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[Music]
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[Music]
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this episode is a more detailed
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follow-up to my 2017 video who controls
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all of our money I'm going to focus on
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the United States in this video only
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because they're the world reserve
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currency but everything in this video
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affects all of us
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because the central banks around the
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world are all doing the same thing with
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that being said let's begin around the
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world today we see central bank's
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printing money so here's a question
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we're told from young age that money is
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hard to come by we should study to work
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our whole life to earn it how then can
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all this money suddenly come from
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nowhere how is money created who's going
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to pay it back
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what exactly does all of this mean and
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what's going to happen next in this
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episode we'll explore the three ways
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that money's been created and some of
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the consequences that are going to
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happen I'm also going to show you the
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true origins of wealth inequality if you
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watch this episode the whole way through
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you should have a well-rounded idea of
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what's going on today it's important for
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people to know I'm really just trying to
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help with that this journey starts off
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simple enough but by the end you'll
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start to see the insanity of what we're
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dealing with you are watching ColdFusion
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TV
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[Music]
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the first form of money is the one
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created by government in practice it's
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outsourced to the central bank Royal
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Mint but controlled by the government
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physical money comes in two forms either
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paper money or coins this physical money
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is a tiny fraction of the economy and in
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many economies this kind of money only
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makes up about 3 to 8 percent this
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physical money is created in order to
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meet the obligations of private banks
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when you go to an ATM and try to
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withdraw cash banks need to make sure
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that they have enough cash in order to
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meet those obligations so let's take a
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$10 note for example it costs
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approximately 3 cents in order to print
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this note this means that there's
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approximately nine dollars and 97 cents
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of profit for creating a ten dollar note
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this $9.97 of the government this
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revenue is called senior rich so since
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the government makes profit from
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printing and minting coins and can
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reduce the amount of Taxation on the
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public you might be thinking why don't
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governments just always print physical
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money the main reason that governments
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don't create the majority of money is
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because of politicians if the politician
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running the office could create money at
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will there would be a massive conflict
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of interest there'll be an urge to keep
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printing to fulfill campaign promises or
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fund Wars this would in theory destroy
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the currency by excessive printing
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causing massive devaluation
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the more money you have in circulation
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the less it's worth and that's a key
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point for example if massive inflation
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takes place and the average Joe has a
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million dollars but that million dollars
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only buys an apple how much is a million
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dollars actually worth the loss in
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purchasing power of money over time is
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called inflation and when inflation gets
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out of hand
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money becomes worthless some recent
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examples of runaway inflation include
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Argentina Zimbabwe and Venezuela in this
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animation you can graphically see just
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how fast inflation can run away you
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don't see it coming
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and as the inflation rate goes up people
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quickly lose faith in the currency for
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example here we can see some people in
