One of the best interviews I have ever watched. As others have said it needs to be watched two or three times to full take on board all the details. Brilliant.
Steve Keen explained this in a way that really connected with me. The standard neoclassical economic models treat the banking sector as neutral on the basis that any "borrower" spending money today is offset by a "saver" choosing not to spend today, and so aggregate demand is unchanged under a "loanable funds" view of banking. When you see it the way Frances explains in this video, you realise that credit issued today adds to aggregate demand today and it is the debtor repaying it out of their future income that suppresses their future demand. It's neutral across time rather than within the same time period.
That would be fine if that credit was flowing into the productive economy, but most of it goes into asset purchases (mortgages). So most of that additional "new money" accrues to sellers of inflated housing while the future suppressed demand comes from those carrying the mortgage debt. [Ditto for shares and financial assets. All the new money ends up in inflated asset prices, not investment in new production.] This only continues because new buyers are constantly coaxed into the housing market to keep the ponzi going. Not surprising we've reached the end of the road.
Alf - one thing I always get hung up on: yes, QE is not money printing in the broad sense and not automatically inflationary, but doesn't it create moral hazard and promotes riskier investing? If banks didn't believe that the Fed would swoop in with reserves whenever they encountered liquidity problems as a result of their lending activities, they would be more discerning and conservative in their lending activities wouldn't they? It seems like it is in a sense the socialization of banking.
INCOHERENT! The value of "expertise" is to take a complex subject and make it understandable to a novice. This explanation was all over the place, impossible to follow even for someone who knows exactly how this works. A "thought" follows a formula,...... abstract, understanding and conclusion. State what you are about to say, build an understanding from beginning to end and then reinforce what you just taught. There isn't probably one in a million that could take this information and formulate a coherent thought, including these two "experts".
Exactly, no explanation of how injection of commercial bank credit money creation into asset markets causes PUMP and DUMP Ponzi scheme! The "Investment Industry" doesn't have a benign influence, they claim to want deregulation, when in reality they are the government. The video "Who repealed the Glass Steagall act" Illustrates how government works through 28 lobyists from finance per congressman.
Alf didn't ask why 83% of commercial bank credit in England is directed towards real estate and equities and eight percent for consumption leaving only eight percent for business productivity. And people wonder about low productivity. England has one of the lowest percentage of small and medium sized business employment and recent restrictions aren't helpful.
Actually it is rather annoying to listen to 2 persons, who obviously do understand the fiat monetary system, provide a smoke screen for creating bank reserves "without inflationary pressure" . This is lying by omission! They totally leave out how bank reserves can be used to drive up asset prices and how increased asset prices translate into increased lending (money creation). They leave out how financial markets have essentially become a function of the creation of bank reserves and artificially low interest rates.They also leave out how central banks can create retail money by buying up assets from non-bank entities with commercial banks as the intermediaries.
Since 2008 the central banks cleared the commercial bank balance sheets so the asset markets could reflate. They went right back to inflating the system 🤔
BUT most people don’t realise when you pay your cash into the Bank it’s legally no longer yours your lending it to the Bank !!!…it’s safer buried in the back garden or exchange for physical Gold !!!
The importance of physical cash became pretty obvious when the power and telecommunication lines went down here in Florida. In absolute terms, there is more cash usage today than at any other time in history; in relative terms, it is decreasing as telecommunication commerce increases.
Fraces looks a bit stingy on Twitter but it's always a pleasure to hear her talk about economics, she is clearly very knowledgeable on the subject and she's good at explaining it too.
Great interview, but one question about QE @ 19:09 - Coppola's argument seems to be that QE merely "converts existing assets into M1, so no new money is actually being created". But when such "assets" are newly-issued debt by the Treasury, then is it not new money being created? This seems like an unintentional sleight of hand trick on Coppola's part. On the contrary, QE appears to be a one-two combo of of financial repression (suppressing sovereign debt yields) and creating brand new money from thin air (that is laundered into the financial system through the issuance of debt). And most importantly, this new debt (leading to an indirect increase in M1) will never be "paid back" or destroyed, per Coppola's point, since the national debt only goes in one direction-up.
If I'm not mistaken, the primary dealers initially invent the money to buy new TSYs. The Fed then buys it from them using freshly invented money, allowing the primary dealers to destroy the money they invented in the first step.
Since reserves circulate only within the banking system, why did the quantity need to have been increased so much? If they're just internal tokens it wouldn't really matter if there were millions or trillions, it's just an accounting gimmick. What is the practical difference of having "more reserves than ever existed notes and coins"? What if the reserves were decreased 90%, what would the real economy implications be? Since "not nothing", then there's a direct connection between increase in reserves and real economy money supply. If it didn't affect anything in the real world money wise it wouldn't have been done (print so much of it).
That is the problem of "new world" electronic banking.. no electric = no buy/sell .. mobile phone battery dead = no buying power. No one talks about being stranded with no battery/electric and no ability to pay for anything. Happened on the West coast when the power went out and no one could pump gas in to their car or pay with credit card.
18:40 With the BoE recently announcing that they'd accept almost any kind of bond in exchange for bank reserves it becomes clear that money creation (lending) has become willy-nilly at the discretion of commercial banks, as they can offload any bad debt on to central banks. Of course Frances also fails to mention how central banks back up governments by accepting sovereign bonds as a form of "money" and thus contribute to enabling deficit spending, misallocation of resources and financing of wars.
Who created the equity? When the state spends money eg for building a school isn't the money created as well although without a bank asset but balanced by public debt instead?
