It's not a fractional banking "system". Fractional reserve lending is simply how banks work. There aren't really two (or multiple) ways it can work. That's sort of like calling breathing a "system" of respiration. What would be the alternative?
Bank 🏦 0:20 Savings 1:04 Entrepreneurs (projects/investments) 2:18 Gold “it’s pretty” 3:18 Goods and services and payment for those. 5:30 Balance Sheet 1 million to build a bank (solid safe Greek Temple looking building) 10 million invested 9 million in loans (charge interest to bring in more money as interest income) 1 million left on hand in case people want their money back
Go, Sal, go! If only Congress had viewed your Finance and Credit Crisis series, that bailout bill would never have been passed. Are you taking requests? If so: Programming and Vector Analysis! Hell, just teach us a whole g0ggdammed engineering curriculum!
I just saw the site of khanacademy and watched this video by accident,and I really wanna say it's brilliant! This way of teaching is clearly and easy to understand, I love this video at the first glance. I watched the first lesson then I can't wait to see the next lesson now. When I was in school I think the learning of banking is so boring, because I don't like it. But now I found I just enjoy your lesson so much that I wanna learn more. Thank you! Thank you very much!
It's always great to watch these videos as they are always an educational experience. Many people only have experience with their banks through checking, savings, or some retail investment products. This video shows that there is so much more to banking.
So far I have found these videos help reaffirm current knowledge and in some cases to learn something new but this video clearly needs to be updated. It provides the romantic FANTASY version of how banks operate. In reality: 1) loans create deposits not the other way around 2) ***banks issue new money (i.e. credit also known as magic digital keyboard money) when loans are issued... this is how the vast majority of money in the economy is created. Among other obvious benefits, like controlling where money is allocated, banks are the primary beneficiary of the nations seignorage 3) ***banks destroy money when loans are repaid 4) Technically bank "deposits" are loans to the bank 5) Technically bank "loans" are securities purchases by the bank in the form of a promissory note The lions share of loans by large banks today (over 80%) are NOT used for productive things like manufacturing improvements and new factories etc they are used to purchase of existing assets... i.e. real estate and securities and often for the banks own purposes. The large banks serve their respective head offices not the communities in which they operate and they rarely provide financing to small or medium size companies. Please consider using a small regional bank or credit union in your area as most of them still serve their respective communities i.e. the money they manage generally stays in and circulates within the community they operate in.
I agree with all the positives -- this is what the world needs above all else. And then he annoys the listeners to the point of violence by blowing into the microphone again and again and again. Why does what might be the best thing on the web have to be so trivially ruined?
I have an idea for fixing congress. I think we should have a system where the candidates for congress spend a term or two as evangelists in a structured forum where they compete with each other to explain the issues before the actual congress to us and recommend how much we should care about them. We are given points to spend supporting or opposing the issues we care about. The candidates could then be rated on how well their lobbing efforts corresponded to the way we spent our points.
In Japan they once used RICE as money. Like Britain, Japan was small, isolated and working with limited metal resources. So people used to trade with notes called "koku" that promised the bearer one years supply of rice from the lord's store. These notes were usually issued to soldiers as payment for their services but quickly came to be used as money by anyone who trusted the lord. Now I'm sure you see the opportunity to promise rice that hasn't been harvested yet. Let us pray for fair weather.
Thanks. Taking this class now and want to just get a B at this point and move on. Like that you keep it basic, I don't necessarily want to be an economist, but the entrepreneur example did peak my interest.
Thank you Sal!!! You are my hero. I wish you could become a financial superhero and show up in washington to break the mind control that evil, greedy corporate entities have on congress. Then you could shine the light of truth upon the hearts and minds of our countries representatives. They would then repent from mismanagement of our countries resources and a bright sun can shine on a new financial future where sanity and justice prevail!
Gold has some usage in microprocessors and medicine, but it is true - gold is mostly used to make vanity items. So we have a pricey, but overvalued gold. I am about to watch whole series, to refine my time bank idea. TY for sharing the knowledge.
I think that everything has a price and that money can be very deceptive. Over time, money has become the driving force behind our decision-making, but is just a mirage that we think is more valuable than it actually is. It's really interesting to think about how money has evolved over time from things with a practical purpose to the digital currency that we have today. If people truly knew the true purpose of money, then I think they could possible change their approach to life. I recently released a video that examines the evolution of money, its creation and true purpose on my channel. It expands on some of the ideas that you talk about here. Great job and keep up the good work!