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Venezuela using money to make handbags
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and to draw pictures on because if
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simply isn't worth anything anymore you
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can think of money as a measuring stick
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of value a measuring stick that is
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highly elastic and can change depending
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on how much of it there is for thousands
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of years gold was the measuring stick of
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valley gold was kind of like a physical
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anchor keeping the money supply in check
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and governments responsible in 1971
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President Richard Nixon announced that
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the United States would no longer
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convert dollars to gold at a fixed value
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since that point money the measuring
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stick of Valley has become elastic since
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the US dollar backs all other currencies
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as a reserve currency Nixon's decision
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changed the world in all of this you
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might still notice that despite
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politicians supposedly not being able to
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influence money creation it's happening
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anyway this may cause problems as we'll
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see later in the episode
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so to recap the government creates
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physical forms of money like notes and
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coins only about three to eight percent
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of money is made this way
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sine Ridge is the income from that
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physical money this income is both a
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benefit to the government and the
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taxpayer it reduces debt for the
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government and reduces the burden on the
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individual taxpayer the reason
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governments don't create more of this
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money is
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cuz of the inflation risk from
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politicians decisions let's move on to
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number two
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private banks and debt based money the
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vast amount of money created today is
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done by the private banking sector in
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most developed economies about ninety
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seven percent of the entire money supply
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is created digitally by banks and
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therefore most money in the world is
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privatized banks invented digital money
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when they managed to persuade lawmakers
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after many early bank runs a bank run is
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an event where depositors try to get
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their money out all at once but the
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banks don't have it from these events
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banks argued that they should be legally
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allowed to create more deposits than
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actually exist based upon debt and this
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is how governments outsource to the
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creation of digital money the idea of
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using debt as money begins much earlier
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than this English innovators set the
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stage for banks to become the creators
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of money across the globe in 1704 the
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English Parliament passed the promissory
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notes Act take a good look at your
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screen what you are seeing is a
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promissory note in this case it's a
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written promise to say that you'll pay
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back the $20.00 you borrowed under the
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law this piece of paper was as good as
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20 dollars today we digitized this
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agreement and call it debt if it helps
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whenever I say debt in this episode you
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can think of this piece of paper
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remembering that it's as good as money
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okay so banks will authorize to be able
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to use these debt notes to circulate as
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money from this point banks were free to
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create and destroy debt and hence money
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from themselves rented out at interest
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in the modern world as you'll see the
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whole world's economy is based upon
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these promises let's take a look at how
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it works today
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when you go to a bank to borrow some
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money the banking license gives that
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bank the ability to create money every
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time they issue a loan they do this
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through the double accounting system for
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example if you buy a $500,000 house the
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bank creates $500,000 in their account
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and you have $500,000 in debt that is
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the promise to pay it back with interest
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this $500,000 debt can enter the wider
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economic system because when you