At the end she equates 1907 with 2008, fair enough! What about 1933 to mid Eighties. The time GLASS STEAGALL was in effect! That's why Volker could raise interest rates to twenty percent because GLASS STEAGALL kept credit creation from asset markets! The stock market was not in a bubble in 1980! Remember a few years ago when Powell raised rates, the ground began to shake. They scurried back to low rates! And now? People are bracing for some event that will trigger the next meltdown.
Question ? Another one ha If the central bank bought a treasury bond of me directly, would that increase money in the system? So if i held a treasury bond in my investment account at Hargreaves Lansdown lets say, and the Central Bank bought it, wouldn't that increase money in the system? I would have a bank deposit instead of my treasury bond certificate, but now there is new money from the system as that money has come from outside (It wasn't bought by someone else in the markets)
What they say is central banks don't buy bonds from you with this mechanism. To do that they have to literally print currency notes. In QE they only deal in 'reserves', which banks and financial hv reserve - accounts . But interesting question.. the more we think about all these, get the feeling that it's fake science; it's only what we r forced to believe matters
@@jomigregory7253 Ah yes i understand that but in the future maybe direct liquidity injections could happen with increase in money by buying directly off private sector not through reserve system and primary dealers
@@hamzariazuddin424 True.. I think u r talking about CB digital coins. So central banks whose job is to regulate banks and their practices, directly give money to people and control them. If they can't regulate well,can they do the actual job themselves?
The only thing i couldn't get my head around was the point on Government spending being more equivalent to money increases. The government raises funding from private sector and then spends? how is this money supply increase, I am lost? She says you have new debt and new money but i do not get how the money has increased in the system - is she saying by the private sector now having a debt asset (treasury bond let's say), they can then use this asset as money? - the government has a liability but spends the money into the real economy, BEFORE: Private sector has $100 AFTER: Private sector has $100 worth of treasury securities (which is money?) Government spends the $100 into the economy but has a liability of $100
I think one scenario is govt issue bonds to give tax cuts. Bank buys bonds.. people gets tax cuts - meaning more money in their accounts. They are comparing govt deficit spending vs QE and govt deficit is more of money printing. And also deficit spending meaning new bonds and it's coupon rate has to be paid by govt..that's new money into economy, perhaps? Though too negligible compared to size of bond.
She explained away the evolution of the credit creation theory to the intermediary theory as just another way of looking at it. A knowing laughter makes it true. In reality the damage has been accomplished. The repeal of Glass Steagall. Collateral which is inflated priced equities and real estate is what is so dangerous. If collateral that is leveraged up 3 or 4 times drops more than ten percent, there's big trouble. She acts like bankers are looking after your interests by convincing people that cash is dangerous. This is wildly disingenuous. Central planners are salivating at the thought of CBDC. They had to back off after the cringe Central Banker talking about how they could monitor your spending 💰
Alternative Video title: Everything you Always wanted to know about Fiat monetary policy* (*but were afraid to ask)? A sequel to the 1972 Woody Allen film about sex, Alf? Smart lady, smart questions, smart video. Thanks.
It would be nice if seigniorage and fiduciary intermediation could be effectively separated to balance the system and avoid the instability of the banks' credit cycle. I think I have a model that might in practice accomplish this, though it does not do it in theory.
The questions I have....if you go to a bank for a car loan and buy from a private party. Say the seller takes 25% of the sales price and puts it into savings. The buyer later pays off the Loan,thereby destroying the Original Loan created money right..? How about that money in Savings..? One could further speculate about all the additional money created through numerous Fractional-reserve Loans along this 'daisy chain' of money creation. Same question..what happens to the money put into savings,along this extended 'daisy chain'..since it has not been destroyed...? thanks for reading
Alf, question that has troubled me for a while. Why when I make a deposit from my bank into another bank, is there a delay of sometimes hours and sometimes up to a day, when we know that there is an instantaneous transaction, my account is debited in the instnat I press go?
On the mini-budget: wouldn't a freeze of corporate tax be advantageous to the economy? It increases their capacity to self-finance at a time when tapping the markets is expensive, or not feasible for private companies. The argument that the lower tax would just be a subsidy for them to then bid on the gilt issuance may not apply to them at a time when their propensity to spend is very high, if only because of their increased input costs.
14:30 If people withdraw their cash, they go straight down the road to another bank and put it back in again If you allowed people to withdraw cold hard cash they might not do this. How can cash be cold and hard?
Why is it ok for a small groups of people to make money without doing any kind if work and hand it to their friends? They don’t do any work but yet I must actually work and create value. I believe this system is called slavery?
It was correctly stated that commercial banks create money out of thin air, yet consumer spending through credit cards is not addressed! How can inflation occur unless it is funded by expanded money creation? Also the pressure or demand by central banks on commercial banks to create credit which is actual inflation. And this whole argument that "It's much more complicated" than what the new enlightenment says is occuring is just another way of dismissing people trying to understand what is going on. Also the huge difference between finance as helping people protect their wealth, as opposed to creating BOOM/BUST cycles that the Casino engineers through credit creation.
Even if there were to be an entirely fixed supply of money, changes in a society in perceptions of value would "inflate" some goods/services/assets, and would have a deflationary effect on other goods/services/assets, as liquidity and capital volumes are drained. Booms and busts occurred long before the creation of credit existed as it does in modern societies, these are embedded within the human personality and not the creation of some mythical Mr Burns figure at the heart of modern finance. Re pressure, it no doubt exists, but ultimately look at the past 12-13 years post GFC in most western countries which were affected, and creation of new debt by the private sector has in no way been linear with QE. If Fed Funds rates were - 20% on say consumer credit card ABS, - 15% on SME ABS & MBS, then yes, that would be an incredible stimulus to the creation of private credit but that has not happened, and is unlikely to come to pass.
