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this episode is a more detailed
follow-up to my 2017 video who controls
all of our money I'm going to focus on
the United States in this video only
because they're the world reserve
currency but everything in this video
affects all of us
because the central banks around the
world are all doing the same thing with
that being said let's begin around the
world today we see central bank's
printing money so here's a question
we're told from young age that money is
hard to come by we should study to work
our whole life to earn it how then can
all this money suddenly come from
nowhere how is money created who's going
to pay it back
what exactly does all of this mean and
what's going to happen next in this
episode we'll explore the three ways
that money's been created and some of
the consequences that are going to
happen I'm also going to show you the
true origins of wealth inequality if you
watch this episode the whole way through
you should have a well-rounded idea of
what's going on today it's important for
people to know I'm really just trying to
help with that this journey starts off
simple enough but by the end you'll
start to see the insanity of what we're
dealing with you are watching ColdFusion
TV
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the first form of money is the one
created by government in practice it's
outsourced to the central bank Royal
Mint but controlled by the government
physical money comes in two forms either
paper money or coins this physical money
is a tiny fraction of the economy and in
many economies this kind of money only
makes up about 3 to 8 percent this
physical money is created in order to
meet the obligations of private banks
when you go to an ATM and try to
withdraw cash banks need to make sure
that they have enough cash in order to
meet those obligations so let's take a
$10 note for example it costs
approximately 3 cents in order to print
this note this means that there's
approximately nine dollars and 97 cents
of profit for creating a ten dollar note
this $9.97 of the government this
revenue is called senior rich so since
the government makes profit from
printing and minting coins and can
reduce the amount of Taxation on the
public you might be thinking why don't
governments just always print physical
money the main reason that governments
don't create the majority of money is
because of politicians if the politician
running the office could create money at
will there would be a massive conflict
of interest there'll be an urge to keep
printing to fulfill campaign promises or
fund Wars this would in theory destroy
the currency by excessive printing
causing massive devaluation
the more money you have in circulation
the less it's worth and that's a key
point for example if massive inflation
takes place and the average Joe has a
million dollars but that million dollars
only buys an apple how much is a million
dollars actually worth the loss in
purchasing power of money over time is
called inflation and when inflation gets
out of hand
money becomes worthless some recent
examples of runaway inflation include
Argentina Zimbabwe and Venezuela in this
animation you can graphically see just
how fast inflation can run away you
don't see it coming
and as the inflation rate goes up people
quickly lose faith in the currency for
example here we can see some people in
Venezuela using money to make handbags
and to draw pictures on because if
simply isn't worth anything anymore you
can think of money as a measuring stick
of value a measuring stick that is
highly elastic and can change depending
on how much of it there is for thousands
of years gold was the measuring stick of
valley gold was kind of like a physical
anchor keeping the money supply in check
and governments responsible in 1971
President Richard Nixon announced that
the United States would no longer
convert dollars to gold at a fixed value
since that point money the measuring
stick of Valley has become elastic since
the US dollar backs all other currencies
as a reserve currency Nixon's decision
changed the world in all of this you
might still notice that despite
politicians supposedly not being able to
influence money creation it's happening
anyway this may cause problems as we'll
see later in the episode
so to recap the government creates
physical forms of money like notes and
coins only about three to eight percent
of money is made this way
sine Ridge is the income from that
physical money this income is both a
benefit to the government and the
taxpayer it reduces debt for the
government and reduces the burden on the
individual taxpayer the reason
governments don't create more of this
money is
cuz of the inflation risk from
politicians decisions let's move on to
number two
private banks and debt based money the
vast amount of money created today is
done by the private banking sector in
most developed economies about ninety
seven percent of the entire money supply
is created digitally by banks and
therefore most money in the world is
privatized banks invented digital money
when they managed to persuade lawmakers
after many early bank runs a bank run is
an event where depositors try to get
their money out all at once but the
banks don't have it from these events
banks argued that they should be legally
allowed to create more deposits than
actually exist based upon debt and this
is how governments outsource to the
creation of digital money the idea of
using debt as money begins much earlier
than this English innovators set the
stage for banks to become the creators
of money across the globe in 1704 the