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purchased the house the owner of that
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house can use that fresh debt that was
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created by the bank that they received
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from you to buy other things in the
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economy
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this means in our current system if we
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want to have more growth we need more
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debt the key point here is that debt is
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actually money just from a different
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point of view to the lender it's an
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asset of money into the borrower it's a
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liability of debt but they are one in
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the same it sounds a bit complicated but
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all you need to know is that when a bank
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issues alone it's not somebody else's
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savings it's not money that the bank had
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it's essentially brand-new money that
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they create they simply type it into a
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computer and it appears as a digital
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representation of the government's money
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which you can spend the beneficiary of
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this brand-new money is actually the
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bank because they get to charge interest
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on that money and that's how they make a
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profit later when you repay this loan
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the debt disappears and the money also
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disappears but the bank's profit from
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the interest remains the real estate and
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property markets are the largest tools
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for creating digital money this is
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because banks have decided that it's the
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safest yet most profitable form of
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creating debt because if you can't repay
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the loan the banks can simply take your
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house in developed nations vast amounts
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of money is backed by the mortgage
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market in Australia where I live it's
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become particularly bad for decades now
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the banks have abandoned investment into
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the wider economy and have shifted their
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focus to investments in housing this has
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pushed up the housing prices as people
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take on more debts to buy houses that
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they are
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couldn't afford but the banks make more
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money this cycle over many decades has
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caused one of the biggest property
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bubbles on the planet
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we're addicted to debt yes we were adept
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addicted to debt as individuals as
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households you know the ratios are way
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higher than all this every other country
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so that's lanes but what about deposit
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we need to pause a cash into a bank you
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are no longer the legal owner of that
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money the banks are they keep 10% of
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your deposits on reserve and can line
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out 90% of that money to someone else
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and that other person can deposit that
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money into another bank and then that
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bank can loan out 90% and so on this is
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known as fractional reserve lending if
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they say we'll transfer it to your
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account that's wrong because no money is
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transferred at all because what we call
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a deposit is simply the bank's record of
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its debt to the public now it also owes
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you money and its record of the money it
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owes you is what you think you're
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getting as money and that's all it is
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when all is said and done an initial
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deposit of $100 with a tempest and
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reserve requirement can ultimately lead
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to a thousand dollars in total money
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circulation well at least that was how
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it used to work until March the 26th
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2020 there is now a zero percent reserve
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requirement according to the Federal
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Reserve quote this action eliminated
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reserve requirements for all depository
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institutions end quote so banks can now
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create infinite amounts of money with no
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reserves and it doesn't stop there when
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banks hold your deposit they can along
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with hedge funds gamble with it through
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investments in financial instruments
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such as derivatives and securities they
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do this in order to make superior
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returns most of the time these
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instruments are basically just bets on
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if the price of an asset will rise or