@@kurtjohnston6620 it's interesting how different kinds of inflation occur at different times. Look at consumer inflation in the Seventies and Eighties. Then equities in the Eighties and Nineties. Then again in the Teens. Housing is quite interesting! Consumer inflation held fairly well until March 2020, when banks were directed to increase. John Law did have control of French money creation. The real BOOM/BUST cycle as a weapon was perhaps 1907, but definitely 1929. I like the study of history and observation of patterns. You sound intelligent, too bad we couldn't discuss over some SPATEN 🤔 (Beer)
@@kurtjohnston6620 as I have been saying in many comments, I have been deluged with zero interest CC offers. What about that? Credit creation for consumption since March 2020. An excuse to "fight" inflation! They engineered the cause of inflation as the excuse to raise rates! What's their endgame? CBDC, this guest wrote a book wanting QE to the people. Everyone gets a Fed account to get your Universal income. The end of banks to a Soviet style Gosbank.
@@jonswanson7766 I don't think that is all what would come about no. Also, just because the private sector currently has purview over all transactions, how is that more moral. As well, the Post in most countries is still gov owned, these countries have not come to resemble Soviet economics.
You have to study credit and accounting to understand. Note that economists 'call' bank's activity "money creation". Keep following MacroAlf and Frances. They are two of the few that get it right. 99% of the material on the internet around banking is misinformation or conspiracy theories.
How is increased inflation always blamed on government deficit spending but never on commercial bank loans? Afterall most of the money in circulation comes from commercial banks. And why isn't there ever any push back?
Very informative. Although I would speak with this person in 10 to 20 years and see if she doesn't like cash. Older people tend to like cash. I would also see how this theory plays out after the hole eu does a bail in of the banks. We will be discussing how currency is unsafe in banks I guess
Cash has no counter party risk (unless the central bank invalidates the currency) Whereas the bank deposit does. In the US Bank deposits to 250k are protected by the FDIC ...but the amount over 250K can be lost should the bank fail
How Banking & Money “Printing” Actually Works - you forgot about direct payments to citizens, PCI loans, Fed Open Market Operations. This expert is living in the past.
This is why you're completely wrong: You assume government debt is equivalent to bank reserves. Wrong. It's only true if the central bank is willing to turn the bond into bank reserves, which is a bit of a circular logic. Absent that, a government bond =/= bank reserve and therefore the central bank, when doing QE, is MONETIZING DEBT. There is a reason we didn't have QE when money was gold is because the central bank did not possess the physical ability to create reserves at will.
Omg... she doesn't understand what money is! Just think back a while... money is work invested (gold dug up) and saved and then lent out... you can't just look at it both ways it is not circular nor a perpetual money machine! Losing respect as I listen
Doesn’t the BORROWER create the loan? one would think this is fundamental. When an individual lays down a credit card, they are in effect “printing money.”
Still bogus. If you agree that they buy assets, pumping up the price. You have to admit they buy it from someone. Now that someone will cash out and the money is in circulation. Sure base-money doesn't increase, but base money is long irrelevant.
QE is inflationary! If I purchase treasuries from the government then the Fed purchase those treasuries from me with printed money that has increased the money supply and is INFLATIONARY!!!
Clarification required: According to Dr Lacy Hunt, the funds held in the central bank reserve accounts don't actually constitute money because they are not a medium of exchange(outside the central bank). Commercial banks can use those funds as collateral to borrow against but it can't be used outside the central bank. I think Frances was indicating these reserves get moved between banks - does Frances mean the funds can be spent outside the destination commercial bank or that the funds stay within the central bank's system but get moved from one account to another? Any assistance would be helpful.
I think she meant, there are 2 types of bank reserves. Reserves used to settle ledgers between banks and reserves that are the customer deposits. Its my understanding also that the bank reserves (the first one) are not fungible..ie cannot be used as cash or converted into cash (per Lacy Hunt) The second type of reserve , customer deposits, are fungible , can be converted into cash.
@@Andrew-ww7qq When the commercial bank orders bills and coins from the central bank, they pay using reserves. When the commercial bank customer receives bills and coins he/she pays with deposits.
It can be stolen by ID theft or fraudulent people pretending to sell things to you (British banks like Barclays are notorious for their lack of control of criminal activity). If the bank experiences a data crash, account transfers could be lost. I'm sure they have good routines for it not to happen, but keeping receipts for a while could be a good idea.
people say QE doesn't cause inflation because you can't "spend" bank reserves. but let's not talk about direct consequences of QE, let's talk about indirect consequences of QE. if the FED buys bonds and drives yields down, that means the risk free rate of return decreases. the institutions/companies/people that would have parked their money in treasuries making a nice risk free yield now have to go somewhere else to get that return. that is typically the stock market or other risk-on type of investments. the people that say QE doesn't create inflation seem to either intentionally ignore these indirect consequences, or they are unable to think that many steps ahead.
@@nobodynever7884 you are incorrect. the FED has been doing QE since 2008. financial assets have been ballooning since, but because all the price increases were limited to the financial economy and not the real economy, people did not notice now you are correct that in 2020 when the FED sent out direct stimulus checks to everybody in addition to QE, that was the straw that broke the camels back and finally ended up causing price increases in the real economy. it just took that much more to spill over into everyday goods and services how can we verify this? well pull up a monthly chart of the S&P500. since 2008 the S&P500 has gone on nearly a straigth 45 degree angle upwards run until a small blip of a pullback in 2018 and then a somewhat larger of a pullback in 2020 after 2020, the S&P500 continued on a 60 degree angle upwards until when? until january of 2022 when what happened? When the FED announced the end of QE and the beginning of QT. see for yourself.
