Economics 101 – 7 of 8 – Banking and the Business Cycle – Murray N Rothbard

7. Banking and the Business Cycle

One of the most difficult things to understand about banking is how money is created out of thin air. Current commercial bank liabilities are immediate. The banks do not have the reserves to redeem all demand notes. Thus, banks are inherently insolvent. But, government has eliminated runs on banks. Banks are not allowed to fail when they are mismanaged.

Central banks are sold to the public as restraining inflation, but central banking was created to allow inflation. The inflationary process generates the boom and bust business cycle.

The Bank of England was a great racket. The public accepted new money that was created out of thin air. The King had given the Bank a monopoly on money creation. President Jackson tried to get rid of the US central banks. Banks created the Federal Reserve System in 1913. The Fed banks now have a monopoly on all paper money. By legal tender law, one must accept Federal Reserve Notes. The Federal Reserve manipulates the money supply by manipulating the Federal reserves. The Central Bank is a lender of last resort. Every bank will be bailed out.

Economists were mainly concerned about the crashes, not the booms, of business cycles. Mises understood that the banks were inherently inflationary. He understood that the expanded money supply was going to commercial banks to loan to longer-term production projects like construction. This credit expansion was not based upon consumers having saved anything. The boom was a bad distortion. It promoted malinvestment. The crash was inevitable and a good thing. Austrians would stop inflating. Austrians during the crash would keep government hands off. 1920 was a great example of this Austrian Theory of the Business Cycle at work.

The seventh of eight sessions from Murray Rothbard’s Economics 101 series.

A collection of eight speeches and lectures by Murray N. Rothbard, spanning from the 1970s to the early 1990s. He is speaking in a small classroom setting, explaining economics from the ground up, and systematically in the manner of a classic 101 course on the topic—but with a revolutionary approach.

This lecture as a Podcast: http://enemyofthestate.podomatic.com/

Sourced from: https://mises.org/library/economics-101

Source: Economics 101 – 7 of 8 – Banking and the Business Cycle – Murray N Rothbard – YouTube

http://www.readrothbard.com/economics-101-7-of-8-banking-and-the-business-cycle-murray-n-rothbard

TRANSCRIPT
00:00
one of the most difficult points to get
00:02
across probably the single most
00:04
difficult point in all of monetary
00:06
analysis and monetary economics is that
00:09
the banks create money fly out of thin
00:11
air because everybody’s been in your to
00:13
thinking that thanks really simply
00:16
borrow on money and me lenses it’s very
00:19
difficult make the mind shift and
00:20
realize with the banks are really
00:22
engaging species of a form of legalized
00:25
paraffinic who we’re creating new money
00:27
than air without having to sell goods
00:30
and services because usually on the
00:32
market way to acquire money is to sold
00:34
goods and services in exchange for it or
00:37
else convince people just to think on
00:39
people the good people of the
00:41
contributing money of your organization
00:42
of some sort in other words either
00:44
donation or purchasing student services
00:47
also on the market the only other way to
00:49
get money to dig it out of the ground
00:50
Ziggler goal out of the ground which is
00:51
also for a hassle another way of course
00:55
is getting money are getting income
00:56
quiring money as a governmental way of
00:58
stealing it taxation of course you won’t
01:01
get a champion analyzed citation in
01:03
depth in these lectures this is not part
01:06
of basic economic busy economics really
01:08
covering the market and the Faris’s
01:10
various forms of appearances in it
01:14
rather than complete aberrations like
01:16
taxation another way of acquiring money
01:18
it’s the principle or created out of
01:20
thin air by some kind of
01:22
prestidigitation the major single lesson
01:24
of the analysis of banking if this is
01:26
what the banks do this is what
01:27
commercial banks do this is what
01:29
so-called with no euphemistically a
01:30
fractional reserve banking certain coin
01:33
collectors so points of people and keep
01:35
them for their clients as a service and
01:37
then lending the money out or don’t keep
01:39
them more and stuff and don’t have
01:41
really the money there this is a for
01:43
fractional reserve banking creating
01:45
fictitious claims or another way of
01:47
putting into the form of embezzlement
01:48
use a harsher but I feel thing accurate
01:50
perm because it’s really equivalent for
01:52
the old movies in the 30s will believe
01:54
the thirties we have a couple of bank
01:56
manager and the bank manager is strong
01:58
with some of the funds we’re not the
01:59
left’s gone permanently he has a great
02:02
tip on her right sure bet on the 6th at
02:04
Aqueduct or whatever even take this
02:06
money you know it’s not his money you
02:08
can invest it in
02:09
tip that’s a sure win and they probably
02:10
he’ll be able to put the money back and
02:12
talk at the interest the part of the
02:13
game before the bank examiner comes
02:16
usually what happens before that
02:17
manganese ammeter shows up unexpectedly
02:18
early nice chord with jail but the point
02:22
is even if that doesn’t happen he stole
02:23
a crook who’s making a difference well
02:24
he’s caught cookery is objective rather
02:26
than whether a functional weather report
02:28
or not in the case of the bank is you
02:30
have a very similar situation the bank
02:32
feels usually correctly of course that
02:35
they’re able to to issue one form or
02:37
another uncovered bank notes or
02:40
uncovered bank deposit or looking other
02:42
way fake warehouse receipts we show them
02:45
because they know darn well through
02:48
experience on the market the statistical
02:50
experience or whatever that not
02:52
everybody’s in a cork or four people
02:53
across this bank and I think that money
02:54
is there and so they really got away
02:57
with it for some time my contention over
02:59
that’s really formed a Bogle minh this
03:01
issue of uncovered banknotes of fake
03:03
warehouse receipts cuz usually you have
03:05
a warehouse or see this would be
03:06
something behind it you have our
03:07
certificate saying that we will redeem
03:09
your 10,000 Twitchell’s of lead with any
03:12
time you asked for it and supposed to be
03:14
tough how much will believe they’re not
03:15
supposed to be a hot air kind of receipt
03:17
this is what the banks do there’s this
03:20
division of opinion within the sound
03:22
money movement when put it that way
03:23
mouth action reserve banking some of us
03:26
think the fractional reserve banking
03:26
should be illegal as being for John same
03:29
basis as any other sort of fraud or
03:31
embezzlement others believe that this is
03:33
not shorter above them whether there
03:34
should not be illegal it should be able
03:36
to do this until the actual bankruptcy
03:38
appears you’ve told another word free
03:39
people claim their money and don’t find
03:42
it I’m on the pro fraud camp in other
03:44
words that the campus says that this is
03:46
for it should be outlawed even if
03:48
employee assume it’s illegal which of
03:50
course it has been for many years of a
03:52
century he would be seen with fractions
03:54
we’re banking it legal even allowing
03:56
this there isn’t a market certain severe
03:58
checks certain severe limitations on an
04:00
agreed to which the banks can expand
04:02
money out of thin air you know examine
04:05
these limitations under a system of
04:06
so-called free banking we making me
04:08
define technically as a system where the
04:11
banks are allowed to engage your
04:12
fractional reserve banking are allowed
04:14
to eat money out of thin air but of
04:15
course have to pay up people come and
04:17
prevent the warehouse you see obviously
04:19
that’s a key nobody can eyes open
04:21
country
04:21
promising your demon that’s free banking
04:24
in a situation where the maxtor have to
04:26
redeem their pledge to pay up when they
04:28
bank deposit of the banknote is
04:30
presented to them the other hand I Latin
04:32
engagement I could serve for other
04:33
people sir not fraud in this situation
04:35
in the situation of free banking we
04:38
would have a very hard money situation
04:39
we would not have too much bank credit
04:41
expansion there are three kinds of
04:43
checks in the free market those kind of
04:44
activity one check our one limitation I
04:47
credit expansion free market is if the
04:50
people just gonna use bank credit people
04:52
on trust the banks they think are a
04:53
bunch of crooks and they don’t use it
04:55
this is a very healthy situation and
04:57
most so-called primitive countries is
04:58
still exists people don’t use banks
05:00
people worry about them they feel
05:02
something crooked about the whole thing
05:03
and they’re absolutely right and so they
05:05
don’t use it they don’t accept bank
05:06
credit if you don’t accept bank credit
05:08
you’re a seller or lender or something
05:10
you don’t accept bank credit or bank
05:12
deposit of all I know except to check
05:13
you pair it up and grow the guy’s face
05:15
then the bank can expand credit cuz
05:18
nobody all except it’s like me printing
05:19
100 rothbard trying to buy something
05:22
with it it would not get a good
05:23
