This is the third in my series of videos on money, banks and all things to do with them. I have explained that money is just a promise to pay, and also explained how banks create money when you make a promise to pay them. But in that case why do they need to hold your cash when they don't lend it out? In this video I explain why
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
On the subject of the govt bailing out the banks, isn’t it odd how the Tories have recently gone silent about Labour overspending? I can imagine that’s the last we’ll be hearing about that now the shoe’s on the other foot.
Hi Richard,
Can you explain your views on crypto currencies, please? If nothing else, there can be no better explanation of the lack of inherent value in money and the insanity of unregulated markets. If you have already done so, please direct me to the relevant article/video.
Paul
I will try to do a video on this and have added to my least
My answer is they are all Ponzi schemes in my opinion and none are currencies because there is no one to back the promise to pay – hence why I think them Ponzi arrangements requiring continual selling to succeed when there is no other backing, and continual selling is not possible, ultimately
[…] is the fourth video in my series on money. I've explained what money is and how banks create it, but the government can also create money, […]
I agree with this. Banks do need money just like the rest of us. There are several ways of looking at the issue. One is to say that banks creates liabilities when they issue loans. No-one wants those and banks aren’t any different. They need to make net credits to pay their bills and their shareholders just like any other business. Therefore, they can’t create profits just by creating money.
Also the bank’s money is an IOU of that bank. So, for example, Lloyd’s created money is an IOU of Lloyd’s bank. If I try to pay my taxes via a Lloyd’s bank account the tax collectors will only accept Lloyd’s bank IOUs providing they know that Lloyd’s bank can make good the payment from its reserves. That’s is where deposited money comes useful.
Wrong
The government accepts any banks’ IOU because they know they will underwrite them if they fail
Yes, this is true if the government chooses it to be so but the guarantee is currently limited to, I think, £85k per account. If there were to be another financial crisis I would expect this to be increased or the bank nationalised to keep the system as whole from collapsing.
The argument you make is that commercial bank IOUs are, de facto, the same as government IOUs. If so, this is also an argument for nationalising them all!
You have rumbled me…
[…] this final video my series on money, banks and related topics I explain how QE, or quantitative easing, is the final component in the […]