Now here's the interesting thing about that quote... it comes from Ben explaining to the Bank of England directors his ideas on why the colonies were so PROSPEROUS!!!!!!!
I'm with you all the way but gold is used in a lot of gadgets and modern/advanced technology. It really might end up being our most valuable resource in the future in more than one way.
The thing is, the US's dollar is no longer backed by money, and I don't think we can keep using paper money because there will never be enough gold in relationship to the number of people. What will people do?
Nice one. It reminds me of the wizard's first rule... People are stupid! Here's a similar quote (from a banker)... "I am afraid that the ordinary citizen will not like to be told that banks can and do create money. And they who control the credit of the nation direct the policy of governments and hold in the hollow of their hands the destiny of the people." - Reginald McKenna, Chairman of the Board, Midland Bank
Which is true, but that does not mean that that money is worthless. When one makes a loan, the newly created money represents either the value of the collateral or the value of the goods and services produced with the loaned money.
For ListenTOOthers : Of courses you need deposits for create money ... but the creation of the money is allow by the initial deposit of "bankers" in the central bank. Fractional Reserve System works with the this initial deposit ... not with the customers deposits.
He is trying to illustrate the concept of banking in general. Doesn't have to be current banking system. This is the first video. Later on he will get into details.
And remember that they lend out much more than that. Wall street derivatives allow people to bet on markets falling, the people who have the power to collapse those markets are their biggest investors. Increase money supply = boom. Decrease money supply = recession. All recessions are deliberately caused by the big banks. This is basic economics.
support!!!!!! bring this to school and might get students a lot of help!! cuz i am fucking tired of the boring learning style we have right now!!!! i cant learning anything from those boring teachers!!!!!!
Hi Sal, would you do a video on the logic behind increasing oil prices in the west in relation to turmoil in the middle east. It's extremely relevant today and would be an asset in your video collection. Thanks.
Another... "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." - Lord Acton
Because the investment banks were convinced that their models were based on "predictable" events therefore lowered their regulatory equity (or artificially increased its value). This is solely an indication of a simple banking model. When you mix the different types of banks it is nearly impossible to understand the risks. Wall Street resembled more of a (dark) hedge fund than a traditional bank, which could be acceptable but much more volatile - and riskier for the depositors.
Unfortunately there isn't such a village in which everyone benefits. In this example, those who benefit are the owner of the bank and the owners of the productive investments. The workers who make the production are the creators of the riches and theones who get nothing except for the money that enables him to be in condition to come to the factory the next day. Good video though. Thanks for this.
the 9 million to lend out wouldn't come out of the 10 million, 9 million dollars is created out of thin air on top of the existing 10 billion. This is how commercial banks expand the money supply. Lending is one of the two ways in which new money is created.
Not merely electrons: One must change the NUCLEUS, i.e., the proton-neutron structure---which takes considerably even MORE energy than merely "changing" the electrons!
Here's how to fix fractional reserve banking: Require that banks remain more than 50% owned by their officers and make them, and their immediate families, personally responsible for all banks liabilities. This is fair because we (wisely I think) hold the public personally liable for bank failures. The fact that banks are a natural monopoly that enjoys such an extraordinary backing make it essential that its officers accept an extraordinary personal responsibility for that privilege.
Rafael, That's slightly funny -- but don't give up your day job quite yet. You should maybe look up the word "counterfeit" in a dictionary just so you don't start believing your own joke. The stuff created out of thin air by central banks is not counterfeit. It's the real thing and it has real value. not "merely because people believe in it" but because it performs genuinely useful functions, enabling the creation of wealth and security for real people in the real world.
@@TheDavidlloydjones No, no, I wouldn't dare to call myself funny in your presence. Argument from dictionary is bottom of the barrel of bad arguments. In fact, it's not an argument at all, unless you literally only want to discuss semantics, maybe. Otherwise you're literally saying you'll let some institution arbitrate what thoughts are correct and which are wrong. Words exist to convey meaning. As long as you understood what I meant, it served its purpose just fine. Even if some person disagrees with my usage or understanding of it, they can stuff it for all I care. Honestly I'm just beating a dead horse here, for how bad of an 'argument' that is. As for whether the USD is useful or not, so what? Counterfeited notes are useful too (wink, I'm using your favorite definition here). That is, until it collapses due to the rampant expansion of the monetary base. What's your point? That literally means nothing. By the way, when the Roman empire debased their own coins again and again, that wasn't counterfeit either right? After all, they were the authorities then, so who'd use critical thinking to look past silly titles and call things for what they are. When the empire does it, it's standard, fair coinage, foolish peasants! Hahaha, sorry, for the essay, I just had too much fun here. By all means, do split hairs and call upon definitions to try and draw distinctions that don't exist or matter.
