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During this video, we will be discussing banks.
Specifically, commercial banks.
Commercial banks are what we think about when somebody says "bank"
A commercial bank is a deposit-taking institution that can lend out money.
People go to the bank for a car loan, a mortgage, but wait:
Where does the money come from?
Well, out of thin air.
The bank literally types digits into the computer.
Contrary to blue-pilled belief, the bank does not use other people's deposited money to loan you money.
It creates money out of thin air - credit creation.
97% of the money supply is created by banks.
Only 3% of the money supply is physical cash, and that number is certain to decrease as cash is dangerous now remember...
Therefore, banks are the control centre of the entire economy, since they create money and decide who gets money for what purpose.
Do the banks create money for productive purposes, boosting GDP and job creation, reducing inequality?
Nope, for the last few decades, banks have created money for unproductive purposes, for asset transactions that play no role in GDP (i.e. real estate, stocks, lending to private equity funds and hedge funds).
Therefore, asset bubbles form.
It is inevitable, as long as banks create new money for asset transactions, people will continue to chase the lucrative capital gains on offer in these asset classes.
This has a crucial impact on many people's lives.
Think about this: Private Equity giant Blackstone buys up real estate, financed by this credit creation at the banks.
Blackstone has a real estate portfolio of $325 billion, including over 300,000 residential units worldwide.
Many people struggling with their rent would be angered to find that Blackstone has financed these mammoth deals via credit creation at the banks.
Credit creation which could be used for productive purposes, but instead is used to move Schwarzman yet further up the Forbes List.
A List which ranks and celebrates humans based on net worth, regardless of their contribution to the technological advancement of the human race, and omits those with true power and obscene wealth.
So if banks are creating credit for asset transactions, then you will have asset bubbles, banking crises and soaring wealth inequality.
The Banks have NO obligation from regulators to create credit for productive purposes.
Create credit for business development, technological innovation, etc?
Nah, let's lend to Blackstone so they can increase their carry.
This is why there is some valid criticism for the Baby Boomer generation - they have traded the technological progression of the human race for an increase in their already significant carry.
If and when banks slow down credit creation for asset transactions, some speculators (i.e. those who've borrowed money to invest in financial instruments) go bankrupt.
Then, banks suddenly have nonperforming loans, so they become more risk averse, reduce lending as asset prices fall.
This leads to more bankruptcies, and this vicious cycle then leads to a BANKING CRISIS.
SOURCES:
PROF. RICHARD WERNER on Banks Money Creation
https://www.youtube.com/watch?v=10AIaRNGIZs
Richard Werner: Today’s Source of Money Creation
https://www.youtube.com/watch?v=IzE038REw2k
Watch CNBC's full interview with venture capitalist Chamath Palihapitiya
https://www.youtube.com/watch?v=w3G47PjwaT4
Yann Tiersen - La Valse d'Amélie (performed by Ray Xavier)
https://www.youtube.com/watch?v=hvi6jahmDKk
Patreon:
https://www.patreon.com/financeoptimum
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