Learn about Banking 4: Multiplier effect and the money supply Video

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Learn about Banking 4: Multiplier effect and the money supply

Learn about Banking 4: Multiplier effect and the money supply So, let’s take a little bit about what happen in the last video, I’ll review again these different notions of money supply then let’s talk about whether it’s fair for people to think that they really have the money that they have. So, in the original video after the crop was harvested the farmers deposited of a 1,000 gold pieces in my bank. Then I lend out 900 of those, I have to keep some reserve in case those farmers wanted some of there money back and I figured t hey would never need more than 10% at a time. I lend out – they build an irrigate someone has a great idea to build irrigation canal so that more filled becomes usable and could access water. So, to build that irrigation canal they take those 900 gold pieces and they pay a bunch of workers. Those workers now have t eh gold pieces and so they need some place safe to put it, they put it back in my bank. Now I get 900 gold piece of deposits, I put 10% aside again and now I’ll lend out 810 gold pieces and let’s I lend it out for entrepreneur who wants to build a factory to build some type of tools that might make the apple harvest more efficient or faster or need less labor or whatever. But, whatever, that entrepreneur takes that was 810 gold pieces and pays the builder in the tow. And then the builder now has 810 gold pieces and he gives the money bank to me in my bank because I’m the safest place to keep it. So, and I stop the chain there, you could keep going on and on although there is some in, not ice that this values get smaller and smaller every time and we’ll do a little bit of math of that to figure out how far can go. But then I take the builders money and I said “will, you know this banking ideas is a new idea to me, I’m just going to live it all this reserve I want to see how it place out first”. So, then we said how much money is in the system and it all depends on how you define money and we made one definition called M0 and M0 we said we call this on narrowest definition and this is literally how much gold is in our system or how much stuff is their in t he system that could be immediately use for conducting a transaction and I’m assuming for the second of this argument that none of this players actually kept any gold in their pocket or kept some cash in their wallets for whatever for rainy day although if they did we would include in this calculation. I assume that everyone always deposits their gold with bank of Sal. So, when we did that calculation we got, where they resist 100 gold pieces of reserves so, we set aside it first. Then 90 here or 900 here, sorry, 900 here and then 810 here and so if you ad those up you get a 1,000 pieces in the system which makes a lot a sense because we originally had a 1,000 gold pieces in the system and gold doesn’t – in the example will as I said as I describe it we did have anyone discovering any new gold nor was any gold eaten or destroy in some way. So, it makes sense that there are a thousand god pieces. But then there is a more interesting question, if you went around the city and you ask everyone how much they have will say “oh, will I have this much in checking account with the bank of Sal” I mean if you ask me how money I had I would tell you how much is in checking account I have actually have a very little cash in my wallet right now, if an y of you are thinking of mugging me. All of money is in a checking account. So, if someone asks me how much money do you have I give that number, so if you went around the town and you ask everyone how much money do you have? You add them up you get the total of their checking accounts. And so let’s see, we had 810 gold pieces from the contractors, 900 god pieces from the ditch diggers and then a thousand gold pieces from the farmers. And then you see 1900 plus 810 you goy 2710 gold pieces collectively in checking accounts an since I’m the only bank that’s the total of my liabilities here. And we call that M1 and I’m calling this for reasons because this is were the actual words that are use by the economies and our government officials. But there is a couple of really interesting questions here, one is how did a thousand gold pieces get turn into 2710 and then is this 2710 are real, does it represent real wealth or was this some kind of weird shell game we play and then represents some type of weird pyramids skim. Will, how it got created, we went through the mechanics, the second – every time I set a little aside I lent some amount and then they deposit it and that’s how I got created. The interesting question is does it represent real wealth; the answer is it represents real wealth. If each of this in vestments were real investments, so if this 900 gold pieces that were use to build this irrigation ditch or whatever it is, if that project actually does generate at least 900 gold pieces of future wealth, essentially it can at least pay back the 900 gold pieces, it will probably generate more if it’s a good project. But if it generates at least 900 gold pieces of future wealth then this is