@@Rafael-rn6hn I don't intend any "argument from dictionary." There's nothing to argue about: you're using the word "counterfeit" incorrectly. Money made by central banks or treasury departments is money in the respective countries where that's how money is created. You might also want to look up "inflation," a useful concept -- about which your ranting may sometimes be justified.
While I think the video's as a learning curb are fantastic there are a couple of point's I feel should be made. Firstly gold is not just pretty that's is not what gives it value. Gold is desirable it is a commodity that one person will provide a service to another person in return for an amount of that commodity.
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -Henry Ford
Golds main reason it even has value is because its finite. But your right, if the price goes high enough, people set up more mines and find more gold. Its inflation rate is about 2% a year. The problem is, like any asset, as the price goes up, people create or find more. This is exactly why Bitcoin is more valuable than any asset in my opinion and the opinion of mathamatics. Bitcoin price goes up and theres only so much that can be created. Using that simple logic, it makes Bitcoin the most valuable asset of all time. In the long run i think I will be right on this. Thats why even some of the biggest banks are starting to diversify into it. Thats why everyone should put some money into it because in the long run, it's only going in one direction and its not down
@kristopheraugust what exactly did you think was rubbish? he described it in layman terms very proficiently, to understand banking the way he described gold and money was enough to get the idea. Gold is valued by supply and demand, money is valued by supply and demand also (free floating currencies like the US dollar). This is all you need to know to understand this simple concept, he did an excellent job.
Generally a good video. I do think it could have been cleaned up for educational purposes by focusing on a lesson at a time. For example, this is trying to teach "borrow at X% and lend at X+Y%". There's no reason to draw in the Reserve to explain that, which only slows and dilutes the lesson. Teach savings = lending first, then complicate it next.
I think he's showing a simplified structure to give a foundation or edifice to further topics. He's mentioned this bank is a theoretical "first bank" for a "primitive culture." Therefore, no electronics, dental, space, medical or other industries use it for this demonstration.
"In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one." - Benjamin Franklin
If you don't understand that let me explain: Say you put in the value of what is worth $191,247.46 today (which was actually $20,000 paper bills back then) into your savings in 1950 or even just put it under your mattress Then today, you take it out and look at it, its only $20,000 in paper bills. You know how much thats worth today? $20,000 Thats what inflation does, it robs the people who save their money Thats why people like gold, its impossible to inflate it indefinitely without alchemy
The main thing about gold is that people agree that has value and you cannot print gold out of nowhere that is why is so valuable with respect to paper money. You could mine gold, but the amount you can mine is limited which is not true of paper or digital money.
Gyula Vörös It doesn't matter if it gold or paper or dog shit with paprika. The bank doesn't lend any money, only claim checks on money (promises to pay, IOUs) who basiclly work like actual money.
There is no fundamental difference between "actual money" and "IOUs that work like money", because anyone can redeem the IOU any time. In fact, fractional reserve banking works the same when they do not use IOUs, only actual gold. Have a look at the another video from this channel on the subject, "Banking 3: Fractional Reserve Banking".
"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." - Napoleon Bonaparte
Idk if it has already been mentioned but there's definitely a difference between gold and dollars. Gold is far more stable as a substance than paper meaning it will last much longer before deteriorating into nothing, also gold is one of the best conductors so it actually has practicality.
He doesn't write with a mouse, he uses a type of touch pad that reads the movements of a pencil so he's making drawing motions on something that looks like a touch pad that regular laptops have but then bigger.
I'm not saying I'm a pro or anything but gold is more then "pretty" its steadily goes up in value and is a good resource to build wealth and back up currencies. Also countries buy most all of the gold produced in their region bc it helps them build wealth
People like gold better than paper money because you cannot print a virtually infinite amount of it. So you cant really inflate it as easily as paper money. If you put your paper money in the bank, and they inflate money, the value of your money drops. Example: $20,000 in 1950 is equal to $191,247.46 today See how much money was robbed from your savings because of inflation? You lost the value of what is today $170,000 because of inflation
Actually, it's almost certain that the banker under those conditions would charge depositors for the service of storing their money, just like you would pay for any other type of warehouse storage. So he wouldn't pay interest (7:29). He faces contraints like overhead (durable building+vault, security, capable accountants and lawyers) and must avoid a bank run at all costs, unless he has some side deal with politicians to protect him from irate creditors. The idea of getting paid by the bank to hold your money appears to be a phenomenon of a fiat currency systems (which use funny money) with fractional reserves and government bailout schemes.
