Credit Creation and the Money Multiplier - How do Commercial Banks Make Money?

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7 жыл бұрын

Credit Creation and the Money Multiplier - How do Commercial Banks Make Money? A video covering Credit Creation - How do Commercial Banks Make Money with the money multiplier?
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@superninjarobotgirl 7 жыл бұрын

You are the reason i am doing a degree with a focus on economics. At AS level i originally got a D and after finding your videos i ended up with a full UMS A* at A2. There are no words for how grateful i am that i found your channel and subsequently found a subject i love so much! keep up the great work!

@johnmason6998 3 жыл бұрын

dayum

@tomh383 2 жыл бұрын

dayum

@nithinsenthil3047 2 жыл бұрын

dayum

@isaacfemi4857 2 жыл бұрын

dayum

@tdofeldt5742 2 жыл бұрын

And A level is a LOT harder

@sophiesam7392 7 жыл бұрын

I am a student in kenya and you have been of great help thank you so much

@josephmorgan3881 4 жыл бұрын

This man will honestly never know how much he has saved me in my A levels

@abdirahmanmumin Жыл бұрын

What did u get

@josephmorgan3881 Жыл бұрын

@@abdirahmanmumin A

@abdirahmanmumin Жыл бұрын

@@josephmorgan3881 how did he save you? We’re u doing really really bad in year 13? Also congratulations

@josephmorgan3881 Жыл бұрын

@@abdirahmanmumin well I didn't try very hard in year 12, my notes were a mess and my teacher wasn't very good so by the time I started actually trying in year 13 I was wayyyyy behind. Then I found this guy who covered every topic in an easy clear 10 minute video and I was able to catch up and do pretty well

@abdirahmanmumin Жыл бұрын

@@josephmorgan3881 ahhh when did u start. I’m literally starting to do notes for the whole course now😭

@leonardowilhelmdicaprio999 3 жыл бұрын

Yes, you bloody nailed it!

@AAA11546 4 жыл бұрын

This was explained so clearly that it's almost unbelievable

@freechurchpress3571 4 жыл бұрын

to bad its all wrong

@herbertspencer8293 3 жыл бұрын

kzfaq.info/get/bejne/n897pZCalZiWnY0.html The Progressive Growth of the Money Supply Principle (year 2013) tells us the exact quantity of new money the economy needs to works correctly, driving us to the Wicksell interest rate or natural interest. This principle will force central banks to change monetary policy.

@ingeylaali9477 3 жыл бұрын

@@freechurchpress3571 too sad its all right?

@freechurchpress3571 3 жыл бұрын

@@ingeylaali9477 extremely disturbing

@aiothedat3102 2 жыл бұрын

@@freechurchpress3571 how is it wrong

@aliatharmasood3405 2 жыл бұрын

Your videos have been a massive help all throughout my A levels, especially, year 2 when I was really struggling with eco! Thankyou so much❤

@Stay_Informative 4 жыл бұрын

Man the only thing I can say lots of love and respect from Afghanistan ,I really enjoy your videos.

@bru8672 3 жыл бұрын

Finally I catch up the content here after watching multiple videos. It's a very good platform to grasp concepts quickly👍👍👍

@user-bd2pk5de9c Жыл бұрын

Shouldn’t the arrow for “ return” be going from the bank to the saver since the saver will benefit from the interest rates on their savings accounts?

@samhitam1875 5 ай бұрын

in my A Levels rn and you are literally saving my grades

@laibaqasim5872 2 жыл бұрын

Thank you for this ! Gave my A levels exam studying from your channel ! Got an A💕

@Manisha_Magszine Жыл бұрын

makes soo much more sense now! thank you!