@@jp92382 it sounds like you are describing the Cantillon effect. Those closest to the money printer (owners of assets and financial instruments) benefit from inflation first (through the rapid price increases of assets first). It takes time for that inflation to show up in CPI and wages.
@@nobodynever7884 “An inflated stock market doesn’t create inflation” That’s true - inflation creates inflation. It doesn’t necessarily end up in higher prices for consumer goods. But new money always ends up somewhere
@@jp92382 Even Alfonso and Jeff Snider say that and it drives me crazy. “You can’t spend bank reserves in the grocery store” So fucking what? Like you said, it must have had SOME effect, otherwise there’s no reason to do it. If central banks created additional bank reserves and swapped them for MBS and other debt, it must’ve done something positive for the bank’s balance sheet. If it was a bad deal for the bank, they would’ve declined. So obviously, as you mention, the increased QE directly correlate with the increase in the stock market
I don't know how many people this applies to but I have recently been going back to using cash again. After the police-state tendencies that I saw from governments during the recent 'plague' (trying not to get my comment censored) - I am worried. I don't trust these systems that some autocrat can just turn off or on at a whim.
Money is not printed. Money is coined. Gold and silver is money from the US Treasury. When secured by gold and silver the paper is a gold or silver certificate, redeemable on demand for money. Debt is not money. A debt note is not money. Debt IOUs have no honest value. What is the difference between one dollar and one trillion dollars in a computer? Twelve keystrokes. Debt can be destroyed but gold and silver can not be destroyed. How can experts not know what money is?
@@anthonyvaccaro Yes you can. You exchange the gold for dollars the same way we exchange currency the world over. At small stores the owners WILL take gold or silver because they own and can do that. Walmart got rid of gold and silver to save money running to the bank. IOUs are not money. IOUs need to be secured as they were in the 1960's when US Treasury certificates. Bad money chases out the good. I did use silver money as a child. It works fine.
I’m confused. One way she says banks don’t need to deposits to lend. Also banks just create deposits out of thin air? But she also says banks need cash to make payments for borrowers to payees so then banks do need our deposits to get cash to loan out. lol I’m Lost
For a good read on how the Central Bank works and its related operations, check out "Central Banking 101" - Joseph Yang. Great intro book info on the US Central Bank.
Where Central banks create money to buy Government bonds so Banks can buy Gov bonds for Governments to spend into the economy - that is a money printing process. You can't just split the process and say it is not money printing because the first part only facilitated the actual money printing part.
Professor Richard Werner is the REAL expert on this subject matter. He's the guest you need but this was meh OK though - To be fair, 'Apocalypse Now' was a classic. When did he transition?
Defaults do not reduce money, paying back loans DO! Also banks purchasing treasury bonds leads to an increase in M1 and M2. If, however, non-banks purchase treasuries, the money supply does not change once the governments spend!
One of the best interviews I have ever watched. As others have said it needs to be watched two or three times to full take on board all the details.
Brilliant.
One of those videos you listen to 4 times to make sure you get every bit of wisdom
This is a much better view of the host. Thank you ! No more backlighting.
more of this format pls!
would be even nice to take step by step explainations :) 🎉🎉❤
Fantastic interview and guest. Love her ability to break things down into easy to understand essentials.
ya she's great but we can't spend 20 minutes talking about reserve definition...
Great interview! Frances is a wealth of knowledge👏
Well laid out. A great supplement to the macro compass write up on the same topic.
Steve Keen explained this in a way that really connected with me. The standard neoclassical economic models treat the banking sector as neutral on the basis that any "borrower" spending money today is offset by a "saver" choosing not to spend today, and so aggregate demand is unchanged under a "loanable funds" view of banking.
When you see it the way Frances explains in this video, you realise that credit issued today adds to aggregate demand today and it is the debtor repaying it out of their future income that suppresses their future demand.
It's neutral across time rather than within the same time period.
That would be fine if that credit was flowing into the productive economy, but most of it goes into asset purchases (mortgages).
So most of that additional "new money" accrues to sellers of inflated housing while the future suppressed demand comes from those carrying the mortgage debt.
[Ditto for shares and financial assets. All the new money ends up in inflated asset prices, not investment in new production.]
This only continues because new buyers are constantly coaxed into the housing market to keep the ponzi going. Not surprising we've reached the end of the road.
Alf - one thing I always get hung up on: yes, QE is not money printing in the broad sense and not automatically inflationary, but doesn't it create moral hazard and promotes riskier investing? If banks didn't believe that the Fed would swoop in with reserves whenever they encountered liquidity problems as a result of their lending activities, they would be more discerning and conservative in their lending activities wouldn't they? It seems like it is in a sense the socialization of banking.
It's all a ploy for the rich to pocket more from dumb retail money
Surely, QE "creates moral hazard and promotes riskier investing". Greece and Italy can go on spending because they know the ECB will buy their bonds.
INCOHERENT! The value of "expertise" is to take a complex subject and make it understandable to a novice. This explanation was all over the place, impossible to follow even for someone who knows exactly how this works. A "thought" follows a formula,...... abstract, understanding and conclusion. State what you are about to say, build an understanding from beginning to end and then reinforce what you just taught. There isn't probably one in a million that could take this information and formulate a coherent thought, including these two "experts".
Exactly, no explanation of how injection of commercial bank credit money creation into asset markets causes PUMP and DUMP Ponzi scheme!
The "Investment Industry" doesn't have a benign influence, they claim to want deregulation, when in reality they are the government.