reception among the tradesmen of the
05:25
neighborhood check as a matter of fact
05:27
people not get paid in checks any
05:29
workers didn’t get paid in Czech people
05:30
very recently we link the world war two
05:32
before World War two work is not Japan
05:35
in cash and paper money Treasury mostly
05:38
women have bank accounts whole idea of
05:40
Maca council people worry up correctly
05:42
so whole idea of everybody having a
05:45
checking account only comes in after
05:46
World War Two picking you up workers
05:48
still get paid cash release until very
05:50
recently banks only come in on a big
05:53
scale fairly fairly recently they start
05:56
of course which merchants and with a
05:57
reduced realist etcetera who the average
05:59
person did not have a checking account
06:01
Oh quite light for theists one of the
06:04
monetary establishment the government
06:05
and the Allies and minions are trying to
06:07
push the idea of banking all over them
06:09
they push the cultural idea that it’s so
06:11
way in primitive a Neanderthal of
06:12
anybody to discuss the bank you see
06:14
movies again in the 30s when the old
06:17
geezer remember bogies are having money
06:18
under the floorboards and for gold or
06:20
cash or something refusing the Maxis
06:23
trust the claims of the banks are
06:25
cordial everybody laughs at only have a
06:27
lecture with a liberal consolidebt of
06:30
the
06:30
laughs and of course he was right and
06:32
metaphysically at least that’s the sort
06:35
of culture that gets spread around still
06:37
let you not to put your money in a bank
06:38
that’s really great their advance their
06:40
progressive they’re civilized and
06:42
anybody doesn’t do that as well as for
06:43
the same staff and kuai he know man of
06:45
course they were really writers and we
06:46
were wrong and that I’ve eaten you’ll be
06:49
natives of a kuwaiti natives not only
06:52
don’t they accept bank credit they don’t
06:53
accept paper money either and we accept
06:54
even their own beloved government paper
06:56
you know except inators stop except the
06:58
only goal with sometimes silver as a
07:00
result of which these countries cannot
07:01
inflate they can’t have runaway
07:03
inflation nobody will accept the stuff
07:05
they’re printing a beautiful healthy
07:06
situation i commended american citizen
07:09
ready okay that’s one check on the
07:12
magnet for this check has faded out it’s
07:14
faded out on the government cultural
07:15
pressure fading away of sound money
07:18
ideas and local public support so matter
07:20
of fact one in even the 1820s and 1830s
07:22
when people make money chris code
07:25
printed a paper money first comes in a
07:26
large scale in America and those days
07:30
they make paper money on a rags a very
07:32
high quality paper all right okay now
07:34
forces much cheaper paper any rate or
07:36
they may that I write paper and the hard
07:38
money people would write the newspapers
07:40
they say don’t accept rag paper ins
07:42
poking rag money you know the only
07:43
really good money’s that sound shany
07:45
goal but there’s a lot of healthy attack
07:47
because late as that but as time goes on
07:50
they say the people get brainwashed into
07:51
the idea that it’s much more civilized
07:53
to have have my credit and paper okay so
07:56
that’s check out limitations has more or
07:58
less faded out except in the so-called
08:00
primitive country the second limitation
08:02
which is my particular favorite so a
08:04
God’s angry man to the wrath of God type
08:06
of thing of the second choice second
08:08
limitation unfortunately most people
08:10
don’t see it that way and those of us
08:11
with favor of bank runs as they are
08:13
called a set of hard-hearted monsters I
08:15
have as a certain love for the bank run
08:16
a bank run in a situation where you have
08:18
the men cast cash or gold or whatever if
08:21
they can’t shout including goal and
08:23
paper let’s say cash is a thousand
08:25
dollars the man deposits or banknotes
08:27
$5,000 iou’s four thousand this is known
08:31
as fractional reserve banking fifty
08:32
percent reserves reserve to meet the
08:35
demand of pub five thousand dollars is
08:36
outstanding out there on the field so to
08:38
speak it should be Rodina at any time
08:40
people
08:41
to redeem it the bank has a thousand
08:43
dollars in there till the payoff the
08:45
other four thousand dollars out there
08:47
making profits for the bank out of this
08:49
kind of the demand of positives
08:50
money-making problems I have other guys
08:52
money the bank run occurs when the
08:55
clients of the bank and the people who
08:56
have already accepted the back or
08:58
accepting the bank notes or the man
09:00
deposits lose confidence the Mac but
09:02
some reason feel the bank is really
09:04
bankrupt oh is it read more of my stuff
09:06
I did I think there was a wall i can’t
09:09
swear that if i think there’s a law on
09:10
the books right now a federal statute
09:12
that it’s illegal to spread false rumors
09:15
about the monetary help of a bank at the
09:18
illegal spelled suspenseful rumors about
09:20
a bank being inherently bankrupt nobody
09:22
spreads rumors by general motors being
09:23
back i was obviously a not bankrupt for
09:25
any other business in a bank and the
09:28
asset column and liability column every
09:30
business knows they have certain
09:32
accounts payable in other words a
09:33
certain liabilities or do they here’s a
09:36
corporation it has a million dollars due
09:38
in six months so they make darn sure
09:40
that six months from now they’ll have a
09:42
million dollars coming in so they’ll be
09:43
able to pay it this is known as keeping
09:46
it the time structure of their assets
09:48
proportion of the time structure or
09:50
liabilities even better in order your
09:52
liabilities are coming in to pay off
09:55
something in a year you find before year
09:56
is not you try to get the money in so
09:58
that you try to keep your time structure
10:00
your assets the old corporations do this
10:03
and all businesses do this you’ve taught
10:04
this in every management course only
10:07
with a commercial bank not only don’t
10:08
they do they can’t do it the liabilities
10:11
are immediate that time structure is
10:13
right now and their assets of course
10:15
can’t be immediate will be making any
10:16
money on maybe one hundred percent
10:18
reserve banks that are fractional
10:19
reserve bank so their assets are coming
10:21
in you know six months a year two years
10:23
whatever it is and they’re the man there
10:26
are liabilities are right now so
10:28
therefore a bank is inherently bankrupt
10:29
a bank run occurs when the people begin
10:32
the real life or clients via the realize
10:34
that the bank is inherently mike from
10:36
they better get their money out fast
10:37
because the bank only has a thousand
10:40
bucks they’re 5,000 bucks outstanding
10:42
you better be the first thousand to get
10:44
it otherwise interact yet anything at
10:45
all when this deep knowledge hits the
10:48
consciousness of a republic a micron
10:51
occurs it’s a beautiful
10:52
the white is just this primont one of
10:54
the reasons why it’s specially illegal
10:56
to press for swimmers but inherent
10:58
bankruptcy of a bank because I’m really
11:00
in a state of illegality right now but
11:02
I’m saying all these banks are really
11:03
bankrupt for me to prove the case in
11:07
other words really a person free speech
11:08
making this statement illegal now if
11:11
they took me in a court and says illegal
11:12
you’re spreading false rumors about the
11:14
bankruptcy of American banking system I
11:15
would say no no I five forth because
11:17
they’re inherently bad problems they
11:18
would come up for their establishment
11:20
monetary theory if I music Bank is not
11:21
inherently bankrupt judges will have to
11:24
decide on basis of high monetary theory
11:26
in which he’s not very well equipped at
11:29
least so the stacker loaded against you
11:31
so the one of public finds out the
11:34
knowledge floods another of
11:35
consciousness their brain at the damn
11:37
bank in which they rest of their life
11:39
savings and bankrupt then the run begins
11:41
again another they go back in movies in
11:44
1930s classic movies about bank run
11:46
usually the oppression and some of the
11:49
rumors spread with a bank gun sound that
11:51
they’re losing money or whatever they
11:53
haven’t got the money people think
11:54
they’ve got and then people talk funny
11:56
into I get my money out and they line up
11:59
about five six in the morning when the
12:00
bank doors rope you have this lines
12:01
around the block so each person goes up
12:03
to the peloton amantha’s money but bank
12:05
president or vice president is telling
12:07
these people it’s these are forceful
12:09
wicked rumors spread by communist and
12:11
Bolsheviks the bank has sound had don’t
12:13
worry about it lying through his teeth
12:14
obviously they have now seen through his
12:17
prevarications and system their money of
12:19
course the bank full very quickly maybe
12:20
a couple of hours so many of the bank
12:23
that has fuller in this kind of
12:24
situation during the Great Depression of
12:25
might be plenty 933 there were thousands
12:27
of bank run by collapsing this of course
12:31
is a beautiful check a beautiful
12:32
imitation premarket limitation on bank
12:34
credit expansion the bank’s no down diva
12:36
their heart the ratio gets too low
12:38
people like myself will start spreading
12:40
rumors other people without believing it
12:42
and then start calling for their money