a real asset right? This is a real asset, likewise if this factory really does generate at least 810 gold pieces of future if it really real allows us to produce that much more apples or gold or whatever. This is real asset here. So, this people, this wealth really does exist, t his 2,710 gold pieces of Coticot wealth really does exist as long as the projects that were to justification for borrowing the money, actually do generate a future wealth. So there are a couple of things to realize, there are not 2,710 gold pieces in this world there are only a thousand physical gold pieces. But if these projects are real projects that are actually not miss manage there are not just some type of a boring money in the whole type of project. Then we do have 2,710 gold pieces worth of wealth and I really want to stress this point, remember, gold isn’t wealth in of itself, gold is use to represent wealth, you cannot eat gold, you cannot live under gold, you’re gold will not transport you to some place, gold will not improve your health, it’s something that use to represent wealth, sometimes people think it is wealth it self and that’s actually a miss conception. So, this 2,710 perceive gold pieces that doe’s represent real wealth although it doesn’t represent real gold pieces. And this is and once again you might say “oh, boy you know this is some type of a show game” but it’s really not as long as this investments are good investments, remember, these are wealth generating investments and notice the money supply, this is how we define it with this M1, it expanded to facilitate real economic production. So, as long as this factory does generate wealth or this irrigation ditch does generate wealth then the money supply did not grow faster than the amount of wealth out there. And so, hold piece of before a gold piece of bought an apple now hopefully our gold piece was still buy an apple. In fact, in fact in this an important to thing to realize, if these investment are very good, very good you actually going to have– let’s say that apple let’s say we used to produce a thousand apples per year, a thousand apples per year, in earth apples are real wealth, apples are something that you can consume. That it will keep you living and you could also view these form investments because by eating them you’re able to do work. But, anyway before all of these investment started happening there are economy can produce a thousand apples. And now let’s say that there’s batchers of this irrigation ditch was produce, instead of a thousand apples now, we go from being able to produce 2,000 apples a year. And once again a lot of wealth was created, remember we only took 900 gold pieces to build this and all of a sudden were doubling, we able to produce another incremental thousand apples which in our old economy worth a thousand gold pieces, so that actually will definitely pay off right, you barrow a 900 gold pieces and this project will generate not a thousand gold pieces in total it will actually generate the equivalent of a thousand god pieces per year, it in crease our production of a thousand apples per year. And likewise, let’s say that this takes us from 2,000; this factory takes us from 2,000 apples a year to 3,000. So, let’s think about it, now in a given year how many apples are being produce? We still only have a thousand apples being produce now we have 3,000 being produce because this were really good investments, they really improved our productivity. So, now, if you say “will everyone in the economy think that they have 2,710 gold pieces or some equivalent of them” and we can produce 3,000 apples, now the money supply, 2710 actually grow slower than our wealth – maybe I should draw that, let me draw that out – before, lets’ say money, wealth, and I think it’s really important to separate the two concepts, money is used to transact wealth or represent wealth. It is not wealth into it self so, that has some important, philosophical under pinning to it. It will probably make you live happier if you realize this deference. But before we had a thousand gold pieces, before the banking in this fractional reserve system existed. And we have a thousand apples of wealth per year. And I’ll go more into the velocity of money but after all of this stuff happen later, we had 2,710 perceive gold pieces, these was are M1 definition, our M0 they actually physical gold was still a thousand. But how many apples do we produce here? We now produce 3,000 apples. So, notice the ration of gold to apples is actually improved and now if you think about it an apple is actually going to cost less gold, before, it used roughly had one gold piece per apple no, you have less than one gold piece for apple. So now, because of our innovation we actually experience deflations, so you might have said “oh, boy, all of this money was created out of no where” and this might doesn’t exist, this will lead to inflation but no because this is a very important point because the money was put to work in actual productive investments that create wealth that make the pie bigger or the pie of apples bigger. We actually experienced deflation and our economy actually grew and this was actually a very, very positive example. I’ll see you I the next video.