The video "Who repealed the Glass Steagall act"
Illustrates how government works through 28 lobyists from finance per congressman.
Are there any books or videos you would recommend that explains these topics ?
@@NazimZeeshan Not in one book or video, maybe I should write it.
@@goldspan5666 that would be even better. Do post the url here whenever you write it. :)
Thank you to Frances for using a great microphone, a great microphone makes the episode 100x better.
Alf didn't ask why 83% of commercial bank credit in England is directed towards real estate and equities and eight percent for consumption leaving only eight percent for business productivity.
And people wonder about low productivity.
England has one of the lowest percentage of small and medium sized business employment and recent restrictions aren't helpful.
Actually it is rather annoying to listen to 2 persons, who obviously do understand the fiat monetary system, provide a smoke screen for creating bank reserves "without inflationary pressure" . This is lying by omission! They totally leave out how bank reserves can be used to drive up asset prices and how increased asset prices translate into increased lending (money creation). They leave out how financial markets have essentially become a function of the creation of bank reserves and artificially low interest rates.They also leave out how central banks can create retail money by buying up assets from non-bank entities with commercial banks as the intermediaries.
Bang on!
i also find them annoying but dont know exactly why so i m going with what you said.
Since 2008 the central banks cleared the commercial bank balance sheets so the asset markets could reflate.
They went right back to inflating the system 🤔
BUT most people don’t realise when you pay your cash into the Bank it’s legally no longer yours your lending it to the Bank !!!…it’s safer buried in the back garden or exchange for physical Gold !!!
The importance of physical cash became pretty obvious when the power and telecommunication lines went down here in Florida. In absolute terms, there is more cash usage today than at any other time in history; in relative terms, it is decreasing as telecommunication commerce increases.
Fraces looks a bit stingy on Twitter but it's always a pleasure to hear her talk about economics, she is clearly very knowledgeable on the subject and she's good at explaining it too.
Great interview, but one question about QE @ 19:09 - Coppola's argument seems to be that QE merely "converts existing assets into M1, so no new money is actually being created". But when such "assets" are newly-issued debt by the Treasury, then is it not new money being created? This seems like an unintentional sleight of hand trick on Coppola's part.
On the contrary, QE appears to be a one-two combo of of financial repression (suppressing sovereign debt yields) and creating brand new money from thin air (that is laundered into the financial system through the issuance of debt). And most importantly, this new debt (leading to an indirect increase in M1) will never be "paid back" or destroyed, per Coppola's point, since the national debt only goes in one direction-up.
If I'm not mistaken, the primary dealers initially invent the money to buy new TSYs. The Fed then buys it from them using freshly invented money, allowing the primary dealers to destroy the money they invented in the first step.
Since reserves circulate only within the banking system, why did the quantity need to have been increased so much? If they're just internal tokens it wouldn't really matter if there were millions or trillions, it's just an accounting gimmick. What is the practical difference of having "more reserves than ever existed notes and coins"? What if the reserves were decreased 90%, what would the real economy implications be? Since "not nothing", then there's a direct connection between increase in reserves and real economy money supply. If it didn't affect anything in the real world money wise it wouldn't have been done (print so much of it).
Just wait till your blackouts start...and let's see how many people start holding cash lol
That is the problem of "new world" electronic banking.. no electric = no buy/sell .. mobile phone battery dead = no buying power. No one talks about being stranded with no battery/electric and no ability to pay for anything. Happened on the West coast when the power went out and no one could pump gas in to their car or pay with credit card.
18:40 With the BoE recently announcing that they'd accept almost any kind of bond in exchange for bank reserves it becomes clear that money creation (lending) has become willy-nilly at the discretion of commercial banks, as they can offload any bad debt on to central banks.
Of course Frances also fails to mention how central banks back up governments by accepting sovereign bonds as a form of "money" and thus contribute to enabling deficit spending, misallocation of resources and financing of wars.
You shouldn't blame government overspending on commercial banks.
Alf seems like good people, he should come over to the good guys!
What an incredible informative video. Really enjoyed listening to the young lady from my homeland !
Who created the equity?
When the state spends money eg for building a school isn't the money created as well although without a bank asset but balanced by public debt instead?
At the end she equates 1907 with 2008, fair enough!
What about 1933 to mid Eighties.
The time GLASS STEAGALL was in effect!
That's why Volker could raise interest rates to twenty percent because GLASS STEAGALL kept credit creation from asset markets!
The stock market was not in a bubble in 1980!
Remember a few years ago when Powell raised rates, the ground began to shake.
They scurried back to low rates!
And now?
People are bracing for some event that will trigger the next meltdown.
Question ? Another one ha
If the central bank bought a treasury bond of me directly, would that increase money in the system?
So if i held a treasury bond in my investment account at Hargreaves Lansdown lets say, and the Central Bank bought it, wouldn't that increase money in the system?
I would have a bank deposit instead of my treasury bond certificate, but now there is new money from the system as that money has come from outside (It wasn't bought by someone else in the markets)
What they say is central banks don't buy bonds from you with this mechanism.
To do that they have to literally print currency notes. In QE they only deal in 'reserves', which banks and financial hv reserve - accounts .
But interesting question.. the more we think about all these, get the feeling that it's fake science; it's only what we r forced to believe matters
@@jomigregory7253 Ah yes i understand that but in the future maybe direct liquidity injections could happen with increase in money by buying directly off private sector not through reserve system and primary dealers
@@hamzariazuddin424 True.. I think u r talking about CB digital coins.
So central banks whose job is to regulate banks and their practices, directly give money to people and control them. If they can't regulate well,can they do the actual job themselves?