12:43
and whole issue of cards will collapse
12:46
because there have to collide most
12:47
people realize was going it’s got a
12:49
collapse because they ain’t got no money
12:51
in American economic history even among
12:53
American Historians great myth of
12:56
football Wildcats banking we hear that
12:58
before nineteen thirteen and fourteen
13:00
five making was free in the united
13:03
states and was wildcatters I’m runaway
13:05
inflation was chaotic who will pay off
13:07
the veil well it’s not quite true the
13:09
other hand of the defenders of wok a
13:10
mining claim is really great because
13:11
inflation is important for Economic
13:14
Development even less true tell me what
13:16
the reason why their work or Wildcat
13:18
banking here’s the north bart bank I’ve
13:21
got no money at all Oh cash I issue
13:24
$20,000 and what bar dollars with the
13:27
dollar redeemable in gold nor whatever
13:31
here’s the 20,000 or build stuff I
13:34
hadn’t anything I got nothing I got
13:36
peanuts first of all why will people
13:38
accept the money let’s say they accept
13:40
it first place I’m going great as long
13:42
as they accept I mean spending the money
13:44
I’m lending it to my brother-in-law or
13:45
whatever it is and everything’s going
13:46
great the only problem I haven’t when
13:48
people try to redeem it will redeem it
13:50
for more having money I’ll go bankrupt
13:52
whole beautiful bubble will have burst
13:55
the Wildcats think came from the idea to
13:58
make your headquarters and accessible if
14:01
your headquarters of the bank offices
14:03
are in New York City fifth and
14:04
forty-second Street find you very
14:06
quickly you go bankrupt fast we can
14:08
present spend this new money if however
14:10
you up in the wild what was then
14:11
northern Michigan Michigan was all
14:14
forest jungle and all that Thursday if
14:16
you’re up there and why was no the road
14:18
getting up there but only wild cats
14:20
around you and no people then it takes
14:22
months before a person can schlep is
14:24
away to like your bank headquarters the
14:26
man redemption that’s why they work or
14:28
walk at max these guys would establish
14:29
themselves look open the woods would
14:31
take days of backpacking they gets there
14:33
so that was unfortunate i think i said i
14:35
think all these banks were fraudulent
14:37
but there was still a market check on
14:39
them for this reason first place nobody
14:40
really except my establish the rock of
14:42
our bank up in northern michigan the
14:44
sophisticated people in new york and
14:45
philadelphia sever wouldn’t accept they
14:47
accepted a very huge discount other
14:49
words one north bar dollar for the walk
14:51
part bank of michigan will go for a ten
14:53
cents in new york they would depreciate
14:55
very rapidly and oral banks and large
14:57
merchants have weekly tables which you
15:00
come out listing the
15:01
discount rate on the market what barb
15:03
man can appreciate very rapidly and
15:05
finally go out of existence so the
15:07
market check in that sense secondly that
15:09
would circulate really app are right
15:11
around northern Michigan my round
15:13
Wildcat Country soon as you got a little
15:14
bit further from that they would
15:16
appreciate so that was there was sort of
15:19
a natural check even their wild can’t
15:21
activities the other big thing is that
15:23
the reason why there was Wildcat bank
15:24
except there was it wasn’t because of
15:27
free banking because every time the
15:28
bank’s kind of the trouble every single
15:30
time American history the bank’s got
15:31
into trouble on any kind of large-scale
15:33
the government stepped in state and
15:35
federal government stuff in and allow
15:37
them to continue operations without
15:38
paying up in other words when a bank run
15:40
occurs the people call upon all right
15:42
pay up thanks the government steps in it
15:45
says you don’t have to pay up this is
15:48
this we used to be called suspension of
15:49
specie payments which is very high
15:51
falutin name for allowing for a
15:53
monstrous situation when you’re allowing
15:54
the going out the bank not to pay up the
15:56
same time the bank of 10 yrs operations
15:58
the theme is pretty new money continues
15:59
being able to force their own debtor
16:01
guys who borrow money from the banks
16:03
they’re still forced to pay money to the
16:05
bank for the banks themselves are now
16:06
exempt from any payment they’re
16:07
completely cut off meet legal
16:09
contractual obligation redeem their
16:11
money now in this situation has occurred
16:14
every depression American history it
16:17
started well the first banks on a
16:19
massive scale really begin the war of
16:22
1812 before that the very few banks were
16:24
they didn’t map the hill of beans the
16:26
war of 1812 was very unpopular wars was
16:29
fourth law essentially by the western
16:30
states the New England states which had
16:33
most of the money most the capitalist
16:35
ever were against the war they couldn’t
16:36
borrow from wheeling capitalist the way
16:39
the government financing War I heard
16:40
especially by encouraging new banks are
16:42
coming with no money sort of like roof
16:44
bar banks and they would they print a
16:46
lot of money and Linda the government
16:47
buy government bonds in the government
16:49
would take the money and spend it now
16:50
unfortunately for the government they
16:51
had to spend it on manufactured products
16:54
munitions acceptor a new england the new
16:55
england has a center of most of the
16:57
manufacturing so the money found its way
16:59
to the new england max turn onyx by
17:01
sharing banks when we went max and call
17:03
upon the upstart pennsylvania kentucky
17:06
banks for redemption they didn’t have
17:07
the money and then what was going to
17:08
happen i going to go bankrupt the
17:10
federal government couldn’t look for
17:11
that because there
17:11
the whole war I froze me finance right
17:13
of you guys the black day of august or
17:16
with a t14 government issues such a PC
17:20
she payment of the wartime emergency
17:21
measure allow the magothy no operation a
17:24
new banks to come in but I say anything
17:25
there’s a pain nickel this is a
17:27
specialist species payment continue long
17:29
after the war was over the war’s over in
17:31
February 1815 the suspension was allowed
17:35
as the continued until approximately
17:37
March 1817 there were two and a half
17:39
years we had a banking situation with
17:41
not only with a banks per minute
17:42
engagement fractional river wildcat
17:44
banking didn’t have to pay up they had
17:46
thick of forth their own letters to play
17:48
up they didn’t have to pay a nickel an
17:50
unbelievable situation there were then
17:52
two schools of thought had a solve this
17:54
question the minority school for head of
17:57
my mind one of my own particular
17:58
favorites Margot happy John Randolph
18:00
Roanoke marvelous old geezer and Daniel
18:03
Webster who dwell that time had to be
18:04
pretty good on the question kept
18:05
changing a position according to who
18:08
bore him after the moment any rate he
18:10
was some good guy bought them at this
18:11
point to webster and randall okay great
18:15
speeches and congress thing the only way
18:17
to cure this is a for Samantha pay up
18:19
and if they don’t pay up to the bank
18:20
profits or smash them and then you
18:23
return with sound speaker enci but
18:24
instead of that the government took the
18:26
easy way and they set up a central
18:28
banker for the precise first backhaul
18:30
second magnet had staged a sensible bag
18:33
to pump more money to the systems that
18:35
allow the banks to return the species
18:37
payments and with a pay them off postie
18:39
and pump more money into the system of
18:42
the banks to then use central bank notes
18:44
as money and just allow the inflation
18:47
only to continue but they even expand
18:48
after that and cause the first Great
18:50
Depression era I think the panic of 1819
18:51
will go so in every succeeding crisis
18:54
financial crisis the government seton-la
18:57
federal government have allowed the
18:58
banks with suspense species a famous for
19:00
the duration of oppression this happen
19:02
1819 happen 1837 and 1957 etc etc setter
19:07
all the way down I t-33 but Franklin
19:10
Roosevelt declared a bank holiday seems
19:12
he came in now here we had a great
19:14
opportunity he was the last great
19:15
opportunity we had the United States to
19:16
smash the fractional reserve banking
19:18
system but busted whole system is
19:20
collapsing the public has finally
19:22
realized I’m actually bankrupt
19:24
runs on all the bank all the banks were
19:26
caving in at that point all the banks
19:28
would have been smashed we could have
19:29
gone immediately without any valley real
19:31
hassle we could have gone way over to
19:33
obscure gold standard sister of recycled
19:35
system right then said of that Franklin
19:38
Roosevelt comes in and saves the match
19:39
by declaring a bank holiday in other
19:41
words allowing the master continued
19:42
operation that will get money from their
19:44
debtors and yet they themselves i have
19:45
to pay a nickel Hoover was going to do
19:48
the same things we can’t blame with only
19:49
on Roosevelt consumer roses over
19:51
ideological Quinn’s people number who
19:53
leads Mike holiday saver and then the
19:57
thing that finally saved them
19:58
permanently with the one of most
20:00
monstrous acts as a new deal with what
20:01
with Friedman go on favor rug put all
20:04
the problem insurance corporation system