English Parliament passed the promissory
notes Act take a good look at your
screen what you are seeing is a
promissory note in this case it's a
written promise to say that you'll pay
back the $20.00 you borrowed under the
law this piece of paper was as good as
20 dollars today we digitized this
agreement and call it debt if it helps
whenever I say debt in this episode you
can think of this piece of paper
remembering that it's as good as money
okay so banks will authorize to be able
to use these debt notes to circulate as
money from this point banks were free to
create and destroy debt and hence money
from themselves rented out at interest
in the modern world as you'll see the
whole world's economy is based upon
these promises let's take a look at how
it works today
when you go to a bank to borrow some
money the banking license gives that
bank the ability to create money every
time they issue a loan they do this
through the double accounting system for
example if you buy a $500,000 house the
bank creates $500,000 in their account
and you have $500,000 in debt that is
the promise to pay it back with interest
this $500,000 debt can enter the wider
economic system because when you
purchased the house the owner of that
house can use that fresh debt that was
created by the bank that they received
from you to buy other things in the
economy
this means in our current system if we
want to have more growth we need more
debt the key point here is that debt is
actually money just from a different
point of view to the lender it's an
asset of money into the borrower it's a
liability of debt but they are one in
the same it sounds a bit complicated but
all you need to know is that when a bank
issues alone it's not somebody else's
savings it's not money that the bank had
it's essentially brand-new money that
they create they simply type it into a
computer and it appears as a digital
representation of the government's money
which you can spend the beneficiary of
this brand-new money is actually the
bank because they get to charge interest
on that money and that's how they make a
profit later when you repay this loan
the debt disappears and the money also
disappears but the bank's profit from
the interest remains the real estate and
property markets are the largest tools
for creating digital money this is
because banks have decided that it's the
safest yet most profitable form of
creating debt because if you can't repay
the loan the banks can simply take your
house in developed nations vast amounts
of money is backed by the mortgage
market in Australia where I live it's
become particularly bad for decades now
the banks have abandoned investment into
the wider economy and have shifted their
focus to investments in housing this has
pushed up the housing prices as people
take on more debts to buy houses that
they are
couldn't afford but the banks make more
money this cycle over many decades has
caused one of the biggest property
bubbles on the planet
we're addicted to debt yes we were adept
addicted to debt as individuals as
households you know the ratios are way
higher than all this every other country
so that's lanes but what about deposit
we need to pause a cash into a bank you
are no longer the legal owner of that
money the banks are they keep 10% of
your deposits on reserve and can line
out 90% of that money to someone else
and that other person can deposit that
money into another bank and then that
bank can loan out 90% and so on this is
known as fractional reserve lending if
they say we'll transfer it to your
account that's wrong because no money is
transferred at all because what we call
a deposit is simply the bank's record of
its debt to the public now it also owes
you money and its record of the money it
owes you is what you think you're
getting as money and that's all it is
when all is said and done an initial
deposit of $100 with a tempest and
reserve requirement can ultimately lead
to a thousand dollars in total money
circulation well at least that was how
it used to work until March the 26th
2020 there is now a zero percent reserve
requirement according to the Federal
Reserve quote this action eliminated
reserve requirements for all depository
institutions end quote so banks can now
create infinite amounts of money with no
reserves and it doesn't stop there when
banks hold your deposit they can along
with hedge funds gamble with it through
investments in financial instruments
such as derivatives and securities they
do this in order to make superior
returns most of the time these
instruments are basically just bets on
if the price of an asset will rise or
fall but when taken to the extreme it
can get ridiculous remember in my Enron
video how I talks about how they use
financial instruments to bet on the
weather these crazy classes of financial
instruments is what brought down the
housing market and the subsequent global
economy in
thousand and eight but the problem today
is that banks are playing with so many
derivatives sometimes stacked on top of
each other with leverage multiplying
factors that nobody actually knows how
much money is tied up in this gambling
some estimates put the derivative market
at over one quadrillion dollars over ten
times the global economy in booms
everyone takes on debt that is loans
from a bank and they spend it on things
that they normally couldn't afford but
this causes economic growth eventually
people can't afford to take on more debt
and can't pay it back
the bank stopped lending and default
start to take place and the economy
takes a downturn this is natural and has
happened over centuries but in 2008
everything changed the world didn't want