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fall but when taken to the extreme it
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can get ridiculous remember in my Enron
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video how I talks about how they use
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financial instruments to bet on the
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weather these crazy classes of financial
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instruments is what brought down the
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housing market and the subsequent global
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economy in
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thousand and eight but the problem today
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is that banks are playing with so many
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derivatives sometimes stacked on top of
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each other with leverage multiplying
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factors that nobody actually knows how
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much money is tied up in this gambling
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some estimates put the derivative market
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at over one quadrillion dollars over ten
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times the global economy in booms
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everyone takes on debt that is loans
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from a bank and they spend it on things
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that they normally couldn't afford but
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this causes economic growth eventually
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people can't afford to take on more debt
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and can't pay it back
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the bank stopped lending and default
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start to take place and the economy
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takes a downturn this is natural and has
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happened over centuries but in 2008
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everything changed the world didn't want
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to go through the pain of a downturn and
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some analysts mark this as the very
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point that the real economy died in 2008
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banks had become so large intertwined
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and integral to the supply of money that
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when they're about to collapse
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the government's had to use the central
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banks to bail them out remember banks
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are creating 97% of all money as debt
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and if this can't be paid back it can
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cause a systemic failure a risk of
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collapse of the entire global monetary
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system since 2008 the economy was dead
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but has been on life support ever since
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a decade of hyper low interest rates
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which basically made the cost of
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borrowing money free of caused market
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distortions so large that has compounded
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the entire problem there were short-term
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gains for the consequence of long term
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pain
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when private banks make risky bets and
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incur losses central banks can rescue
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them with their infinite wallet as
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mentioned by Fed Chairman Jerome Powell
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in a recent interview for CNBC s a 60
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Minutes fair to say you simply flooded
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the system with money yes we did that's
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another way to think about it we did
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where does it come from do you just
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print it we print it digitally so we you
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know we as a central bank we have the
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ability to create money digitally and we
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do that by buying Treasury bills or for
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bonds or other government guaranteed
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securities an act that actually
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increases the money supply but by law
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chairman Powell's Federal Reserve can
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only lend money that must be paid back
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we'll get to central banks in the next
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section but as you'll soon see we have
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to pay these debts back all of this
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money that's being created is like that
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piece of paper we saw with the promise
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on it except is signed by all of us and
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we signed that we're going to pay this
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back through taxation us and our future
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generations it's important to note that
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governments don't actually support the
00:14:52
people it's the people that support
00:14:55
government's through taxation taxation
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and trade are the two major ways that
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governments can raise money this raise
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money is used to pay back the central
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bank loans with interest
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so when governments use the central
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bank's to bail out private banks for
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their risky behavior the government's
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are left with the debt which eventually
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has to be paid back by the taxpayers in
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the future
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so to recap private banks create the
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vast majority of money about 97% of it
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and they do so by creating loans which
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is debt the process is as simple as