20:06
coming in ip33 which now under a right
20:09
to all the banks don’t know where the
20:10
FDIC guarantees the old Amanda pops up
20:13
that I think that I plenty of out of
20:14
dollars so if a bank goes bankrupt the
20:17
FDIC will pay you off or even though the
20:20
FBI she doesn’t have the money of the
20:22
hundreds of billions of dollars in
20:24
composites outstanding the FDIC maybe is
20:27
a couple of billion and even that’s not
20:28
in cash but not they don’t have some fun
20:32
that’s the IC has a couple of Benden and
20:34
that’s mostly investment government
20:36
bonds but even though they don’t have
20:39
the money the wisdom of the public is
20:40
correct other words the inherent folk
20:42
wisdom the public is correct in it but
20:44
they don’t have to have the money right
20:46
after the government’s pro vs we could
20:47
simply put the money give it the FDIC’s
20:49
internally give the money to the banks
20:50
they want to they get prints six hundred
20:53
billion dollars and give it to the bank
20:55
now it’s save situation cutter or
20:57
positive sure corporation has now wiped
20:59
out the bank run check on free market
21:02
bank loan limitation on bank credit
21:05
expansion so the FDIC has managed to
21:07
eliminate that they even though some
21:09
widows and orphans of bank depositors
21:11
are salvageable situation this is at the
21:13
course of wiping out creating a system
21:15
of potential runway a pleasure of a
21:16
whole whole country so we now the
21:19
government mansion Eliminator runs on
21:20
the banks as the FDIC also the whole
21:23
bank holiday or suspension of specie
21:25
payment reduction okatie yet to the
21:28
point is he on the bank rather a the
21:29
collapse of government that we can’t let
21:30
it collapse this committee depositor
21:33
it’s like the current tradition we can’t
21:35
allow any large corporation of collapse
21:37
for similar reasons so this one this
21:40
tradition gets then have the end of the
21:41
free enterprise system in the same way
21:42
at the end of any kind of sound banking
21:44
system with when they bank runs the bank
21:48
on tradition without which leaves us
21:51
with only one free market check
21:53
remaining so far are we the final free
21:55
market checking with the first two free
21:56
market checks people not using a bank
21:58
credit at all the second check as runs
22:01
on the banks in other words where the
22:02
clients themselves or the bank’s moves
22:05
conference the third free market check
22:07
is non clients redeeming calling upon
22:10
the bank freedom here you have our
22:12
hypothetical bank cash a thousand man
22:14
deposit 55 I owe you for this is a Bank
22:17
of Brooklyn or whatever Mac of northern
22:19
Michigan wherever it is let’s say the
22:21
clients have perfect confidence with
22:22
mango problem my bank runs the clients
22:24
believe in the bank heart and soul but
22:26
what problem here is our other people
22:28
around ho not clients in this bank or
22:29
clients of other banks say this is the
22:32
Bank of Brooklyn here’s the bank of
22:33
Queen well sometime I take it $2,000
22:36
hovers demand of pockets and write out a
22:39
check for a car pay it to someone living
22:41
in Queens who happens to be your client
22:44
of the bank of Queens on NK samanga
22:47
please we’ll take this $2,000 call upon
22:51
we staying here for redemption we want
22:53
the two thousand in cash and I hang up
22:55
this is I only have 1000 the bank goes
22:57
bankrupt so the final limitation most
23:00
important limitation in practice was the
23:03
fact that a bank doesn’t have unlimited
23:05
number of clients there’s other
23:06
competing banks if one bag expands as
23:09
money supply too much but Lane a lot of
23:11
money creates a lot of money increasing
23:13
the demand of positive some of these
23:15
people will take that money and spend it
23:18
on kinds of other banks these other
23:19
banks might call for call upon this bank
23:21
for redemption especial go bankrupt
23:23
there’s nothing to do with lots of
23:25
confidence to be the factor one bank
23:26
fans in other words a rate more rapidly
23:30
than other banks he’s in problem mike is
23:31
in trouble this is analogous with David
23:34
Hume same a species low price mechanism
23:36
an international trade international
23:39
money one country expands money too much
23:41
either bank money and paper money
23:43
if anyone’s a expands money a lot
23:45
Frances I expanded it but money supply
23:48
goes up in England prices go up in
23:50
England money will then flow out because
23:52
French prices are now cheaper than with
23:53
Mike this money will start flowing fling
23:55
over France there were people who buy a
23:58
lot more French goods and Frenchmen
23:59
viola lot less English goods because of
24:02
the high prices money will flow after
24:04
another France England then have a
24:06
so-called deficit of the balance of
24:08
payment France will have a so-called
24:09
surplus and valid payments and this flow
24:11
will continue until the two prices are
24:13
equalized other words cool English
24:15
prices for French prices go up at home
24:17
foo fighters are equal to price levels
24:19
of them purchasing power of the gold
24:21
lounge let’s say in England France are
24:23
the same so in other words of check in
24:26
international trade on any one country
24:29
is inflation big check as a goal will
24:31
have to fall out on the banks to the
24:34
other country then the banks have to
24:36
contract other words if you’re building
24:37
have a permit the base of the permanent
24:39
goal top of that is save paper money of
24:42
the Treasury on top of that is bank
24:44
credit of banks to pub as you expand
24:48
more than as banks expand more and more
24:50
or the government spends more and more
24:52
the top of the permit keeps going up
24:54
prices go up and under the bottle of
24:56
period starts declining as gold flows
24:58
out and so the ratio of unsoundness
25:00
keeps increasing in the word funny
25:02
design will go down at ten percent so
25:04
the man deposits go up while cash
25:06
reserve keep going down the banks will
25:08
finally have to stop this or why they go
25:09
bankrupt when they contract and the
25:12
whole thing is solving in gold flowing
25:15
out as a method by which collaboration
25:17
process international trade takes place
25:19
eventually the difference is the balance
25:21
of payments get cured so to speak and
25:23
the price level will equalize well it’s
25:26
a similar situation here with one bank
25:28
you see this is like a David Hume
25:30
species floor price mechanism within the
25:32
country one mag expands and immediately
25:36
we start losing can’t lose gold so much
25:38
that he’s putting on a paper currency
25:40
still lose paper we were using cash this
25:43
bank will thought losing cash because
25:44
its clients will speak this new money
25:46
and spending on other client of other
25:47
banks and that happen the other bank
25:50
will pilot back redemption is that goes
25:51
bankrupt consider for example a polar
25:54
case here and pull our case with v1
25:57
every bank has only one client no with
25:59
extreme competition among banks
26:01
everybody’s got his own Bank of course
26:03
it’s not very practical but let’s say it
26:06
happens I’m a client one bag each of you
26:08
acquire some other amount she will each
26:10
Bank having only one client no man could
26:12
really expand at all because as soon as
26:15
I spent any money at all the other guy
26:16
nearly caught up on my back for
26:18
redemption the thing is fans fans credit
26:21
that at 4,000 i take this $5,000 check
26:24
soon as I spend it from evil Corp on my
26:26
back for redemption and that’s true
26:28
there could be a cartel of bank the bank
26:30
you all get together and we don’t accept
26:31
each other’s notes and not call upon
26:33
each other that could happen but it’s a
26:35
flimsy your read for bank credit
26:38
expansion continued for any length of
26:39
time why it was so what about this check
26:42
well this check with limitation having a
26:44
lot of non client for first place
26:46
doesn’t exist before could have only one
26:48
bank we had only one bank on the whole
26:50
country or better still one bank on the
26:52
whole world every bank every local bank
26:54
on the corner was a branch of the bank
26:55
of the world of that then of course the
26:58
bank it expands forever for me today can
27:00
immediately multiply 5 21 10 to 1 20 to
27:04
1 as well as I know bank runs which we
27:07
have rule out but man could just expand
27:09
merrily forever because no other bank
27:11
will call upon it for redemption just
27:13
won monopoly bank so the more
27:16
competition there is between bank the
27:18
better off we are in the situation
27:19
there’s more of a check bank credit
27:21
expansion knowing this realizing this
27:24
the bankers themselves have gotten
27:26
together knowing also a cart calls with
27:28
free market don’t work too well anyway
27:29
I’m going together to put over upon us
27:32
just as big business put over upon us
27:35
government regulation the guys would be
27:37
anti monopolistic but actually in order
27:39
imposed monopoly and carnal relations in
27:41
the country so in the same way the
27:43
bank’s got together impose upon us the
27:45
great progressive tradition or
27:46
innovation of central banking which has
27:49
enabled us to arrive a situation where
27:51
the central bank and eliminate any bank
27:53
required on each other for redemption by
27:55
getting every bank expand together
27:57
uniformly and smoothly together