Get professor werner on the show. Look for this video "Banks don't lend money, they create it: Demystifying monetary and banking terminology"
Everything I "learned" in college was a lie
Thank you for providing this clarity
Great talk Alf, I think you'd enjoy talking to Richard Werner, he's the guy that authored the original study proving how money is created.
I second this, he'd be a great guest.
Money is by definition a liability and is nothing but a set of accounting entries on a ledger, in our current framework.
The only thing i couldn't get my head around was the point on Government spending being more equivalent to money increases.
The government raises funding from private sector and then spends? how is this money supply increase, I am lost?
She says you have new debt and new money but i do not get how the money has increased in the system
- is she saying by the private sector now having a debt asset (treasury bond let's say), they can then use this asset as money?
- the government has a liability but spends the money into the real economy,
BEFORE: Private sector has $100
AFTER: Private sector has $100 worth of treasury securities (which is money?)
Government spends the $100 into the economy but has a liability of $100
I think one scenario is govt issue bonds to give tax cuts.
Bank buys bonds.. people gets tax cuts - meaning more money in their accounts.
They are comparing govt deficit spending vs QE and govt deficit is more of money printing.
And also deficit spending meaning new bonds and it's coupon rate has to be paid by govt..that's new money into economy, perhaps? Though too negligible compared to size of bond.
She explained away the evolution of the credit creation theory to the intermediary theory as just another way of looking at it.
A knowing laughter makes it true.
In reality the damage has been accomplished.
The repeal of Glass Steagall.
Collateral which is inflated priced equities and real estate is what is so dangerous.
If collateral that is leveraged up 3 or 4 times drops more than ten percent, there's big trouble.
She acts like bankers are looking after your interests by convincing people that cash is dangerous.
This is wildly disingenuous.
Central planners are salivating at the thought of CBDC.
They had to back off after the cringe Central Banker talking about how they could monitor your spending 💰
Alf , you need to interview Kate Raworth - another British Female economist with something REAL to say
Alternative Video title: Everything you Always wanted to know about Fiat monetary policy* (*but were afraid to ask)? A sequel to the 1972 Woody Allen film about sex, Alf? Smart lady, smart questions, smart video. Thanks.
Thank you this was an amazing RUclips
If creditworthy banks can always get more notes/coins for payments, how could a bank not be creditworthy?
It would be nice if seigniorage and fiduciary intermediation could be effectively separated to balance the system and avoid the instability of the banks' credit cycle. I think I have a model that might in practice accomplish this, though it does not do it in theory.
The questions I have....if you go to a bank for a car loan and buy from a private party. Say the seller takes 25% of the sales price and puts it into savings. The buyer later pays off the Loan,thereby destroying the Original Loan created money right..? How about that money in Savings..? One could further speculate about all the additional money created through numerous Fractional-reserve Loans along this 'daisy chain' of money creation. Same question..what happens to the money put into savings,along this extended 'daisy chain'..since it has not been destroyed...? thanks for reading
This "bank capital" or "credability" has a direct affect on how bail in laws work!!
Alf, question that has troubled me for a while. Why when I make a deposit from my bank into another bank, is there a delay of sometimes hours and sometimes up to a day, when we know that there is an instantaneous transaction, my account is debited in the instnat I press go?
Interbank transfers are made using a process called "clearing" at central bank level, and these runs happen only 2 or 3 times a day.
Super clear and indepth, thank you!
What's clear to you?
On the mini-budget: wouldn't a freeze of corporate tax be advantageous to the economy?
It increases their capacity to self-finance at a time when tapping the markets is expensive, or not feasible for private companies.
The argument that the lower tax would just be a subsidy for them to then bid on the gilt issuance may not apply to them at a time when their propensity to spend is very high, if only because of their increased input costs.
I’m really hungry for pizza for some reason now
Well make sure you cut your slice in half so we both can eat until we're full.
14:30 If people withdraw their cash, they go straight down the road to another bank and put it back in again
If you allowed people to withdraw cold hard cash they might not do this. How can cash be cold and hard?
If money is loaned into existence where do they get the money for the first loan?
19:20 “You haven’t changed the size of what’s going on”. Is that right?
Always a lot of talking but little explaining with these topics
Yeah.. swapping bonds with reserves is not changing size. But only when commercial banks lends it create deposit and increases money supply.
This one was really great Alf. Great job. Thanks.
Why is it ok for a small groups of people to make money without doing any kind if work and hand it to their friends? They don’t do any work but yet I must actually work and create value. I believe this system is called slavery?
Debt slavery specifically
Great comment 👍
the treasury would not be able to create new bonds without the false investment signal of the central bank asset purchases
It was correctly stated that commercial banks create money out of thin air, yet consumer spending through credit cards is not addressed!
How can inflation occur unless it is funded by expanded money creation?
Also the pressure or demand by central banks on commercial banks to create credit which is actual inflation.
And this whole argument that "It's much more complicated" than what the new enlightenment says is occuring is just another way of dismissing people trying to understand what is going on.
Also the huge difference between finance as helping people protect their wealth, as opposed to creating BOOM/BUST cycles that the Casino engineers through credit creation.
Even if there were to be an entirely fixed supply of money, changes in a society in perceptions of value would "inflate" some goods/services/assets, and would have a deflationary effect on other goods/services/assets, as liquidity and capital volumes are drained. Booms and busts occurred long before the creation of credit existed as it does in modern societies, these are embedded within the human personality and not the creation of some mythical Mr Burns figure at the heart of modern finance.