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typing numbers into a computer banks can
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to an extent spend and gamble consumer
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deposits as they legally own it too big
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to fail banks are backed up by the
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central bank
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creating a moral hazard and that brings
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us to the final and most insane form of
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money creation central bank digital
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money the third form of money is
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quantitative easing or QE quantitative
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easing is a new form of money that was
00:16:03
invented by the Japanese central bank in
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1989 it was later popularized by the
00:16:08
Federal Reserve in the United States
00:16:09
during the 2008 crisis QE is where a
00:16:13
central bank creates money in order to
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issue loans directly to the banking
00:16:17
sector large corporations and most
00:16:20
recently the public it's a way of
00:16:22
flooding money into the economy at times
00:16:25
of extreme events like the financial
00:16:26
crisis of 2008 as a result of this the
00:16:30
central bank's balance sheets have gone
00:16:32
completely out of control in order to
00:16:34
prop up the economy a little bit longer
00:16:36
in 2008 during the crisis and the first
00:16:40
time this was tried outside of Japan the
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700 billion dollar bailout of QE was
00:16:45
very controversial bailing out Wall
00:16:47
Street is the only way to save Main
00:16:50
Street so says the president the house
00:16:53
of cards was much bigger
00:16:58
beyond star to stretch beyond just Wall
00:17:01
Street that's how the president defended
00:17:03
one of the largest proposed financial
00:17:05
rescue plans in US history Treasury
00:17:08
Department and congressional staffers
00:17:10
are working through the weekend
00:17:11
hammering out the details the
00:17:13
president's plan would allow the
00:17:14
Treasury to buy up to seven hundred
00:17:16
billion dollars worth of bad loans like
00:17:19
many of those subprime mortgage deals
00:17:21
but those bad debts then go on the
00:17:23
American public stab Congress will have
00:17:26
to raise the legal limit on the national
00:17:28
debt from ten point six trillion to
00:17:31
eleven point three trillion dollars it
00:17:33
was thought to be a one-off emergency
00:17:36
scenario but over the next decade the
00:17:38
Federal Reserve was unable to reverse it
00:17:41
to give you an idea of how significant
00:17:44
all of this was it took from the
00:17:46
foundation of America in 1776 all the
00:17:49
way up to 2008 for the nation to attain
00:17:52
less than the trillion dollars in debt
00:17:53
by 2014 that number had expanded to four
00:17:58
point four trillion and since the onset
00:18:00
of the covert pandemic three trillion
00:18:02
was added in the span of three months
00:18:04
now the US central bank is creating
00:18:08
hundreds of billions of dollars in mere
00:18:10
hours
00:18:10
it's seeming to have less of an effect
00:18:12
as it continues we have a lot of good
00:18:16
faith based on the the prowess of the US
00:18:19
printing press I mean the United States
00:18:21
maintains reserve currency status
00:18:23
it's very money though that's not real
00:18:25
money that's fake money that's true and
00:18:27
I'm sure you're known as a fake money oh
00:18:28
really I know but it's all based on
00:18:33
faith how long is this - how long is a
00:18:35
sustainable though how to go at that
00:18:37
pace the argument then becomes about the
00:18:39
taxpayer who's pissed off insane let me
00:18:41
get this straight you can constantly
00:18:43
bail yourself out and you can constantly
00:18:45
go print money with this quantitative
00:18:46
easing why the hell do I have to pay
00:18:47
taxes why do I pay taxes these are the
00:18:51
seeds of social unrest in this country
00:18:55
you can only drive so big of a wedge
00:19:00
between the haves and the have-nots
00:19:02
especially when you're getting out the
00:19:03
middle class in the process
00:19:06
the Federal Reserve monetizing the u.s.
00:19:08
debt is what enables all of this so how
00:19:11
does this money into the system central
00:19:14
banks use their magic money to buy the
00:19:16
equivalent amount of bonds from the
00:19:18
government they do this through the bond
00:19:20
market which exists to lend money to
00:19:22
corporations or governments although the
00:19:24
stock market gets more press the bond
00:19:26
market is actually bigger so what is a
00:19:29
bond for the purposes of this video it's
00:19:33
basically the same as debt but is issued
00:19:35
by a government or corporation central
00:19:37
banks which have no savings can create
00:19:40
money to buy these bonds so he is an
00:19:43
important question can a central bank go
00:19:45
bankrupt well according to the European
00:19:49
Central Bank which published a paper in
00:19:51
2016 central banks are protected from
00:19:54
insolvency due to their ability to
00:19:56
create more money if you think this
00:19:58
sounds a bit unfair
00:20:00
just wait governments in our current
00:20:03
situation are stuck between a rock and a
00:20:05
hard place they can't raise money except
00:20:08
for raising taxes but owed trillions to
00:20:10
central banks the hope is that the
00:20:13
borrowed money can kick-start the
00:20:14
economy but something else is happening
00:20:20
when central banks buy bonds given by
00:20:23
the government or corporations they can
00:20:25
end up owning a lot of the world's
00:20:27
assets for example the balance sheet of
00:20:30
the Japanese central bank is bigger than
00:20:32
the entire GDP of Japan they own 80
00:20:35
percent of their stock market that's
00:20:38
right the Central Bank of Japan is their
00:20:41
stock markets largest shareholder the
00:20:43
Swiss central bank owns ninety billion
00:20:46
dollars in American stocks including
00:20:48
Apple Microsoft Google and Amazon when I
00:20:52
first heard of this a few years ago I
00:20:54
simply couldn't believe it was legal
00:20:57
so these central banks are creating
00:21:00
money out of nothing and they can't go
00:21:02
bankrupt but yet they're buying real
00:21:04
assets even a toddler can see that
00:21:07
something is wrong here
00:21:10
it turns out they're creating money out
00:21:13
of nothing and buying things does have
00:21:15
some consequences these sorts of central
00:21:17
bank interventions remove stock markets
00:21:20
from reality throughout the 20th century
00:21:24
the stock market actually used to
00:21:25
reflect the economy but recently that's
00:21:28
gone completely out of whack the US
00:21:30
stock market has become almost twice as
00:21:32
big as the entire nation's GDP which
00:21:35
literally makes no sense central bank
00:21:39
intervention is the main reason why in
00:21:41
April 20 2013 million people became
00:21:44
unemployed in the United States but the
00:21:47
stock market had its best month since
00:21:49
1987 the central bank printed trillions
00:21:53
gave it to banks and hedge funds with
00:21:55
almost zero percent interest rates this
00:21:57
money made it straight into the stock
00:21:59
market while the real economy barely got
00:22:01
any help earlier we discussed that money
00:22:06
printing leads to inflation so why
00:22:08
haven't we seen it yet well we have
00:22:11
we've seen inflation globally in housing
00:22:14
prices and stock markets the printed
00:22:17
money ends up in all of these assets
00:22:19
pushing up the prices so the few people
00:22:22
who own large amounts of stocks end up
00:22:24
ridiculously wealthy while there's no
00:22:26
growth in the real economy the rich get
00:22:29
richer and the poor get poorer a lot of