27:59
supplying reserves of supplying cash so
28:01
that no bank will get into trouble and
28:04
everybody can so looks gently and
28:06
smoothly towing runaway inflation
28:08
just as the regulatory commission of the
28:10
ICC and antitrust law and all that were
28:13
put in in order to impose monopolization
28:16
correlation all the guys of the anti
28:18
monopolistic weight con job when it
28:21
happened I ballistic the solitude of
28:22
public so in a similar way several banks
28:25
were souls of public on the guise of a
28:26
restraining bank inflation we need
28:29
several bank for story work in order to
28:31
restrict bank credit if he he’s vicious
28:33
private greedy small banks from the
28:35
fighting the currency if we hear the why
28:37
is governor at their central back to
28:39
stop it blows the way he’s been in
28:42
several banking of sol republic and
28:43
actual fact boys are the other way
28:44
around they put in central bank in order
28:46
to permit inflation remember even they
28:49
call their own private writings
28:51
elasticity of the money supply for the
28:54
federal reserve system for example my
28:56
smiles not elastic enough when I think
28:58
of fancy word mean he wasn’t inflated
29:00
enough urien Depression was no way got
29:03
pumping money in quickly put a reserve
29:06
bank ado that central banks started with
29:09
a bank of england one of the great
29:10
racket solve crime flag of England book
29:12
therefore became immediately hallowed an
29:14
English tradition has almost equivalent
29:16
of the Queen and the flag Miami was
29:19
started in late 60 90 s but we’ve got
29:22
pretty pretty light monetary history
29:24
when a Scottish crook and william
29:26
paterson a promoter with no money and I
29:29
sort of thought comes from the king and
29:30
Kings always need a money right the
29:32
people don’t like to be taxed those days
29:34
they had a lower boiling point on a tax
29:36
question reason we do now and so the
29:39
King it was very worried about imposing
29:40
taxes here’s a Scottish cooked william
29:42
paterson come to the king he said look
29:44
here’s the way to do it let me set up a
29:46
bank the call the bank of england make
29:48
it a central bank I am NOT any money but
29:51
you know I’m print banknotes Bank of
29:53
England notes and you will accept it I
29:55
will give us a king exchange for
29:56
government bonds the king will write out
29:59
ilu to you then many King you can take
30:02
the money and spending it’s been our
30:03
missiles early 17th century equivalent
30:05
was how Isis and stuff like that but
30:09
keith was a great idea is a great way to
30:11
get money as one of the public and will
30:12
accept will be cons of accepting Bank of
30:14
England notes why not
30:15
you can step forward because it didn’t
30:19
look like paper money because a bank
30:21
sounded more respectable banks after
30:22
around lot earlier than paper money and
30:25
this work very pretty respectable thing
30:27
it looks like a banknote know why
30:28
shortstop publicly than a newer to it
30:30
the king gave it back living all over
30:32
his business the possible responded with
30:35
a bank let’s say let’s say that the bank
30:37
of england’s talk to over no money which
30:39
is not so far wrong a bank quote wise on
30:42
quote government bond King issues a
30:44
whole bunch of government bago trick
30:45
they showing anybody guess you Vaughn
30:46
Ross barb heart pains your government
30:49
bonds a bank quote buys it unquote let’s
30:52
say 10,000 pounds worth Denali the Bank
30:56
of England has 10,000 pounds of
30:58
government bonds in its assets Worf’s
31:00
return to which the bank of Aylan
31:02
graciously gives to the king $10,000 a
31:04
new paper money printed by the Bank of
31:06
England now we have ten thousand dollars
31:09
we have bank notes which is equivalent
31:12
demand deposits king goes out and spends
31:15
it this is new money i mean the money
31:17
created us to there again let’s assume
31:19
that both the can when you panic estar
31:21
with no money at all most i’m looking
31:23
for some fancy way to get some money
31:24
they cook up this scheme and your king
31:27
gives the million Patterson has bond
31:28
we’ve had some gives Prince new
31:30
banknotes the king goes out and spends
31:32
it as inflation inflation sharing the
31:34
kings of method of Taxation so for all
31:37
the evils of translation then follow
31:39
point I’m trying to make here is a force
31:41
in central bankers who always want been
31:43
another central bank joannes and this
31:44
con jobs for continuing a matter of fact
31:47
showing one more thing the king did for
31:50
the Bank of England the king gave to the
31:52
bank of england a monopoly of all
31:53
banknotes within a certain area of
31:55
London something like a 50-mile radius
31:57
or something on them which means that in
31:59
the real area all the trader finance
32:00
goes on only the Mangler could print
32:03
banknotes this is the key to macro
32:04
England’s power its central banking
32:06
control because this method provides
32:09
bank barclays bank with whatever other
32:11
bank and no longer issue banknotes least
32:13
near London they could let’s say how
32:16
issue deposits but the order then for
32:19
the customers more cash and I’ll have to
32:21
give them cash they have in all the
32:23
print banknotes they have to go to the
32:25
bank of england to get the bank notes
32:27
and this is the magnets hold on the
32:29
other banks we’ll see how that works in
32:31
the men so this starts a great central
32:33
banking tradition well it will tragedies
32:35
is during the 19th century when English
32:37
classical liberalism the cry out for
32:38
that England and ladies a fair was
32:40
coming in and even hard money theory was
32:42
coming here they even record I was
32:44
pretty good on the money question never
32:46
really level the last I’m really smashed
32:48
the Bank of England ever really was
32:49
didn’t have the guts to didn’t have they
32:51
even want to break the tradition and all
32:52
that refuse to really do what the maoist
32:55
school or carrying the things through to
32:56
its completion utha really smash the
32:58
Bank of England but that is a great
33:00
symbol national unity whatever nonsense
33:02
the point is they kept the Bank of
33:04
England and packages of course
33:05
disastrous the United States had our
33:08
first Anna Hamilton who this is
33:11
questioning tangential Alexander
33:14
Hamilton sit of the Memphis to Fenian
33:15
figure in American history the evil
33:17
genius American history put through the
33:21
first back in the United States cost a
33:22
lot of other things with power and paper
33:24
money and another what else public debt
33:27
federal taxes in the whole building on
33:30
the Constitution itself with matter of
33:31
fact the general welfare clause and a
33:33
whole book go on and I are gonna come up
33:36
anyway first Mac United States comes in
33:38
that’s the first central bank but when
33:42
the Jeffersonians coming after all the
33:43
Jeffersonians were pledged to eliminate
33:45
the bank of my place and they did so it
33:46
was eliminated Jeffress administration
33:48
then however we enter the war of 1812
33:50
which the Achilles heel and Jeffersonian
33:53
program because as the Jeffersonians
33:54
we’re marching on the road to Liberty
33:55
they suddenly detour on there on the war
33:57
and of course not all the Federalists
33:59
topple the status collectivist comes
34:01
back in and pour another thing that
34:03
comes back into the second Maggie nited
34:04
states takes then Andrew Jackson huge
34:07
around a turmoil to get rid of it and
34:10
you actually finally does get rid of it
34:11
as part of this program by the way to
34:13
get rid of wall special reserve banking
34:14
Jackson and particularly jacksonian
34:16
theoreticians or brilliant monetary
34:18
theorists a new examining of the banks
34:20
were about already there after smash
34:22
them for one reason other your largely
34:24
the slavery question that they didn’t do
34:26
it then you write second central bank
34:28
attempt smashed by Jack Smith a huge
34:31
fight then the enduring a civil war the
34:34
Republican program Civil War Republican
34:36
views the Civil War um
34:37
method by which to put in the
34:38
Hamiltonian program and part of that
34:41
program was taxing the state bank now
34:44
exist so they essentially did was they
34:46
put a prohibitory tax and all state bank
34:47
notes another with all the bank notes
34:49
chartered by the states which meant that
34:52
only nationally charter baxter now issue
34:53
paper money which is a very small number
34:55
of banks so that was the road to
34:57
perdition and then the Federal Reserve
34:58
System finally put out her 1913 with the
35:02
Federal Reserve System we now have
35:03
caught up with other countries we now
35:04
have the beloved central banking system
35:07
which we were told by the entire
35:08
establishment would eliminate inflation
35:10
depression stabilize the price level etc
35:14
of course it’s Friedman’s point out as a
35:15
historical book the fluctuations the
35:18
equations of depression been much worse
35:19
since the federal verses and came than
35:20
they were before not question about of
35:22
that during the 1920s is supposed to be
35:25
the new era where no more depress them
35:27
work at me anymore depressions anymore
35:29
and also those nineteen twenties because
35:31
the federal reserve banks are out there
35:32
stabilizing everything wisely planning
35:35
assistant report comes as they collapsed
35:36