Re pressure, it no doubt exists, but ultimately look at the past 12-13 years post GFC in most western countries which were affected, and creation of new debt by the private sector has in no way been linear with QE. If Fed Funds rates were - 20% on say consumer credit card ABS, - 15% on SME ABS & MBS, then yes, that would be an incredible stimulus to the creation of private credit but that has not happened, and is unlikely to come to pass.
@@kurtjohnston6620 it's interesting how different kinds of inflation occur at different times.
Look at consumer inflation in the Seventies and Eighties.
Then equities in the Eighties and Nineties.
Then again in the Teens.
Housing is quite interesting!
Consumer inflation held fairly well until March 2020, when banks were directed to increase.
John Law did have control of French money creation.
The real BOOM/BUST cycle as a weapon was perhaps 1907, but definitely 1929.
I like the study of history and observation of patterns.
You sound intelligent, too bad we couldn't discuss over some SPATEN 🤔 (Beer)
@@kurtjohnston6620 as I have been saying in many comments, I have been deluged with zero interest CC offers.
What about that?
Credit creation for consumption since March 2020.
An excuse to "fight" inflation!
They engineered the cause of inflation as the excuse to raise rates!
What's their endgame?
CBDC, this guest wrote a book wanting QE to the people.
Everyone gets a Fed account to get your Universal income.
The end of banks to a Soviet style Gosbank.
@@jonswanson7766 I don't think that is all what would come about no. Also, just because the private sector currently has purview over all transactions, how is that more moral. As well, the Post in most countries is still gov owned, these countries have not come to resemble Soviet economics.
So it’s not money until a commercial bank lends it? The bank just creates it out of thin air?
@Nicholas #51 Jonathan Park's comment does not answer the question and contains the usual misinformation found on the internet.
You have to study credit and accounting to understand. Note that economists 'call' bank's activity "money creation". Keep following MacroAlf and Frances. They are two of the few that get it right. 99% of the material on the internet around banking is misinformation or conspiracy theories.
15:25 If your house burns down your cash goes up in flames
My cash isn't flammable or even oxidizable at all
Ok we're 17 minutes into the interview and we're still talking about this same thing here.....
Thank you
Still watching Frank G Melbourne Australia 🇦🇺 ❤️
How is increased inflation always blamed on government deficit spending but never on commercial bank loans? Afterall most of the money in circulation comes from commercial banks. And why isn't there ever any push back?
Wow so much alpha per minute
Please do more of these on money
Very informative. Although I would speak with this person in 10 to 20 years and see if she doesn't like cash. Older people tend to like cash. I would also see how this theory plays out after the hole eu does a bail in of the banks. We will be discussing how currency is unsafe in banks I guess
Cash has no counter party risk (unless the central bank invalidates the currency)
Whereas the bank deposit does. In the US Bank deposits to 250k are protected by the FDIC ...but the amount over 250K can be lost should the bank fail
How Banking & Money “Printing” Actually Works - you forgot about direct payments to citizens, PCI loans, Fed Open Market Operations. This expert is living in the past.
What's happening today? No foreign exchange. No Bond Market. Has liquidity disappeared?
This is why you're completely wrong: You assume government debt is equivalent to bank reserves. Wrong. It's only true if the central bank is willing to turn the bond into bank reserves, which is a bit of a circular logic. Absent that, a government bond =/= bank reserve and therefore the central bank, when doing QE, is MONETIZING DEBT. There is a reason we didn't have QE when money was gold is because the central bank did not possess the physical ability to create reserves at will.
Thx that helped my understanding
thank u for this episode
QE Queen. Thought we all accept QE isn’t healthy. I’d read her book though.
Totally forgot to address savers. Some people don't care about money bank creation.
Omg... she doesn't understand what money is! Just think back a while... money is work invested (gold dug up) and saved and then lent out... you can't just look at it both ways it is not circular nor a perpetual money machine! Losing respect as I listen
Thank you good people.
Doesn’t the BORROWER create the loan? one would think this is fundamental. When an individual lays down a credit card, they are in effect “printing money.”
Great stuff as ever...but why no banter on the Italian connection?
The posh British accent got in the way.
Still bogus. If you agree that they buy assets, pumping up the price. You have to admit they buy it from someone. Now that someone will cash out and the money is in circulation. Sure base-money doesn't increase, but base money is long irrelevant.
Bail in laws anybody? Mass surveillance? Control? Your moneys safe in the bank
Brilliant and simple
Listening to this, I can't help but think of how many preppers are in the "developed" world.
my conclusion on money creation by banks: It is a mirage
Awesome show Alf. Thanks again
The only thing I learned is how little I know
Still better than being at the front of the Dunning-Krueger curve. ;-)
QE is inflationary! If I purchase treasuries from the government then the Fed purchase those treasuries from me with printed money that has increased the money supply and is INFLATIONARY!!!
Clarification required: According to Dr Lacy Hunt, the funds held in the central bank reserve accounts don't actually constitute money because they are not a medium of exchange(outside the central bank). Commercial banks can use those funds as collateral to borrow against but it can't be used outside the central bank. I think Frances was indicating these reserves get moved between banks - does Frances mean the funds can be spent outside the destination commercial bank or that the funds stay within the central bank's system but get moved from one account to another? Any assistance would be helpful.
I think she meant, there are 2 types of bank reserves. Reserves used to settle ledgers between banks and reserves that are the customer deposits.
Its my understanding also that the bank reserves (the first one) are not fungible..ie cannot be used as cash or converted into cash (per Lacy Hunt)
The second type of reserve , customer deposits, are fungible , can be converted into cash.
Yes Drew, reserves can move between banks and only between accounts at the central bank.
