have capitalism we have debt-ism. listen to prof. michael hudson . we have all been screwed

  35. I really impressed with your channel every time i ask myself about something in finance YouTube recommends a video and through your videos i find answers.
    I really would like help you in future by patron but unfortunately now I can’t sorry 😐

    Thanks for providing all this information to us I appreciate it a lot.

  36. "Where Does Money Come From?" True money, commodity money, is emergent. It emerges from within a society. Anything can be commodity money, but gold and silver are, because of their intrinsic qualities, the most popular and utilized.

    Most money today is Khazarian fiat — grift- – money, produced in the Khazarians' grift-machine, fractional reserve and central banking. It's theft fenced out as debt, fiat-debt. That grift-dollar in your pocket is in reality wealth and purchasing power stolen from you and your fellow countrymen's bank deposits and incomes. That debt they say you owe them is really wealth and purchasing power stolen from you and your fellow countrymen's bank deposits and incomes fenced to you with usury attached.

    It is they that owe us, not us that owe them.

    "Ignorance is Strength." I'm weak.

  37. One of the best videos about money is related to an equal yet bad video about money from a Channel called ColdFusion is linked on the right thanks to the Youtube algorithm. I suppose it makes sense to see both sides of the argument.

  38. Can you please make a video about Cyrpto currencies and how do they fit into the M1, M2, M3 channel? I have seen videos on cyrpto-currencies but you have a way of explaining stuff that simplifies everything and makes it much more understandable.

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