and you don’t hear any more of those
35:38
people for quite a while so we now have
35:41
a system of central bank’s working in
35:42
manipulating so as to eliminate these
35:45
individual checks from one bank on other
35:47
and that means that the the only check
35:50
left are no more free market checks
35:51
premarket limitations on bank right
35:53
expansion the only limitation how the
35:55
federal reserve system of thought on his
35:56
wisdom in other words legal are
35:58
administrative regulations so you have
36:01
to put all of our trust and the
36:02
government itself which is of course
36:04
something which i’m never eager to do
36:06
well here’s the mechanism i wish the
36:09
control comes about and currently that’s
36:12
the federal reserve system cache is now
36:16
our reserves and i only court papers
36:19
that the ghost anna has been abolished
36:21
1933 you now have two sets with banks
36:24
basically is a commercial bank its
36:27
assets and liabilities column and
36:29
underneath it should have these federal
36:31
reserve banks but with their assets and
36:32
liabilities call the federal reserve
36:35
banks or bankers Bank so there was a
36:37
federal reserve banks or compulsory
36:39
banks of a commercial bank every
36:40
commercial bank first where every
36:42
nationally chartered commercial by every
36:44
state bank and over a certain amount has
36:45
to be member of her
36:46
so they don’t mind that I mean the bank
36:48
love the federal versus the sweet
36:51
compulsion to speak there’s my think the
36:53
bank’s put in the Federal Reserve’s a
36:55
large mac well and then the the other
36:58
key thing is the Federal Reserve System
36:59
other federal reserve banks now have a
37:01
monopoly on a little paper money in
37:02
other words whereas before 1913 chief
37:05
national bank and national city bank
37:07
issue their own banknotes if you want to
37:08
cash you had a good a checking account
37:10
and chase bank then you want cash for
37:13
some reason you know you want to pay
37:14
full in cash you could go to the chase
37:17
bank and get the chase bank bank notes
37:18
you know dollar bills with a chase bank
37:20
vamp on it he’s saying insignia is
37:23
suffering I most people didn’t care
37:25
where they had chase bank notes or
37:26
federal paper and 1913 this was made
37:29
illegal the only institution that can
37:31
supply paper money than anybody’s the
37:32
Federal Reserve Bank of salt so that
37:35
means when somebody wants to cash in
37:36
their bank notes Samantha posits the
37:39
checking account is the only the only
37:41
liabilities lessons thank no sir have
37:43
been prohibited the bank has to go to
37:45
the power bank to buy bank notes
37:47
basically this becomes the key to total
37:50
reserve control one of the banks has to
37:53
join up for some the federal reserve
37:54
system but to even more so since they
37:57
can’t issue banknotes on our own hook
37:59
they have to go to the federal reserve
38:00
banks to get banknotes the by bank notes
38:02
by growing down their own deposits so
38:04
what we have is we have people
38:06
individual people in the public with
38:08
demand deposit checking accounts of the
38:10
background leave aside savings account
38:12
of being a complication echo inches here
38:15
well in those iou’s and there’s cash
38:17
which now is not so much paper money but
38:21
the man deposits by the bank that’s a
38:24
federal reserve bank think of the throws
38:25
every bang as the bankers Bank as a bank
38:27
which joint commercial banks can have us
38:28
accounts in so we have reserves which
38:32
are man deposits at the federal reserve
38:35
bank the bank is some and commercial
38:38
bank chase manhattan bank has very
38:40
little cash on hand just enough to pay
38:41
out you an hour an hour sup there’s a
38:44
positive at the federal reserve by your
38:46
claims on cash if they have to take it
38:48
another words let’s say that the bank
38:50
has a million dollars reserved
38:52
the Federal Reserve Bank this means that
38:53
the bank is awarded to the chase banks
38:55
they can go to the pearls are man get a
38:56
million dollars where the cash at paper
38:57
money if they wanted to basically the
39:00
money is in reserve account and then as
39:02
I use and the man deposit let’s say the
39:04
twenty percent again the chase bank has
39:07
reserves a million dollars the man
39:09
deposit levy 5 million and iou’s of
39:12
these four minutes so we have the chase
39:14
bank I mean multiply the money supply by
39:16
five fold cash or demand on Cassius 1
39:20
million issues four million dollars
39:22
worth of IOU ones out four million has 5
39:24
million an outstanding which means is it
39:26
is permitted money by like five to one
39:28
on its own hook trying to look at a
39:31
balance sheet of the bank on a paper to
39:33
that that quarterly or something balance
39:34
sheets the reserves are of a patch or
39:37
reserves in relation of the man deposits
39:39
I’m also kind of pause and you see this
39:41
story fractional reserve banking is work
39:43
so essentially the commercial bank has
39:46
to be made major items in its balance
39:48
sheet iou’s reserves and the man deposit
39:51
liabilities the third bank has demand a
39:54
positive Oh to the banks in this case
39:59
will be same 1 million in other words
40:00
let’s say that has a chase account these
40:02
two will be equal and where’s the
40:04
reserve account of a partial match
40:06
exactly equals of the demand of positive
40:09
liability accounts federal reserve banks
40:10
the same same this is checking account
40:12
which referrals which the bank’s half of
40:14
the federal reserve bank the other big
40:16
federal reserve bank liability is pearl
40:17
reserve notes lower take their money
40:19
almost every dollar paper money is now a
40:21
federal reserve’s up virtually kind of
40:23
respect others interesting thing it
40:25
seems as a federal reserve notes of
40:27
course legal tender we have to accept
40:29
them my law for payment of debts and
40:32
dollars they have a monopoly on the name
40:34
dollar so to speak the parallels are my
40:37
courses ranging situations pros there
40:39
make the only institution of a country
40:40
which every time it’s Princeton and
40:42
creates a new liability a new debt to
40:45
the state it puts your money was it an
40:47
answer its own money supply the same
40:49
Hana creates deck we can’t do that of
40:51
course when we issue a debt to notice we
40:53
issue an IOU we borrow money or
40:54
something we don’t print new money at
40:56
the same time along with it but the
40:58
furloughs does so these are the two
41:01
basic liabilities Amanda process to the
41:03
bank
41:03
north bank reserves and a federal
41:05
reserve notes the assets I Hauser banks
41:08
has with gold virtually all the goal in
41:10
the country for other gold certificates
41:14
for the Treasury only goal bucks really
41:15
formality the rest of it as I owe you
41:18
these are the two basic asset side in
41:21
this situation is floating eight hundred
41:23
thousand dollars posing Christmas time
41:25
comes with every year at Christmas
41:27
people want more cash they draw down and
41:29
Amanda pauses get more cash gift hips
41:31
and presence online stuff online
41:33
situation nearly if people want to hear
41:36
a thousand dollars worth of cash for a
41:37
chase bank at this point the reserves
41:40
are going down as 200,000 and the Land
41:43
of Oz will be down at 4.2 million and
41:46
now of course the bank is in trouble its
41:48
reserve ratio instead of any finalize
41:50
now honey to one bank is in bad shape
41:53
all right supposing now we have to come
41:57
up to the lead to the final important
42:00
area of control by federal reserve
42:01
system the federal reserve system
42:02
because all the other market checks are
42:04
gone on the bank of the expansion the
42:06
federal reserve now steps in a zone
42:08
governmental check namely the whole
42:10
minimum reserve ratio other words the
42:13
Congress fixes a certain range of
42:15
reserve ray minimum reserve requirement
42:17
by reed Bank Federal Reserve can change
42:19
it at will within that range in other
42:21
words it’s the same thing is a maximum
42:23
ratio of deposits the reserves minimum
42:26
ratio reserves the deposits maximal
42:28
ratio deposit reserve the situation here
42:31
if the chase bank has preserves the 1
42:33
million dollars and if theta maximum
42:36
ratio is 5 to 1 there was as a mineral
42:38
reserve ratio is plenty for spent and
42:41
therefore the maximum deposit ratio is 5
42:43
to 1 but it cannot have more than 5
42:45
million on 1 million dollar base it’s
42:47
prevented by a war mayra administrative
42:50
requirement from expanding the money
42:51
supply beyond that amount beyond this 5
42:53
can one see now that it’s trouble comes
42:55
even deeper if we look at it people
42:57
demand cash reserves go down as 200
43:00
million still has however to manopause
43:01
about 4.2 million which is 20 21 but if
43:05
the reserve ratio remains at five-to-one
43:07
this bank is bankrupt am I going to had
43:09
it we have the Federal Reserve
43:11
controlling banking system I max minimum
43:14
reserve ratio of maximum the population
43:16
during the Great Depression of phenomena
43:18
on excess reserves came up which meant
43:20
that banks were so afraid to banks for
43:23
industries are going bankrupt or replace
43:24
firms are going bankrupt banks are so
43:27
afraid to expand it anything expand
43:28
whatever they didn’t do it for my
43:29
legalized counterfeiting they could
43:31
perform they allow the reserve to pile
43:32