to go through the pain of a downturn and
some analysts mark this as the very
point that the real economy died in 2008
banks had become so large intertwined
and integral to the supply of money that
when they're about to collapse
the government's had to use the central
banks to bail them out remember banks
are creating 97% of all money as debt
and if this can't be paid back it can
cause a systemic failure a risk of
collapse of the entire global monetary
system since 2008 the economy was dead
but has been on life support ever since
a decade of hyper low interest rates
which basically made the cost of
borrowing money free of caused market
distortions so large that has compounded
the entire problem there were short-term
gains for the consequence of long term
pain
when private banks make risky bets and
incur losses central banks can rescue
them with their infinite wallet as
mentioned by Fed Chairman Jerome Powell
in a recent interview for CNBC s a 60
Minutes fair to say you simply flooded
the system with money yes we did that's
another way to think about it we did
where does it come from do you just
print it we print it digitally so we you
know we as a central bank we have the
ability to create money digitally and we
do that by buying Treasury bills or for
bonds or other government guaranteed
securities an act that actually
increases the money supply but by law
chairman Powell's Federal Reserve can
only lend money that must be paid back
we'll get to central banks in the next
section but as you'll soon see we have
to pay these debts back all of this
money that's being created is like that
piece of paper we saw with the promise
on it except is signed by all of us and
we signed that we're going to pay this
back through taxation us and our future
generations it's important to note that
governments don't actually support the
people it's the people that support
government's through taxation taxation
and trade are the two major ways that
governments can raise money this raise
money is used to pay back the central
bank loans with interest
so when governments use the central
bank's to bail out private banks for
their risky behavior the government's
are left with the debt which eventually
has to be paid back by the taxpayers in
the future
so to recap private banks create the
vast majority of money about 97% of it
and they do so by creating loans which
is debt the process is as simple as
typing numbers into a computer banks can
to an extent spend and gamble consumer
deposits as they legally own it too big
to fail banks are backed up by the
central bank
creating a moral hazard and that brings
us to the final and most insane form of
money creation central bank digital
money the third form of money is
quantitative easing or QE quantitative
easing is a new form of money that was
invented by the Japanese central bank in
1989 it was later popularized by the
Federal Reserve in the United States
during the 2008 crisis QE is where a
central bank creates money in order to
issue loans directly to the banking
sector large corporations and most
recently the public it's a way of
flooding money into the economy at times
of extreme events like the financial
crisis of 2008 as a result of this the
central bank's balance sheets have gone
completely out of control in order to
prop up the economy a little bit longer
in 2008 during the crisis and the first
time this was tried outside of Japan the
700 billion dollar bailout of QE was
very controversial bailing out Wall
Street is the only way to save Main
Street so says the president the house
of cards was much bigger
beyond star to stretch beyond just Wall
Street that's how the president defended
one of the largest proposed financial
rescue plans in US history Treasury
Department and congressional staffers
are working through the weekend
hammering out the details the
president's plan would allow the
Treasury to buy up to seven hundred
billion dollars worth of bad loans like
many of those subprime mortgage deals
but those bad debts then go on the
American public stab Congress will have
to raise the legal limit on the national
debt from ten point six trillion to
eleven point three trillion dollars it
was thought to be a one-off emergency
scenario but over the next decade the
Federal Reserve was unable to reverse it
to give you an idea of how significant
all of this was it took from the
foundation of America in 1776 all the
way up to 2008 for the nation to attain
less than the trillion dollars in debt
by 2014 that number had expanded to four
point four trillion and since the onset
of the covert pandemic three trillion
was added in the span of three months
now the US central bank is creating
hundreds of billions of dollars in mere
hours
it's seeming to have less of an effect
as it continues we have a lot of good
faith based on the the prowess of the US
printing press I mean the United States
maintains reserve currency status
it's very money though that's not real
money that's fake money that's true and
I'm sure you're known as a fake money oh
really I know but it's all based on
faith how long is this - how long is a
sustainable though how to go at that
pace the argument then becomes about the
taxpayer who's pissed off insane let me
get this straight you can constantly
bail yourself out and you can constantly
go print money with this quantitative
easing why the hell do I have to pay
taxes why do I pay taxes these are the
seeds of social unrest in this country
you can only drive so big of a wedge
between the haves and the have-nots
especially when you're getting out the
middle class in the process
the Federal Reserve monetizing the u.s.
