The Myth of the Money Multiplier - How Banking Really Works

This video explains why the traditional money multiplier theory is incorrect. We explain how bank lending is related to reserves and the correct causation of lending relative to reserves.

Related materials:

1) Understanding the basics of banking

2) RIP the Money Multiplier

3) Teaching the Linkage Between Banks and the Fed: R.I.P. Money Multiplier

4) Understanding the Modern Monetary System

#fiatmoney #banking #money

[disciplinefunds]

Thanks for watching! If there’s a subject you really want me to cover then please let me know.

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[jingloh]

Another great video, hope this kills the money multiplier fallacy, though it’ll probably keep multiplying and multiplying…..

[armendibishi]

I know that a bank can create 900$ of bookmoney out of a 100$ reserves since the bank is required to keep 10% of its deposits in reserves that means it keeps the 100$ bill and creates&lends 900$ of bookmoney.

[DistributistHound]

Capital constrained and interest constrained... funny thing is who do they pay interest too if banks use their own capital.. ahh yes the central bank

[AmatriceBand]

Right from the bat you got the concept of money multiplier wrong

[anrm]

So Central Bank can create reserves out of thin air, they are kinda same as money. Central Banks create money that way? If they raise interest on the reserves they lend out, that should theoretically slow loan creation since borrowers would refrain.

Is that right or nah?

[Ellesar]

It's 'spherical'. Harrumph!

[paolopg]

Hello Cullen, since you already mention reserves I have a q: I saw a tweet by Preston Pysh stating that QE has caused the stock market to go up because banks use the reserves from it to buy assets. However, in your video you state that these reserves are for interbank payments and meet reserve requirements, no mention of asset purchases. I have never seen a stock quoted in bank reserves and I'm also wondering how the Japanese stock market performed so poorly despite decades of QE. In fact, there are many central banks that have done QE, but not all stock markets seems to have benefited. Do you have insights on this topic? Thanks in advance.

[tomd.]

oh one small tiny critique if it matters at all. I am not a lawyer at all but I see the three minute money logo covers part of the disclaimer at the very end of the video. (see 2:40 into video).. it is likely no big deal at all but if that disclaimer is important it should probably be unobstructed :) you could just raise the logo a bit, and lower the disclaimer text a bit.

[Buttsocks]

In this video, does a bank’s capital include deposits, or just equity capital?