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Learn about Banking 4: Multiplier effect and the money supply

So, let’s take a little bit about what happen in the last video, I’ll review again these different notions of money supply then let’s talk about whether it’s fair for people to think that they really have the money that they have.

So, in the original video after the crop was harvested the farmers deposited of a 1,000 gold pieces in my bank. Then I lend out 900 of those, I have to keep some reserve in case those farmers wanted some of there money back and I figured t hey would never need more than 10% at a time. I lend out – they build an irrigate someone has a great idea to build irrigation canal so that more filled becomes usable and could access water.

So, to build that irrigation canal they take those 900 gold pieces and they pay a bunch of workers. Those workers now have t eh gold pieces and so they need some place safe to put it, they put it back in my bank. Now I get 900 gold piece of deposits, I put 10% aside again and now I’ll lend out 810 gold pieces and let’s I lend it out for entrepreneur who wants to build a factory to build some type of tools that might make the apple harvest more efficient or faster or need less labor or whatever.

But, whatever, that entrepreneur takes that was 810 gold pieces and pays the builder in the tow. And then the builder now has 810 gold pieces and he gives the money bank to me in my bank because I’m the safest place to keep it.

So, and I stop the chain there, you could keep going on and on although there is some in, not ice that this values get smaller and smaller every time and we’ll do a little bit of math of that to figure out how far can go. But then I take the builders money and I said “will, you know this banking ideas is a new idea to me, I’m just going to live it all this reserve I want to see how it place out first”.

So, then we said how much money is in the system and it all depends on how you define money and we made one definition called M0 and M0 we said we call this on narrowest definition and this is literally how much gold is in our system or how much stuff is their in t he system that could be immediately use for conducting a transaction and I’m assuming for the second of this argument that none of this players actually kept any gold in their pocket or kept some cash in their wallets for whatever for rainy day although if they did we would include in this calculation. I assume that everyone always deposits their gold with bank of Sal.

So, when we did that calculation we got, where they resist 100 gold pieces of reserves so, we set aside it first. Then 90 here or 900 here, sorry, 900 here and then 810 here and so if you ad those up you get a 1,000 pieces in the system which makes a lot a sense because we originally had a 1,000 gold pieces in the system and gold doesn’t – in the example will as I said as I describe it we did have anyone discovering any new gold nor was any gold eaten or destroy in some way.

So, it makes sense that there are a thousand god pieces. But then there is a more interesting question, if you went around the city and you ask everyone how much they have will say “oh, will I have this much in checking account with the bank of Sal” I mean if you ask me how money I had I would tell you how much is in checking account I have actually have a very little cash in my wallet right now, if an y of you are thinking of mugging me. All of money is in a checking account. So, if someone asks me how much money do you have I give that number, so if you went around the town and you ask everyone how much money do you have? You add them up you get the total of their checking accounts.

And so let’s see, we had 810 gold pieces from the contractors, 900 god pieces from the ditch diggers and then a thousand gold pieces from the farmers. And then you see 1900 plus 810 you goy 2710 gold pieces collectively in checking accounts an since I’m the only bank that’s the total of my liabilities here.

And we call that M1 and I’m calling this for reasons because this is were the actual words that are use by the economies and our government officials. But there is a couple of really interesting questions here, one is how did a thousand gold pieces get turn into 2710 and then is this 2710 are real, does it represent real wealth or was this some kind of weird shell game we play and then represents some type of weird pyramids skim.

Will, how it got created, we went through the mechanics, the second – every time I set a little aside I lent some amount and then they deposit it and that’s how I got created. The interesting question is does it represent real wealth; the answer is it represents real wealth. If each of this in vestments were real investments, so if this 900 gold pieces that were use to build this irrigation ditch or whatever it is, if that project actually does generate at least 900 gold pieces of future wealth, essentially it can at least pay back the 900 gold pieces, it will probably generate more if it’s a good project.