debt is what enables all of this so how
does this money into the system central
banks use their magic money to buy the
equivalent amount of bonds from the
government they do this through the bond
market which exists to lend money to
corporations or governments although the
stock market gets more press the bond
market is actually bigger so what is a
bond for the purposes of this video it's
basically the same as debt but is issued
by a government or corporation central
banks which have no savings can create
money to buy these bonds so he is an
important question can a central bank go
bankrupt well according to the European
Central Bank which published a paper in
2016 central banks are protected from
insolvency due to their ability to
create more money if you think this
sounds a bit unfair
just wait governments in our current
situation are stuck between a rock and a
hard place they can't raise money except
for raising taxes but owed trillions to
central banks the hope is that the
borrowed money can kick-start the
economy but something else is happening
when central banks buy bonds given by
the government or corporations they can
end up owning a lot of the world's
assets for example the balance sheet of
the Japanese central bank is bigger than
the entire GDP of Japan they own 80
percent of their stock market that's
right the Central Bank of Japan is their
stock markets largest shareholder the
Swiss central bank owns ninety billion
dollars in American stocks including
Apple Microsoft Google and Amazon when I
first heard of this a few years ago I
simply couldn't believe it was legal
so these central banks are creating
money out of nothing and they can't go
bankrupt but yet they're buying real
assets even a toddler can see that
something is wrong here
it turns out they're creating money out
of nothing and buying things does have
some consequences these sorts of central
bank interventions remove stock markets
from reality throughout the 20th century
the stock market actually used to
reflect the economy but recently that's
gone completely out of whack the US
stock market has become almost twice as
big as the entire nation's GDP which
literally makes no sense central bank
intervention is the main reason why in
April 20 2013 million people became
unemployed in the United States but the
stock market had its best month since
1987 the central bank printed trillions
gave it to banks and hedge funds with
almost zero percent interest rates this
money made it straight into the stock
market while the real economy barely got
any help earlier we discussed that money
printing leads to inflation so why
haven't we seen it yet well we have
we've seen inflation globally in housing
prices and stock markets the printed
money ends up in all of these assets
pushing up the prices so the few people
who own large amounts of stocks end up
ridiculously wealthy while there's no
growth in the real economy the rich get
richer and the poor get poorer a lot of
people can feel and see the wealth
inequality but they have no idea where
it's coming from
I'm going to show you in three charts
since the 1980s the wealth of the upper
echelon of society has been tied to the
stock market since 2008 when the economy
went on life-support the stock market
became glued to the Federal Reserve the
more they print the more the stock
market goes up and the richer they
become since 1980 their wealth has grown
four hundred and twenty percent when
central bank's print money the first
recipients of that newly printed money
enjoy higher standards of living at the
expense of the later recipients of that
money when inflation has already taken
hold this phenomena is known as the
one effect experts believe that when the
rich finally starts selling their stocks
and real estate so as to buy other
assets and times of distress the money
velocity that is the rate at which money
changes hands in the economy will start
to pick up and that is when we'll start
seeing real inflation in the general
economy there is so much more to this
but I'll leave it here for today
so to recap central banks have no
savings in their account they can't go
bankrupt but can create infinite amounts
of money by buying government bonds a
bond is an exchange of money for a
promise that the government would
eventually pay it back with interest
this money eventually must be paid back
by future citizens of a country either
through taxation or inflation so what do
we do it's clear that people out there
who have lost their jobs need help
though just in my opinion I think
printing money is only a band-aid
the real solution was in the past
decades ago societies and nations should
have focused on wealth creation instead
of excessive housing financialization
and gambling that is banks should have
made loans to productive areas of
society small and medium businesses