Notice that the banker could give out receipts for deposits of money metals (gold, silver, copper). These would be traded in the public as paper money.
Do you consider gold to be a better store of wealth than the taxing authority of the government? What value does anything have without the government to enforce a fair marketplace for trading it? If you don't trust the government to protect the value of its currency why do you trust them to allow you to keep your gold if it needs the money? I think we have to accept the fact that we really our more or less owned by the society we think we own simply because we depend on it for everything.
If anything gold should increase value over time, because the population will continue to increase while the amount of gold stays constant Once they dig up all the gold out of the earth, thats all they got. The price of gold dramatically increases because of the limited supply.
Debt Securities - Corporate Bonds Bonds are promissory notes, IOUs if you will, issued by a corporation or government to its lenders. They are usually issued in multiples of $1,000 or $5,000. The standard, or par, is $1,000. The bond indenture specifies the amount of interest to be paid at intervals, over a specific length of time and the principal, (or original loan amount), to be repaid on the maturity date. A bondholder is a creditor; a shareholder is an owner. -Investopedia
"... and this benefits _my_ village." This is a key statement that might have been true when we used gold coins, but with national banks, profit and loans are not necessarily staying with the communities that invested. Is there an argument for local banks? Why are they fading away?
Sal says gold is not really useful. Hmmm... Can anyone provide a single example in the history of the world where a government hyperinflated a gold backed currency?.....I'll check back in twenty years or so to see if any one came up with an example.
I thought you were going over fraction reserve banking in a different video? I wouldn't have watched the whole thing if I'd known you were discussing it now.
all i know is... without banks, a poor person is stuck poor... unless he can sell cars cheaper and better quality than ford without a loan the good side of a bank is that you can borrow money if you have none and try to start a successful buisness off just an idea maybe there is a mathmatical flaw but its not taking money from anyone in america because even though our rich get filthy rich... our standard of living still goes up to this day
"The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice." - Aristotle
its nice to have someone who knows how to explain all this confusion, i mean the fractional banking system and how it really works in lay mans terms
Sal Kahn is bright and knowledgeable -- but what really counts is, he has ver-ree sound judgement.
It's not a fractional banking "system". Fractional reserve lending is simply how banks work. There aren't really two (or multiple) ways it can work. That's sort of like calling breathing a "system" of respiration. What would be the alternative?
@@shushanto there is only one organism that doesn't respirate at all, but it's out there
@@shushanto do you need guidance and this?
Full Reserve Banking System@@shushanto
Bank 🏦
0:20 Savings
1:04 Entrepreneurs (projects/investments)
2:18 Gold “it’s pretty”
3:18 Goods and services and payment for those.
5:30 Balance Sheet
1 million to build a bank (solid safe Greek Temple looking building)
10 million invested
9 million in loans (charge interest to bring in more money as interest income)
1 million left on hand in case people want their money back
Go, Sal, go! If only Congress had viewed your Finance and Credit Crisis series, that bailout bill would never have been passed. Are you taking requests? If so: Programming and Vector Analysis! Hell, just teach us a whole g0ggdammed engineering curriculum!
Gold is actually used in many computers, and is very good as transporting electric currents!
I was just about to say that gold is used for Tech
Cool fact
Never knew this🤯
But the industrial demand doesn't justify the current inflated prices, most of the price of gold is based on speculation.
Yup. Also iron, lead, silicon. Lots of other elements, too...
There are much better videos out there explaining how banking works. I would recommend searching on 'Money as Debt' and 'Money as Debt II"
I just saw the site of khanacademy and watched this video by accident,and I really wanna say it's brilliant!
This way of teaching is clearly and easy to understand, I love this video at the first glance.
I watched the first lesson then I can't wait to see the next lesson now.
When I was in school I think the learning of banking is so boring, because I don't like it.
But now I found I just enjoy your lesson so much that I wanna learn more.
Thank you! Thank you very much!