@@Andrew-ww7qq When the commercial bank orders bills and coins from the central bank, they pay using reserves. When the commercial bank customer receives bills and coins he/she pays with deposits.
It is true that money in my pocket can be stolen by a thief , but can my money in digital form be stolen or Lost by the bank??!
It can be stolen by ID theft or fraudulent people pretending to sell things to you (British banks like Barclays are notorious for their lack of control of criminal activity). If the bank experiences a data crash, account transfers could be lost. I'm sure they have good routines for it not to happen, but keeping receipts for a while could be a good idea.
people say QE doesn't cause inflation because you can't "spend" bank reserves. but let's not talk about direct consequences of QE, let's talk about indirect consequences of QE. if the FED buys bonds and drives yields down, that means the risk free rate of return decreases. the institutions/companies/people that would have parked their money in treasuries making a nice risk free yield now have to go somewhere else to get that return. that is typically the stock market or other risk-on type of investments. the people that say QE doesn't create inflation seem to either intentionally ignore these indirect consequences, or they are unable to think that many steps ahead.
Yes it's artificially props up the stock market
@@nobodynever7884 you are incorrect. the FED has been doing QE since 2008. financial assets have been ballooning since, but because all the price increases were limited to the financial economy and not the real economy, people did not notice
now you are correct that in 2020 when the FED sent out direct stimulus checks to everybody in addition to QE, that was the straw that broke the camels back and finally ended up causing price increases in the real economy. it just took that much more to spill over into everyday goods and services
how can we verify this? well pull up a monthly chart of the S&P500. since 2008 the S&P500 has gone on nearly a straigth 45 degree angle upwards run until a small blip of a pullback in 2018 and then a somewhat larger of a pullback in 2020
after 2020, the S&P500 continued on a 60 degree angle upwards until when? until january of 2022 when what happened? When the FED announced the end of QE and the beginning of QT. see for yourself.
@@jp92382 it sounds like you are describing the Cantillon effect. Those closest to the money printer (owners of assets and financial instruments) benefit from inflation first (through the rapid price increases of assets first). It takes time for that inflation to show up in CPI and wages.
@@nobodynever7884 “An inflated stock market doesn’t create inflation”
That’s true - inflation creates inflation. It doesn’t necessarily end up in higher prices for consumer goods. But new money always ends up somewhere
@@jp92382 Even Alfonso and Jeff Snider say that and it drives me crazy.
“You can’t spend bank reserves in the grocery store”
So fucking what? Like you said, it must have had SOME effect, otherwise there’s no reason to do it. If central banks created additional bank reserves and swapped them for MBS and other debt, it must’ve done something positive for the bank’s balance sheet. If it was a bad deal for the bank, they would’ve declined. So obviously, as you mention, the increased QE directly correlate with the increase in the stock market
good god, so we are now living in her world. shame she didnt think how to already land the helicopter before prescribing the 'medicine'
Francis Ford Coppola’s long lost sister?
I don't know how many people this applies to but I have recently been going back to using cash again. After the police-state tendencies that I saw from governments during the recent 'plague' (trying not to get my comment censored) - I am worried. I don't trust these systems that some autocrat can just turn off or on at a whim.
Has monetary and banking theorists merged at some point?
It all makes much more sense when you realize that money is short-term debt
Over 300 years.
@@patienceobongo I’ll be very impressed with the person who managed to hold cash for 300 years and spend it at the end
Fascinating!
Money is not printed. Money is coined. Gold and silver is money from the US Treasury. When secured by gold and silver the paper is a gold or silver certificate, redeemable on demand for money. Debt is not money. A debt note is not money. Debt IOUs have no honest value. What is the difference between one dollar and one trillion dollars in a computer? Twelve keystrokes. Debt can be destroyed but gold and silver can not be destroyed. How can experts not know what money is?
I can't go to walmart and buy dinner with gold
@@anthonyvaccaro Yes you can. You exchange the gold for dollars the same way we exchange currency the world over. At small stores the owners WILL take gold or silver because they own and can do that. Walmart got rid of gold and silver to save money running to the bank. IOUs are not money. IOUs need to be secured as they were in the 1960's when US Treasury certificates. Bad money chases out the good. I did use silver money as a child. It works fine.
@@jackgoldman1 You can do the same thing with a bag of potato chips, that doesn't make potato chips money
Legend.
Thanks bouth of you! That was very interesting!
Loved The Godfather
Wow, excellent!
Bank credit is nothing but a promise to deliver currency on demand. In essence, it is a claim on the monetary base.
I’m confused. One way she says banks don’t need to deposits to lend. Also banks just create deposits out of thin air? But she also says banks need cash to make payments for borrowers to payees so then banks do need our deposits to get cash to loan out. lol I’m
Lost
She doesn't address the problem Brits face trying to fund small business.
Why does she laugh at questions?
For a good read on how the Central Bank works and its related operations, check out "Central Banking 101" - Joseph Yang.
Great intro book info on the US Central Bank.
Where Central banks create money to buy Government bonds so Banks can buy Gov bonds for Governments to spend into the economy - that is a money printing process. You can't just split the process and say it is not money printing because the first part only facilitated the actual money printing part.
Professor Richard Werner is the REAL expert on this subject matter. He's the guest you need but this was meh OK though - To be fair, 'Apocalypse Now' was a classic. When did he transition?
Yeah let's not ask an ex-banker how banking works, let's ask an economist instead. Not as though Werner has thousands of interviews on YT already.
Defaults do not reduce money, paying back loans DO! Also banks purchasing treasury bonds leads to an increase in M1 and M2. If, however, non-banks purchase treasuries, the money supply does not change once the governments spend!
i do