entrepreneurs education manufacturing
innovation research and development all
of these kind of things just imagine how
our world would be today
if banks invested hundreds of billions
of dollars into these kind of things
instead of property or gambling or if
the price of something will go up or
down
just imagine it's riskier for the banks
but the benefits lead to more jobs more
innovation better competition and better
living standards in the long run also
governments can collect more taxes from
these incomes without necessarily
raising taxes these extra taxes from
generally higher living standards can
then be spent on social programs to help
those who are truly in need
you can print money but you can't print
wealth but focusing on wealth creation
and productivity takes time effort and
hard work and it just seems today that
people don't have the appetite for that
and frankly it's too late for this
option if we focused on funding wealth
creation before covert hit all of our
economies would be much less fragile
most individuals and businesses would
have a healthy amount of savings to
write it out like in the late 20th
century but for now we're just going to
have to deal with the consequences of a
fragile system so what's going to happen
next in my view I think this is all
going to lead to something very big and
unpleasant over the next decade I don't
know how it's going to look like but it
may involve massive amounts of inflation
and slow economic growth a situation
known as stagflation this happened in
the 1970s but this time it could be much
worse due to excessive amounts of debt
with the added effect of social
instability the mainstream view is that
eventually the world will lose faith in
the US dollar though some macro
economists think that the American
dollar may actually rise in value as
other nations try to sell their goods or
exchange falling currencies for the US
dollar because it's the cleanest economy
out of a world of falling economies this
is called the dollar milkshake Theory
some people think that Digital stable
coins will be able to solve a lot of
problems there are others still who
argue that nations can print infinite
amounts of money just as long as they
keep producing enough goods to pay the
interest on the debt that the government
owes the central banks the argument here
is that the debt actually never has to
be paid back only the interest this is
called modern monetary theory I can't
comment on if this will work or not I
don't think anyone can because it's
never been tried before but I can't help
but think that this looks like another
fragile solution
small communities in Venezuela and a
small town in Italy have taken the power
back themselves and just issued their
own currency
all in all who knows what's going to
work I have no idea on the bright side
all of the events to come
might spawn massive reform as I did
learn while writing my book out of the
worst circumstances the best innovations
arise so what can the individual do
obviously I can't give financial advice
I'm definitely not qualified for that
but it might be worth thinking about
converting some of your money into other
assets that aren't debt based as a form
of insurance if you're older you may be
thinking about gold since no central
bank can print gold Bank of America and
even Goldman Sachs the last people on
earth hear you and think to be positive
I've seen Gold's potential and they're
calling it the money of last resort even
other central banks like China and
Russia have been buying gold in record
amounts for years I think they
understand what's about to happen if
you're younger you may be attracted to
cryptocurrencies governments and the
banking system are starting to take the
technology seriously now if you're more
daring you can play the central bank's
game against them study and invest in
the assets that you think they'll cause
to rise in price ultimately I can't tell
you what to do here you have to think
for yourself and research to find out
what you believe is best
the way money is created and the overall
banking system seems like madness and
people have started to notice that the
system is no longer working the monetary
system is so ingrained and so pervasive
it becomes invisible to see nobody ever
questioned it when things started going
wrong they pointed at the things that
were visible things that look like
problems surface issues which you could
see and understand looking at the
surface some would point the finger at
capitalism but you have to dig deeper
and when you do you can see it's an
unfortunate and untimely mix of the debt
based system extreme financialization
moral hazards and a rampant Cantillon
effect that's causing extreme fragility
and ever-increasing amounts of massive
wealth inequality
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