up because they’re scared I mean I’m
43:34
afraid if they lend the money out of
43:35
that firm of go bankrupt they bought
43:37
bonds and bonds would become worthless
43:38
so then they really go bankrupt Dave the
43:41
reserves pile up before the Hoover
43:42
administration Rosewall ministration
43:44
bitterly attack the banks for somehow
43:45
selling out for treason for not lending
43:48
out money bank love to lend out money
43:50
the point was that they were the bad
43:52
depression situation was obviously
43:54
within this Molly unique situation they
43:56
didn’t they pile up excess reserve
43:57
they’re literally attacked for it but
43:59
barring that this happens very rarely
44:00
most banks are fully loaned up on quote
44:03
on where they will create new money up
44:05
to the limit that they’re legally
44:07
allowed to this is generally the
44:09
situation aside from deep depression one
44:11
method of control if the Federal Reserve
44:14
System wants to take more money into
44:16
system they want to create more
44:17
in-flight choice you must always do one
44:19
way to get there with the lower the
44:20
reserve requirement you say funny that
44:22
sounds eighteen percent this would allow
44:24
the banks using the same amount of
44:26
reserves to create new money on top of
44:28
it that’s one way if they wanted to
44:30
restrict if they wanted to have
44:32
deflation restrict the amount of
44:33
inflation they got an increased reserve
44:34
requirement of course the banks the
44:36
contract or not going to expand more now
44:39
these two use this weapon fairly
44:41
frequently as great enthusiasm and verb
44:43
but haven’t ones how are the famous they
44:45
block all 1937 when the Pharaoh services
44:49
only worried about inflation America we
44:50
had during the 30s something which has
44:52
not been recognized really phenomenal
44:54
inflationary recession we had a
44:56
recession the depression lots of
44:58
unemployment yet we had a shearing boom
45:00
going on nineteen thirty three thirty
45:01
seven is a weird situation the first
45:04
time officially that happens as is all
45:06
of that Federal Reserve System got
45:08
scared and suddenly double reserve
45:10
requirement outta days beyond heard of
45:11
us like bizarre as green market in post
45:14
school offers it’s like that unheard up
45:16
situation they just double I think from
45:18
ten percent of twenty percent just like
45:19
that and of course the bank went man you
45:21
just answer can track that loan very
45:23
very fast because most banks was fairly
45:25
well fully loaned up that’s
45:27
but the advanced state of shortage of
45:29
reserves which meant they have to
45:30
contract very quickly sullair bonds cool
45:33
in there alone separate Center and this
45:35
precipitated a big depression of 38
45:37
after that the photos narcissism too
45:40
scared to use of instruments or any kind
45:42
of enthusiasts nowadays they change the
45:44
minimum reserve of arms of the very very
45:46
teeny sex almost ludicrous degree like
45:49
one quarter of one percent totally like
45:51
a psychological thing more anything else
45:53
is Federal Reserve want to announce for
45:54
the world they really want to check
45:55
inflation they raise reserve a car by
45:57
our quarter one percent really boy is
45:59
really terrific I my trial to see them
46:01
double over their requirements that is
46:03
bigger than serious they’re really this
46:05
instrument is fall into disuse it’s sort
46:08
of like I suppose they considered over a
46:10
kill you know it’s like an embalming
46:11
some trouble area in the ghetto or
46:14
something like that it’s overkill so
46:16
they don’t use it resolve this weapon
46:18
I’m still cool to just use all right I
46:20
like this trial is playing let’s go it’s
46:22
going to be difficult how the banks
46:25
right now specifically fan bank credit
46:27
even though the many of them those think
46:28
they do that’s pretty clear to see how
46:31
it happens if we had won monopoly man
46:34
exposing there’s only one commercial
46:36
bank in the country the bank of the
46:38
United States a private commercial bank
46:40
and all other banks and the country or
46:42
branches of this thing it certainly
46:44
theoretically possible you know is
46:45
always there not going to happen okay in
46:47
a situation and the Federal Reserve Bank
46:49
imposes a 20-percent let’s say reserve
46:51
requirement on it well supposing its
46:54
reserves are 1 billion dollars this
46:56
Amanda pauses those checking account is
46:58
five billion land upon without standing
47:00
for the reserve bank would be 1 billion
47:03
and if I are usually four billion total
47:05
money supply let’s say it’s five million
47:07
dollars the whole country opposing the
47:09
Federal Reserve want to expand what
47:10
someone’s slate is they almost always do
47:12
let’s say that my son means a threesome
47:14
we’re going through that little lighter
47:16
how they can control cool reserve by
47:18
some means Inc fifo reserves I get more
47:20
reserves in the hands of a virtual bank
47:22
I don’t take those up these two business
47:24
like to make a really rugged you can see
47:26
what happened take the unusual
47:28
hypothesis the Federal Reserve Prince
47:30
more money out press cash and gives us
47:32
of the manga United States 1 billion
47:34
dollars more and unmarked bit amused by
47:37
through her big comeback
47:38
from that of nice they get they get a
47:41
billion-dollar what I’m gonna do with it
47:42
well boys a bonanza is the official
47:44
reserve requirement only twenty percent
47:46
me now have forty percent what they do
47:47
is they simply go out and they create
47:49
more demand apology go why they say hey
47:51
they go to general motors they go to
47:53
jomblo door tatin would you like some
47:54
more alone to give you a really cheap
47:55
credit because now they can create more
47:57
money again and no longer fully long
47:59
enough so they say hey it’s terrific
48:00
only four percent of a percent great and
48:02
whatever they now shovel out increase
48:05
demand deposits of ten billion out of
48:07
thin air create new money out of thin
48:09
air new fraudulent demand deposits
48:11
warehouses speeches and out of eight
48:13
billion dollars in i’ll use and
48:15
everything is hunky-dory they’re now
48:17
fully loaded up the immediate situation
48:19
actually this would be a census of the
48:21
healthier situation when there is now
48:22
but as easy to understand even the
48:24
bankers themselves couldn’t call
48:26
themselves than believing they weren’t
48:27
really creating new money free obvious
48:29
what we’re doing with you they got one
48:30
thing is always more new reserving pump
48:32
n is 4 million sols more alone they get
48:34
5 million dollars more Amanda profits
48:36
the current situation when however when
48:38
you have competing Bank more cloudy more
48:40
complicated and every banker can call
48:42
himself into thinking he’s not really
48:43
exciting nice if I he’s really only
48:45
borrowing money from one saw people
48:47
running it has another set that works
48:49
something like this where you have a
48:52
bunch of banks ABCD that willfully
48:54
loaned up eating banks and supposing
48:56
here’s Bank a has reserves of the
48:59
reserves are 1 billion the man deposit
49:01
five but some way the Federal Reserve
49:05
goes in the dead of night given sanu
49:07
billion dollar bag to bank a and I
49:09
haven’t been awesome all new reserve
49:10
balances proved onion and I have two
49:12
billion dollars let’s say plus opinion
49:14
well you’ve been your dollar more and
49:16
reserve say to give us a man deposit it
49:18
gives home box where wherever a billion
49:20
dollars on a deposit and they now have a
49:23
billion dollar reserves a billion
49:24
dollars only billion dollars who the man
49:26
apologize because they can now expand by
49:27
four to one now bank egg can’t do that
49:30
exactly all at once they can’t just
49:32
create a form in your novels or more
49:34
demand a positive and lend adapt the
49:35
General Motors is on blow so they do
49:37
that banks be your maxy etc I mean
49:40
general motors are jumbo will buy
49:41
equipment or pay workers or something
49:43
that wasn’t client
49:44
different banks and they’ll call upon
49:45
Maggie April redemption may be going
49:47
bankrupt because if they put for
49:49
billions more in close and then I have
49:52
five million dollars more demand
49:54
deposits what happens in thanks b c and
49:56
d cual content for the four million they
49:58
only have one minute they will go
49:59
bankrupt so they can’t do that they can
50:02
expand in other words by the full four
50:04
billion right away about a full five min
50:06
of the man of the club well they can do
50:08
let’s assume as a 20-percent reserve
50:10
requirement instead of expanding by five
50:12
to one right away they expand by eighty
50:15
percent instead of creating is bananas
50:17
of five billion dollars and more
50:19
manopause decree 800 million and now
50:22
they have an increase 1.8 billion Amanda
50:27
positive I know using out plus point
50:31
eight billion and they’re assuming now
50:33
the worst case or assuming they’re
50:34
pretty soon sure enough to the point
50:36
eight point eight things we close on
50:39
this Redemption eighty percent sure if
50:41
it happens in a few weeks laying or
50:42
whatever General Motors spends money on
50:44
equipment the equipment manufacturer has
50:46
to be a client a bank be the core pawn
50:48
bang a 4 deeming the 800 million they
50:51
have they in turn million they have
50:52
enough because they have new reserves of