00:22:33
people can feel and see the wealth
00:22:35
inequality but they have no idea where
00:22:38
it's coming from
00:22:39
I'm going to show you in three charts
00:22:41
since the 1980s the wealth of the upper
00:22:45
echelon of society has been tied to the
00:22:47
stock market since 2008 when the economy
00:22:51
went on life-support the stock market
00:22:54
became glued to the Federal Reserve the
00:22:57
more they print the more the stock
00:22:59
market goes up and the richer they
00:23:01
become since 1980 their wealth has grown
00:23:04
four hundred and twenty percent when
00:23:08
central bank's print money the first
00:23:10
recipients of that newly printed money
00:23:12
enjoy higher standards of living at the
00:23:14
expense of the later recipients of that
00:23:16
money when inflation has already taken
00:23:18
hold this phenomena is known as the
00:23:21
one effect experts believe that when the
00:23:24
rich finally starts selling their stocks
00:23:26
and real estate so as to buy other
00:23:28
assets and times of distress the money
00:23:30
velocity that is the rate at which money
00:23:33
changes hands in the economy will start
00:23:35
to pick up and that is when we'll start
00:23:38
seeing real inflation in the general
00:23:40
economy there is so much more to this
00:23:42
but I'll leave it here for today
00:23:44
so to recap central banks have no
00:23:47
savings in their account they can't go
00:23:49
bankrupt but can create infinite amounts
00:23:52
of money by buying government bonds a
00:23:54
bond is an exchange of money for a
00:23:56
promise that the government would
00:23:58
eventually pay it back with interest
00:24:00
this money eventually must be paid back
00:24:03
by future citizens of a country either
00:24:05
through taxation or inflation so what do
00:24:16
we do it's clear that people out there
00:24:18
who have lost their jobs need help
00:24:21
though just in my opinion I think
00:24:23
printing money is only a band-aid
00:24:26
the real solution was in the past
00:24:29
decades ago societies and nations should
00:24:33
have focused on wealth creation instead
00:24:34
of excessive housing financialization
00:24:37
and gambling that is banks should have
00:24:41
made loans to productive areas of
00:24:43
society small and medium businesses
00:24:45
entrepreneurs education manufacturing
00:24:49
innovation research and development all
00:24:52
of these kind of things just imagine how
00:24:54
our world would be today
00:24:56
if banks invested hundreds of billions
00:24:58
of dollars into these kind of things
00:25:00
instead of property or gambling or if
00:25:02
the price of something will go up or
00:25:04
down
00:25:05
just imagine it's riskier for the banks
00:25:09
but the benefits lead to more jobs more
00:25:12
innovation better competition and better
00:25:14
living standards in the long run also
00:25:17
governments can collect more taxes from
00:25:19
these incomes without necessarily
00:25:21
raising taxes these extra taxes from
00:25:24
generally higher living standards can
00:25:26
then be spent on social programs to help
00:25:29
those who are truly in need
00:25:30
you can print money but you can't print
00:25:32
wealth but focusing on wealth creation
00:25:36
and productivity takes time effort and
00:25:39
hard work and it just seems today that
00:25:41
people don't have the appetite for that
00:25:42
and frankly it's too late for this
00:25:45
option if we focused on funding wealth
00:25:47
creation before covert hit all of our
00:25:50
economies would be much less fragile
00:25:52
most individuals and businesses would
00:25:55
have a healthy amount of savings to
00:25:56
write it out like in the late 20th
00:25:58
century but for now we're just going to
00:26:02
have to deal with the consequences of a
00:26:03
fragile system so what's going to happen
00:26:09
next in my view I think this is all
00:26:12
going to lead to something very big and
00:26:14
unpleasant over the next decade I don't
00:26:16
know how it's going to look like but it
00:26:18
may involve massive amounts of inflation
00:26:20
and slow economic growth a situation
00:26:23
known as stagflation this happened in
00:26:25
the 1970s but this time it could be much
00:26:28
worse due to excessive amounts of debt
00:26:30
with the added effect of social
00:26:32
instability the mainstream view is that
00:26:37
eventually the world will lose faith in
00:26:39
the US dollar though some macro
00:26:42
economists think that the American
00:26:43
dollar may actually rise in value as
00:26:45
other nations try to sell their goods or
00:26:47
exchange falling currencies for the US
00:26:50
dollar because it's the cleanest economy
00:26:51
out of a world of falling economies this
00:26:54
is called the dollar milkshake Theory
00:26:56
some people think that Digital stable
00:26:59
coins will be able to solve a lot of
00:27:00
problems there are others still who
00:27:03
argue that nations can print infinite
00:27:06
amounts of money just as long as they
00:27:07
keep producing enough goods to pay the
00:27:09
interest on the debt that the government
00:27:11
owes the central banks the argument here
00:27:14
is that the debt actually never has to
00:27:16
be paid back only the interest this is
00:27:19
called modern monetary theory I can't
00:27:22
comment on if this will work or not I
00:27:23
don't think anyone can because it's
00:27:26
never been tried before but I can't help
00:27:28
but think that this looks like another
00:27:30
fragile solution
00:27:33
small communities in Venezuela and a
00:27:35
small town in Italy have taken the power
00:27:37
back themselves and just issued their
00:27:39
own currency
00:27:40
all in all who knows what's going to
00:27:43
work I have no idea on the bright side
00:27:47
all of the events to come
00:27:48
might spawn massive reform as I did
00:27:52
learn while writing my book out of the
00:27:54
worst circumstances the best innovations
00:27:57
arise so what can the individual do
00:28:02
obviously I can't give financial advice
00:28:05
I'm definitely not qualified for that
00:28:07
but it might be worth thinking about
00:28:09
converting some of your money into other
00:28:10
assets that aren't debt based as a form
00:28:13
of insurance if you're older you may be
00:28:16
thinking about gold since no central
00:28:19
bank can print gold Bank of America and
00:28:21
even Goldman Sachs the last people on
00:28:23
earth hear you and think to be positive
00:28:25
I've seen Gold's potential and they're
00:28:27
calling it the money of last resort even
00:28:30
other central banks like China and
00:28:31
Russia have been buying gold in record
00:28:34
amounts for years I think they
00:28:36
understand what's about to happen if
00:28:39
you're younger you may be attracted to
00:28:41
cryptocurrencies governments and the
00:28:43
banking system are starting to take the
00:28:45
technology seriously now if you're more
00:28:49
daring you can play the central bank's
00:28:51
game against them study and invest in
00:28:53
the assets that you think they'll cause
00:28:55
to rise in price ultimately I can't tell
00:28:58
you what to do here you have to think
00:29:00
for yourself and research to find out
00:29:03
what you believe is best
00:29:06
the way money is created and the overall
00:29:10
banking system seems like madness and
00:29:12
people have started to notice that the
00:29:14
system is no longer working the monetary
00:29:17
system is so ingrained and so pervasive
00:29:20
it becomes invisible to see nobody ever
00:29:22
questioned it when things started going
00:29:25
wrong they pointed at the things that
00:29:27
were visible things that look like
00:29:28
problems surface issues which you could
00:29:31
see and understand looking at the
00:29:33
surface some would point the finger at
00:29:35
capitalism but you have to dig deeper
00:29:37
and when you do you can see it's an
00:29:39
unfortunate and untimely mix of the debt
00:29:42
based system extreme financialization
00:29:44
moral hazards and a rampant Cantillon
00:29:47
effect that's causing extreme fragility
00:29:50
and ever-increasing amounts of massive
00:29:52
wealth inequality
00:29:53
[Music]