Sal khan is the most extraordinary teacher that I've ever seen
It's always great to watch these videos as they are always an educational experience. Many people only have experience with their banks through checking, savings, or some retail investment products. This video shows that there is so much more to banking.
Khan, I admire what you have done so far. How kind you are.
its 2021 and i still watch these videos
So far I have found these videos help reaffirm current knowledge and in some cases to learn something new but this video clearly needs to be updated. It provides the romantic FANTASY version of how banks operate. In reality:
1) loans create deposits not the other way around
2) ***banks issue new money (i.e. credit also known as magic digital keyboard money) when loans are issued... this is how the vast majority of money in the economy is created. Among other obvious benefits, like controlling where money is allocated, banks are the primary beneficiary of the nations seignorage
3) ***banks destroy money when loans are repaid
4) Technically bank "deposits" are loans to the bank
5) Technically bank "loans" are securities purchases by the bank in the form of a promissory note
The lions share of loans by large banks today (over 80%) are NOT used for productive things like manufacturing improvements and new factories etc they are used to purchase of existing assets... i.e. real estate and securities and often for the banks own purposes. The large banks serve their respective head offices not the communities in which they operate and they rarely provide financing to small or medium size companies.
Please consider using a small regional bank or credit union in your area as most of them still serve their respective communities i.e. the money they manage generally stays in and circulates within the community they operate in.
I agree with all the positives -- this is what the world needs above all else. And then he annoys the listeners to the point of violence by blowing into the microphone again and again and again. Why does what might be the best thing on the web have to be so trivially ruined?
شكراً على شرحك وننتظر منك المزيد في تخصص التسويق
i swear this guy knows everything
I have an idea for fixing congress. I think we should have a system where the candidates for congress spend a term or two as evangelists in a structured forum where they compete with each other to explain the issues before the actual congress to us and recommend how much we should care about them. We are given points to spend supporting or opposing the issues we care about. The candidates could then be rated on how well their lobbing efforts corresponded to the way we spent our points.
In Japan they once used RICE as money. Like Britain, Japan was small, isolated and working with limited metal resources. So people used to trade with notes called "koku" that promised the bearer one years supply of rice from the lord's store. These notes were usually issued to soldiers as payment for their services but quickly came to be used as money by anyone who trusted the lord. Now I'm sure you see the opportunity to promise rice that hasn't been harvested yet. Let us pray for fair weather.
MBA professor will explain this so hard in one month. Here in just 11min I just understand how banks work
Geeeez! Is there anything you dont teach!? You are the man!
Thanks.
Taking this class now and want to just get a B at this point and move on. Like that you keep it basic, I don't necessarily want to be an economist, but the entrepreneur example did peak my interest.
Thank you Sal!!! You are my hero. I wish you could become a financial superhero and show up in washington to break the mind control that evil, greedy corporate entities have on congress.
Then you could shine the light of truth upon the hearts and minds of our countries representatives. They would then repent from mismanagement of our countries resources and a bright sun can shine on a new financial future where sanity and justice prevail!
Gold has some usage in microprocessors and medicine, but it is true - gold is mostly used to make vanity items. So we have a pricey, but overvalued gold.
I am about to watch whole series, to refine my time bank idea. TY for sharing the knowledge.
I think that everything has a price and that money can be very deceptive. Over time, money has become the driving force behind our decision-making, but is just a mirage that we think is more valuable than it actually is. It's really interesting to think about how money has evolved over time from things with a practical purpose to the digital currency that we have today. If people truly knew the true purpose of money, then I think they could possible change their approach to life. I recently released a video that examines the evolution of money, its creation and true purpose on my channel. It expands on some of the ideas that you talk about here. Great job and keep up the good work!
That's one thing I definitely agreed on with the Occupiers. The Emergency Economic Stabilization Act was toxic to the free market.
Now here's the interesting thing about that quote... it comes from Ben explaining to the Bank of England directors his ideas on why the colonies were so PROSPEROUS!!!!!!!
I'm with you all the way but gold is used in a lot of gadgets and modern/advanced technology. It really might end up being our most valuable resource in the future in more than one way.
Thanks for the clear and easy explanation. Many people probably never thought about why a bank gets started.
The thing is, the US's dollar is no longer backed by money, and I don't think we can keep using paper money because there will never be enough gold in relationship to the number of people. What will people do?
hmmm.......
Now i got it.
Well,you explained me better than Khan did.