@mumtazwaseem231 9 ай бұрын

This man's a savior for me in professional accountancy studies❤❤❤

@chemzmariano5027 5 жыл бұрын

Plizz keep up the good work you really helping out, am grateful

@chrisvidsmauchaza8530 3 жыл бұрын

This guy is too good...thanx

@ridexfreeride8896 3 жыл бұрын

thank you so so much I couldn't understand this before you explained it

@thesyangjali3104 3 жыл бұрын

Thankyou for this wonderful explanation you create curiosity among your students

@austinwachira5185 Жыл бұрын

Fantastic help, Thanks! 👍😁

@obedbaidoo440 3 ай бұрын

Wonderful 👏... you are great teacher man. You've made it very simple 👏

@simplymelay529 3 жыл бұрын

I am learning so much.. Thank you for your vids..

@freechurchpress3571 4 жыл бұрын

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks: • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits." Money creation in the modern economy By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

@KimetsuNoYaiba100 2 жыл бұрын

It's amazing even after the Japanese window guidance system and it's boom-bust cycle, people still teach the fractional reserve garbage theory.

@aiothedat3102 2 жыл бұрын

how can you prove that

@kevinarmstrong6043 2 жыл бұрын

@@aiothedat3102 Have a look at Professor Richard Werner. He wrote a detailed book called Princes of the Yen about the Japanese post war economic system. He also explains how the fractional reserve system no longer exists such has been the deregulation of the banking sector. The explanation above about how banks create credit is spot on.

@kevinarmstrong6043 2 жыл бұрын

@@aiothedat3102 There's also a documentary on KZfaq called Princes of the Yen which is a broad outline of the book....absolutely fascinating stuff, you'll enjoy it!

@aiothedat3102 2 жыл бұрын

@@kevinarmstrong6043 thanks I'll take a look

@rammondal4557 5 жыл бұрын

Thanks that explains me what I trying to understand

@parthivchandrak 2 жыл бұрын

Watching this at 1:28am. This guy is insane!

@foreverkazi7748 3 жыл бұрын

you did nail it!

@priyalulla1666 2 жыл бұрын

WELL EXPLAINED SIR

@nabhanjaffer 2 жыл бұрын

this just blew my mind

@kingsolomon3332 7 жыл бұрын

One problem, since the economy needs continues debt or else we get deflation like we did in 08 because the interest to pay the debt never existed in the first place, fractional reserve banking is nothing more than a ponzi scheme and is doomed to fail.

@mcjon1013 7 жыл бұрын

youre a god . and bank runs are scary- what actually happens to the individual if they want to withdraw money during a bank run but the bank doesnt have it? Have they just completely lost their money?

@Fra71 7 жыл бұрын

Jon C you'r getting it. not sustainable. search ludwig von mises and business cycle or hurta de soto money, credit banking and the business cycle

@rihannalover99 7 жыл бұрын

Jon C this is exactly what happened in Greece 😕

@samleboutillier7992 2 жыл бұрын

Paper 3 gonna be class

@farealmalik 3 жыл бұрын

Thankkkkkk youuu!!!!

@noonefornow1514 6 жыл бұрын

what if many people fail to repay their debts, how will this effect credit creation?

@dalmapeller2285 4 ай бұрын

thanks dalllly

@mameboubakardembatamba1877 3 жыл бұрын

Thank you very much

@kaiheintsang5656 6 жыл бұрын

You are a legend :))))

@matthewlangley9417 3 жыл бұрын

If a saver deposits £100 at the bank, and as you say, the bank keeps £10 on their books, while lending out £90, the resultant effect would surely be that no new money is created. Rather it is moved around. How is this credit creation? There is no explanation for credit creation in this explanation?

@hisschoolwork3987 3 жыл бұрын

exactly. I don't get where this 'new' money comes from..

@joseadrianramirez3793 3 жыл бұрын

@@hisschoolwork3987 yes but both parties, the initial depositor and the borrower have acces to the money, one in the form of debit/cash and the other in the form of credit

@so_you_think_I_have_brain 2 жыл бұрын

If you mean by this the actual currency notes, no they are not created, what it does is increase the money supply in economy, thus credit creation, as you have said if a saver deposits £100 at the bank and keeps 10 and lends the £90 , this increases the money supply in economy from £100 to £190 . I hope that explains it

@aniqarazick7256 2 жыл бұрын

Hi! I wanted to find out how a low liquidity ratio would contribute to banks being able to lend more, is the percentage of the deposits that is kept by the bank the liquidity ratio?