But if it generates at least 900 gold pieces of future wealth then this is a real asset right? This is a real asset, likewise if this factory really does generate at least 810 gold pieces of future if it really real allows us to produce that much more apples or gold or whatever. This is real asset here.

So, this people, this wealth really does exist, t his 2,710 gold pieces of Coticot wealth really does exist as long as the projects that were to justification for borrowing the money, actually do generate a future wealth. So there are a couple of things to realize, there are not 2,710 gold pieces in this world there are only a thousand physical gold pieces. But if these projects are real projects that are actually not miss manage there are not just some type of a boring money in the whole type of project.

Then we do have 2,710 gold pieces worth of wealth and I really want to stress this point, remember, gold isn’t wealth in of itself, gold is use to represent wealth, you cannot eat gold, you cannot live under gold, you’re gold will not transport you to some place, gold will not improve your health, it’s something that use to represent wealth, sometimes people think it is wealth it self and that’s actually a miss conception.

So, this 2,710 perceive gold pieces that doe’s represent real wealth although it doesn’t represent real gold pieces. And this is and once again you might say “oh, boy you know this is some type of a show game” but it’s really not as long as this investments are good investments, remember, these are wealth generating investments and notice the money supply, this is how we define it with this M1, it expanded to facilitate real economic production.

So, as long as this factory does generate wealth or this irrigation ditch does generate wealth then the money supply did not grow faster than the amount of wealth out there. And so, hold piece of before a gold piece of bought an apple now hopefully our gold piece was still buy an apple. In fact, in fact in this an important to thing to realize, if these investment are very good, very good you actually going to have– let’s say that apple let’s say we used to produce a thousand apples per year, a thousand apples per year, in earth apples are real wealth, apples are something that you can consume. That it will keep you living and you could also view these form investments because by eating them you’re able to do work.

But, anyway before all of these investment started happening there are economy can produce a thousand apples. And now let’s say that there’s batchers of this irrigation ditch was produce, instead of a thousand apples now, we go from being able to produce 2,000 apples a year.

And once again a lot of wealth was created, remember we only took 900 gold pieces to build this and all of a sudden were doubling, we able to produce another incremental thousand apples which in our old economy worth a thousand gold pieces, so that actually will definitely pay off right, you barrow a 900 gold pieces and this project will generate not a thousand gold pieces in total it will actually generate the equivalent of a thousand god pieces per year, it in crease our production of a thousand apples per year.

And likewise, let’s say that this takes us from 2,000; this factory takes us from 2,000 apples a year to 3,000. So, let’s think about it, now in a given year how many apples are being produce? We still only have a thousand apples being produce now we have 3,000 being produce because this were really good investments, they really improved our productivity.

So, now, if you say “will everyone in the economy think that they have 2,710 gold pieces or some equivalent of them” and we can produce 3,000 apples, now the money supply, 2710 actually grow slower than our wealth – maybe I should draw that, let me draw that out – before, lets’ say money, wealth, and I think it’s really important to separate the two concepts, money is used to transact wealth or represent wealth. It is not wealth into it self so, that has some important, philosophical under pinning to it. It will probably make you live happier if you realize this deference.

But before we had a thousand gold pieces, before the banking in this fractional reserve system existed. And we have a thousand apples of wealth per year. And I’ll go more into the velocity of money but after all of this stuff happen later, we had 2,710 perceive gold pieces, these was are M1 definition, our M0 they actually physical gold was still a thousand. But how many apples do we produce here? We now produce 3,000 apples.

So, notice the ration of gold to apples is actually improved and now if you think about it an apple is actually going to cost less gold, before, it used roughly had one gold piece per apple no, you have less than one gold piece for apple.

So now, because of our innovation we actually experience deflations, so you might have said “oh, boy, all of this money was created out of no where” and this might doesn’t exist, this will lead to inflation but no because this is a very important point because the money was put to work in actual productive investments that create wealth that make the pie bigger or the pie of apples bigger.

We actually experienced deflation and our economy actually grew and this was actually a very, very positive example. I’ll see you I the next video.

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