Nice one. It reminds me of the wizard's first rule... People are stupid!
Here's a similar quote (from a banker)...
"I am afraid that the ordinary citizen will not like to be told that banks can and do create money. And they who control the credit of the nation direct the policy of governments and hold in the hollow of their hands the destiny of the people." - Reginald McKenna, Chairman of the Board, Midland Bank
Which is true, but that does not mean that that money is worthless. When one makes a loan, the newly created money represents either the value of the collateral or the value of the goods and services produced with the loaned money.
For ListenTOOthers :
Of courses you need deposits for create money ... but the creation of the money is allow by the initial deposit of "bankers" in the central bank.
Fractional Reserve System works with the this initial deposit ... not with the customers deposits.
He is trying to illustrate the concept of banking in general. Doesn't have to be current banking system. This is the first video. Later on he will get into details.
And remember that they lend out much more than that. Wall street derivatives allow people to bet on markets falling, the people who have the power to collapse those markets are their biggest investors. Increase money supply = boom. Decrease money supply = recession. All recessions are deliberately caused by the big banks. This is basic economics.
Wonder how you feel about gold as compared to the dollar today?
support!!!!!! bring this to school and might get students a lot of help!! cuz i am fucking tired of the boring learning style we have right now!!!! i cant learning anything from those boring teachers!!!!!!
Hi Sal, would you do a video on the logic behind increasing oil prices in the west in relation to turmoil in the middle east. It's extremely relevant today and would be an asset in your video collection.
Thanks.
Another...
"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." - Lord Acton
Because the investment banks were convinced that their models were based on "predictable" events therefore lowered their regulatory equity (or artificially increased its value). This is solely an indication of a simple banking model. When you mix the different types of banks it is nearly impossible to understand the risks. Wall Street resembled more of a (dark) hedge fund than a traditional bank, which could be acceptable but much more volatile - and riskier for the depositors.
Great tutorial, thank you for this video.
Unfortunately there isn't such a village in which everyone benefits. In this example, those who benefit are the owner of the bank and the owners of the productive investments. The workers who make the production are the creators of the riches and theones who get nothing except for the money that enables him to be in condition to come to the factory the next day. Good video though. Thanks for this.
the 9 million to lend out wouldn't come out of the 10 million, 9 million dollars is created out of thin air on top of the existing 10 billion. This is how commercial banks expand the money supply. Lending is one of the two ways in which new money is created.
blown away.
Not merely electrons: One must change the NUCLEUS, i.e., the proton-neutron structure---which takes considerably even MORE energy than merely "changing" the electrons!
Here's how to fix fractional reserve banking:
Require that banks remain more than 50% owned by their officers and make them, and their immediate families, personally responsible for all banks liabilities.
This is fair because we (wisely I think) hold the public personally liable for bank failures. The fact that banks are a natural monopoly that enjoys such an extraordinary backing make it essential that its officers accept an extraordinary personal responsibility for that privilege.
This helps! Keep them education a flowing!
Perhaps you could make a video on the Labour Theory of Value, it is a far more logical way of analyzing these things.
"The money we use now is not so easy to counterfeit"
Except by the central bank, that is...
Rafael,
That's slightly funny -- but don't give up your day job quite yet. You should maybe look up the word "counterfeit" in a dictionary just so you don't start believing your own joke. The stuff created out of thin air by central banks is not counterfeit.
It's the real thing and it has real value. not "merely because people believe in it" but because it performs genuinely useful functions, enabling the creation of wealth and security for real people in the real world.
David Lloyd-Jones “Wealth”, “Security” lol
@@brettolson9544 ??
@@TheDavidlloydjones No, no, I wouldn't dare to call myself funny in your presence.
Argument from dictionary is bottom of the barrel of bad arguments. In fact, it's not an argument at all, unless you literally only want to discuss semantics, maybe. Otherwise you're literally saying you'll let some institution arbitrate what thoughts are correct and which are wrong.
Words exist to convey meaning. As long as you understood what I meant, it served its purpose just fine. Even if some person disagrees with my usage or understanding of it, they can stuff it for all I care. Honestly I'm just beating a dead horse here, for how bad of an 'argument' that is.
As for whether the USD is useful or not, so what? Counterfeited notes are useful too (wink, I'm using your favorite definition here). That is, until it collapses due to the rampant expansion of the monetary base. What's your point? That literally means nothing.