@haydendavison5962 Жыл бұрын

Yes as well as other liquid assets held such as reserves in the Bank of England for example will give the total current assets held by the bank

@Jaya_Pradhan Жыл бұрын

I am really confused with the distinction between money multiplier,credit multiplier,credit creation and money creation someone please help. Also credit multiplier is 1/CRR ×100 how? Isn't it LRR

@alphaquehekora9851 13 күн бұрын

Like if not doing financial markets ?

@Anoop1236663 5 жыл бұрын

Nice

@callumjsc7244 7 жыл бұрын

I think I must be misunderstanding? If £100 is deposited, £10 kept and £90 lent then does the bank create the £90 to lend out or does it do this with the £90 left after profit from the original £100? When £90 comes back surely the bank's deposits is now £90 and not £190?

@TheTGVPro 7 жыл бұрын

The £90 is from the original £100 which was deposited. That is then why a bank run is problematic as he said in the video. Because the bank has lent a portion (90% in this case) of the money deposited

@callumjsc7244 7 жыл бұрын

so how has money been created if 100 gained - 90 lent, that's my issue??

@risha924 7 жыл бұрын

Callum C because the £90 may return to the bank as a deposit, increasing the money supply (in this case narrow money (MO) as there is a new deposit )

@callumjsc7244 7 жыл бұрын

So if the £90 returns and the £90 also has to be paid back to the bank : then money is created. I think I was forgetting the fact the loan needed paying back :)

@kimkimkim8396 4 жыл бұрын

can anyone please explain a little bit abt this? I dont quiet get it

@deborahkadejo4143 4 жыл бұрын

Does this mean the amount of currency notes stays the same but the figures in the account just increases?

@PorgyGeorgy1 5 ай бұрын

I have the exact same question.

@iwatchyoutube5111 6 жыл бұрын

I don’t get where the new money is created from, please explain

@ashreethsharma9951 4 жыл бұрын

He said from thin air. Wernt u listening

@freechurchpress3571 4 жыл бұрын

It comes from the signature of the "borrower".... Don't listen to this guy or the textbooks... they are dead wrong. Listen to the Bank of England who said the truth in 2014.

@ericnjoroge_ Ай бұрын

Who owns the new 900pounds

@manishapadia6473 5 жыл бұрын

EcoGod

@MCart1215 Жыл бұрын

I really don't understand how this doesn't cause hyperinflation? Its like just pumping newly printed money into the economy

@iasonpetridis5612 Жыл бұрын

It definately can cause hyperinflation. It's all about managing it, which goes back to the idea of monetary policy

@JohnOliverY 3 жыл бұрын

It’s not based on faith; it’s a gamble.

@kimkimkim8396 4 жыл бұрын

how can the money increased?when its decreasing from 100 to 90

@69PM69 4 жыл бұрын

actually 100 is initial deposit in bank, bank lends 90 & then 90 is spent in market causing income, income leads to saving which further leads to deposit on 90 in bank which is further lended in market for expenditure & so on so the calculation goes like 100+90+81+72.9+... & so on

@BRunner12 5 жыл бұрын

This is all wrong, an Economist Dream World. Go see how it works, banks never loan money. Banks write securities contracts (basically IOU's) and enter the amount in a deposit account. The Securities Contract is their asset.

@samcroft8622 5 жыл бұрын

JB Runner say something bad about econolusdal I dare u

@adamdickinson8665 5 жыл бұрын

He’s just giving us a theory you know, doesn’t mean it actually happens.

@freechurchpress3571 4 жыл бұрын

You are totally correct.