By the way, when the Roman empire debased their own coins again and again, that wasn't counterfeit either right? After all, they were the authorities then, so who'd use critical thinking to look past silly titles and call things for what they are. When the empire does it, it's standard, fair coinage, foolish peasants!
Hahaha, sorry, for the essay, I just had too much fun here.
By all means, do split hairs and call upon definitions to try and draw distinctions that don't exist or matter.
@@Rafael-rn6hn
I don't intend any "argument from dictionary." There's nothing to argue about: you're using the word "counterfeit" incorrectly. Money made by central banks or treasury departments is money in the respective countries where that's how money is created.
You might also want to look up "inflation," a useful concept -- about which your ranting may sometimes be justified.
COMPLETE AGREEMENT WITH THE STATEMENTS STARTING AT 2:30. Both gold and fiat have their strengths and weaknesses. I hear a lot of the same fallacies.
While I think the video's as a learning curb are fantastic there are a couple of point's I feel should be made.
Firstly gold is not just pretty that's is not what gives it value. Gold is desirable it is a commodity that one person will provide a service to another person in return for an amount of that commodity.
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
-Henry Ford
Golds main reason it even has value is because its finite. But your right, if the price goes high enough, people set up more mines and find more gold. Its inflation rate is about 2% a year. The problem is, like any asset, as the price goes up, people create or find more. This is exactly why Bitcoin is more valuable than any asset in my opinion and the opinion of mathamatics. Bitcoin price goes up and theres only so much that can be created. Using that simple logic, it makes Bitcoin the most valuable asset of all time. In the long run i think I will be right on this. Thats why even some of the biggest banks are starting to diversify into it. Thats why everyone should put some money into it because in the long run, it's only going in one direction and its not down
it's a incredible video, how can you put all this complicated definitions into quite simple things. Thanks u a lot Khanacademy
Lovely video..great work Salman..
Amazing bro and to the point. thanks alot for this easy explanation
Yay for green pieces of paper!
@kristopheraugust what exactly did you think was rubbish? he described it in layman terms very proficiently, to understand banking the way he described gold and money was enough to get the idea. Gold is valued by supply and demand, money is valued by supply and demand also (free floating currencies like the US dollar). This is all you need to know to understand this simple concept, he did an excellent job.
@MsAllahhuakhbar You're right. Islamic banking has became the largest growing financial industry since years
Capitalism brilliantly explained
Generally a good video. I do think it could have been cleaned up for educational purposes by focusing on a lesson at a time. For example, this is trying to teach "borrow at X% and lend at X+Y%". There's no reason to draw in the Reserve to explain that, which only slows and dilutes the lesson.
Teach savings = lending first, then complicate it next.
Gold is also used in computer hardware and electronics. Just so you know
im starting a bank :)
thats a great way to make 300k and help the world and myself
I think he's showing a simplified structure to give a foundation or edifice to further topics. He's mentioned this bank is a theoretical "first bank" for a "primitive culture." Therefore, no electronics, dental, space, medical or other industries use it for this demonstration.
Gold is useful for electronics and electronics research. I'd personally prefer if aluminum replaced gold for currency and jewelry.
"In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one." - Benjamin Franklin
If you don't understand that let me explain:
Say you put in the value of what is worth $191,247.46 today (which was actually $20,000 paper bills back then) into your savings in 1950 or even just put it under your mattress
Then today, you take it out and look at it, its only $20,000 in paper bills. You know how much thats worth today? $20,000
Thats what inflation does, it robs the people who save their money
Thats why people like gold, its impossible to inflate it indefinitely without alchemy
ppl are complaining about the errors while i just want to say thank you!
thank you for basic idea for financial instruments and institutions
The main thing about gold is that people agree that has value and you cannot print gold out of nowhere that is why is so valuable with respect to paper money. You could mine gold, but the amount you can mine is limited which is not true of paper or digital money.
There is an error in this video. The bank is not lending its customer's deposit its creating new money as loans and adding it to its deposits.
He explicitly said they are using gold. The bank cannot create gold.
Gyula Vörös It doesn't matter if it gold or paper or dog shit with paprika. The bank doesn't lend any money, only claim checks on money (promises to pay, IOUs) who basiclly work like actual money.
There is no fundamental difference between "actual money" and "IOUs that work like money", because anyone can redeem the IOU any time. In fact, fractional reserve banking works the same when they do not use IOUs, only actual gold. Have a look at the another video from this channel on the subject, "Banking 3: Fractional Reserve Banking".
Not everyone can redeem their IOUs at the same time, because there is not enough fiat money.
That is correct.
What He says is true and very true about gold. Gold have value because made it to be... beside that it's nothing, nothing at all.
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"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." - Napoleon Bonaparte
Idk if it has already been mentioned but there's definitely a difference between gold and dollars. Gold is far more stable as a substance than paper meaning it will last much longer before deteriorating into nothing, also gold is one of the best conductors so it actually has practicality.
He doesn't write with a mouse, he uses a type of touch pad that reads the movements of a pencil so he's making drawing motions on something that looks like a touch pad that regular laptops have but then bigger.
But if everybody wanted to withdraw their money, their wouldn't be enough in the bank?
This is great! Happy Holidays!
I am a fan of this channel but
This video could have been much shorter
Thank you🙏
how do you write so well with a mouse?
Thank you Sal
Very impressive. Manythanks.
I'm not saying I'm a pro or anything but gold is more then "pretty" its steadily goes up in value and is a good resource to build wealth and back up currencies.
Also countries buy most all of the gold produced in their region bc it helps them build wealth
Gold is useful actually woth electronics in the modern world.
knowledge should be shared, not labored and enslaved for.
People like gold better than paper money because you cannot print a virtually infinite amount of it. So you cant really inflate it as easily as paper money.
If you put your paper money in the bank, and they inflate money, the value of your money drops.
Example: $20,000 in 1950 is equal to $191,247.46 today
See how much money was robbed from your savings because of inflation? You lost the value of what is today $170,000 because of inflation
Actually, it's almost certain that the banker under those conditions would charge depositors for the service of storing their money, just like you would pay for any other type of warehouse storage. So he wouldn't pay interest (7:29). He faces contraints like overhead (durable building+vault, security, capable accountants and lawyers) and must avoid a bank run at all costs, unless he has some side deal with politicians to protect him from irate creditors. The idea of getting paid by the bank to hold your money appears to be a phenomenon of a fiat currency systems (which use funny money) with fractional reserves and government bailout schemes.
Notice that the banker could give out receipts for deposits of money metals (gold, silver, copper). These would be traded in the public as paper money.
Do you consider gold to be a better store of wealth than the taxing authority of the government? What value does anything have without the government to enforce a fair marketplace for trading it? If you don't trust the government to protect the value of its currency why do you trust them to allow you to keep your gold if it needs the money? I think we have to accept the fact that we really our more or less owned by the society we think we own simply because we depend on it for everything.
What an explanation. Thanks
Great video, Sal! Simple explanation of banking even my young son can understand.
If anything gold should increase value over time, because the population will continue to increase while the amount of gold stays constant
Once they dig up all the gold out of the earth, thats all they got. The price of gold dramatically increases because of the limited supply.
It touched a nerve for me and I can see by the comments for many others as well when he said gold is valued because it's "pretty".
Debt Securities - Corporate Bonds
Bonds are promissory notes, IOUs if you will, issued by a corporation or government to its lenders. They are usually issued in multiples of $1,000 or $5,000. The standard, or par, is $1,000. The bond indenture specifies the amount of interest to be paid at intervals, over a specific length of time and the principal, (or original loan amount), to be repaid on the maturity date. A bondholder is a creditor; a shareholder is an owner. -Investopedia
Nice lecture.
Am still trying to understand private banking vs Ratail Banking
Good point otherwise but "art" falls into the "Looks pretty" category
"... and this benefits _my_ village."
This is a key statement that might have been true when we used gold coins, but with national banks, profit and loans are not necessarily staying with the communities that invested. Is there an argument for local banks? Why are they fading away?
Sal says gold is not really useful. Hmmm... Can anyone provide a single example in the history of the world where a government hyperinflated a gold backed currency?.....I'll check back in twenty years or so to see if any one came up with an example.
I thought you were going over fraction reserve banking in a different video? I wouldn't have watched the whole thing if I'd known you were discussing it now.
all i know is... without banks, a poor person is stuck poor... unless he can sell cars cheaper and better quality than ford without a loan
the good side of a bank is that you can borrow money if you have none and try to start a successful buisness off just an idea
maybe there is a mathmatical flaw but its not taking money from anyone in america because even though our rich get filthy rich... our standard of living still goes up to this day
"The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it
from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice." - Aristotle
Good to know Khan had $1 million 13 years ago