50:54
a billion they can pay a civilian they
50:56
now have reserves are now increased by
50:58
only 200 million at a now all set they
51:02
have the man deposit this goes down so
51:04
by inherited onion because that’s the
51:06
Joe Blow or whatever your suppliers back
51:09
and now that the man deposits are again
51:11
up by a billion and the reserves are up
51:14
by 200 million they’re all set they’ve
51:15
expanded the money car by their 800
51:17
million they’re out of the picture they
51:19
they now have new reserve a hundred
51:21
measure we now have caught a hundred
51:23
million iou’s plus 200 million in
51:25
reserves and plus 1 billion menopausal
51:28
bank a is out of the picture however but
51:31
it has done it as it is contributed 800
51:33
made all the more reserves which we’re
51:34
not going to thank these pocket Thank be
51:37
now has half a hundred million has
51:38
reserves of the federal reserve
51:39
management so this reserves is now going
51:42
up I in Hazzard minion and it’s the man
51:44
that posits the supplier General Motors
51:46
has
51:47
an appositive checking has 800 million
51:49
so plus 800 million now thought they
51:52
heard many of the man deposit what we
51:54
have here notice what’s happened Bank a
51:56
star plus a billion reserves plus with
51:58
pinion ran upon it winds up a billion
52:01
demanded pauses plus 200 million
52:02
reserves and the other hand many
52:04
reserves isn’t spread out spread it was
52:06
shipped to the reserves in another bank
52:08
okay same thing has the other Bank
52:09
separate with eighty percent of the
52:11
previous one twenty percent wats now it
52:14
lends out 640 million other words it can
52:16
create not five times as much money but
52:19
eighty percent more money than a half
52:21
yeah it cause itself as of thinking is
52:23
only letting any percent as the money is
52:24
hook in except the point of the money
52:27
it’s cooked get as permitting on top of
52:29
the other money that’s really increasing
52:31
its money righty percent this is
52:32
situation out of one hundred percent
52:34
reserve banking least for the new money
52:35
and now it lends out existing irons I
52:37
642 John Smith grocer and now has an IOU
52:41
640 this increase in Samantha posits
52:44
main hundreds to 1440 working out of the
52:48
40 million six hundred million in 1740
52:52
millions been created out of thin air
52:53
and now has an IOU six months 40 which
52:56
is sergeant’s interest 640 however as
52:58
soon as get shifted around somebody else
53:00
let’s say a guy who produces the
53:01
counters cash register aside from Jewish
53:03
most grocery store he will say a client
53:06
of banks see if we could be kind of
53:07
bankais that’s being better for the bank
53:09
a bank see calls upon bank d for the 640
53:12
million banks vitez up and has the money
53:15
but if it’s only expanded by eighty
53:16
percent she’s been proven enough to
53:17
expand amounts of hartley needs is that
53:19
reserves and i go on 560 demand of
53:23
positives are going up by eight hundred
53:24
and bank me is out of the picture with
53:26
and now the banks Teague analysis has
53:28
640 new reserves and it increases some
53:32
more by eighty percent of that which is
53:33
something like 512 or something and
53:35
separate cetera the result of this whole
53:38
process 1 billion dollar more demanded
53:39
positives bank aid when 800 million
53:41
dollar more advanced age 640 million
53:43
thanks see separate separate he’ll
53:45
continue why not with five billion
53:46
Ozil’s and other new money takes longer
53:49
but the final effective the same because
53:51
due to the cutting the reserves
53:52
thank you all these actions members of
53:54
her services are all regulated by it we
53:56
have a system whereby competing Bank
53:58
don’t really need anything in mortgage
53:59
just as well be one bank to be even
54:01
better because then we can see clearly
54:03
as the bank is expanding the money
54:04
supply of thin air this process is so
54:06
arcane it’s so confusing that even the
54:08
bankers themselves often don’t know what
54:10
they’re doing and when I first studied
54:12
economics my first class new garments in
54:14
college professor says the bankers know
54:16
less about money than anybody else in
54:18
the system in economy I thought he was
54:19
crazy the time I not see you use nearly
54:21
right either that of course that are
54:23
totally evil this arcane fox is he
54:26
working out you’re solving a diagram or
54:28
how this thing works the final result of
54:29
this 521 pool of manataj we’re going up
54:32
by five billions reserves going up by 1
54:34
billion so therefore the key since the
54:36
reserve requirement thing isn’t change
54:38
anymore the key to federal reserve
54:40
control of the banks is controlling
54:42
total reserve this item here full
54:44
reserves in the bank the Federal Reserve
54:46
can manipulate total reserve if
54:48
polarisers go up by 1 billion de manha
54:50
pauses checking account goes up by five
54:52
billion ratio right now ranges from 14
54:54
or something a 17th respect for
54:57
different classes of Max or something
54:58
like 6 21 but the principle is the same
55:00
so therefore the key instrument by which
55:02
the Federal Reserve System manipulates
55:04
the money supply usually of course
55:05
increasing it as my increasing total
55:07
bank reserves how about the Federal
55:11
Reserve reserves is there any limitation
55:13
on the federal reserve system increasing
55:16
total reserves not anymore used to date
55:18
if we go back again to these two
55:20
diagrams of the commercial banks of pops
55:23
assets and liabilities and in Federal
55:26
Reserve Bank’s bonham assess my
55:28
abilities supposing we have our billion
55:31
and five billion the users give useful
55:33
now let’s assume a commercial banks have
55:36
a reserves of 1 billion that’s their
55:39
demand a positive the Federal Reserve
55:40
may demand a positive 5 billion and I
55:44
are using for budget they’re a great
55:46
shape though they’ve been slated by
55:48
5-time their fair amount but they’re in
55:50
great shape financially because they
55:52
aren’t within the twenty percent ratio
55:53
legal ratio meantime they preserve
55:56
system mount has demanded posits oh the
55:59
federal reserve bank 1 billion it’s the
56:01
same as amount here I think I Federal
56:04
Reserve notes no with
56:05
money I say is another billion of paper
56:07
money as spamming so now we have 1
56:09
billion and paper and one thing in the
56:11
man deposits and go loose so the asset
56:14
how empowered now is go let’s take over
56:16
200 million and the rest of it the rest
56:19
of the tube onion is made up by iou’s
56:20
whiskey no matter what they are as one
56:23
point 850 Sookie then becomes how the
56:26
Federal Reserve control Amanda pauses
56:27
there’s no limitation on the old days it
56:29
used to be used to be a requirement with
56:30
farrago systems first came in in order
56:32
not that were adding the inflationary
56:33
worries of a public calm their fears
56:35
that was a fireman I think no less than
56:37
forty percent reserve requirement of
56:38
gold for the Federal Reserve System
56:40
Reserve Bank themselves a gold to
56:42
federal reserve notes and thirty-five
56:44
percent of gold is Amanda promise was a
56:46
pretty high requirement means the
56:47
Federal Reserve can honor flights more
56:49
than two and a half hour three times on
56:51
top of its goals and on a site its own
56:53
liabilities upon which the commercial
56:55
bank since plates remember the pyramid
56:57
go little bottoms Federal Reserve on top
56:59
of that and commercial bank on top of
57:01
that each one related to the other needs
57:04
to be a fairly severe fee to 12 and a
57:06
half the one requirement of her Reserve
57:08
System was progressively weekend over
57:10
the years by Congress and now there’s no
57:12
requirement whatsoever zilch federer can
57:14
display 200 million times on top of the
57:16
goals apply there’s nothing to stop it
57:18
so we’re now totally in the hands of the
57:20
Federal Reserve governors the wisdom and
57:22
bring into the federal reserve system
57:24
now running or letting us all so what
57:27
did the turtles or what instruments the
57:29
federal reserve half to manipulate total
57:30
reserve first place their other
57:31
influences a total loser one of them I
57:33
mentioned on letting people demanding
57:34
cash this can embarrass holder can and
57:39
decrease it but over there however has
57:41
an instrument they offset that and also
57:42
add more on top of it and what are these
57:44
instruments well two basic ones and
57:47
talked about in the past one is lending
57:49
money on lending reserves of the bank’s
57:51
very simple something like that
57:52
experience giving the money in a paper
57:54
bag that we lend them the money in a
57:55
paper bag London reserve this wall bank
57:58
is in trouble here at least two hundred
57:59
million dollars reserves fast because
58:01
people are calling upon the banks for
58:02
redemption people that still call Paula
58:03
max redemption them so they can do that
58:06
merit of the bank’s you need 200 million
58:08
more and cuddles there something one of
58:10
them’s reserves an hour
58:11
1.2 million they can expand another
58:14
billion on top of that and in great
58:16
shape then of course they have to pay
58:18
back the Federal Reserve when there for
58:19
a while as over but it can work that out
58:21
that’s simply lending Orser is easy to
58:23
see what happens there now this
58:26
publicity is usually gotten by the
58:27
federal reserve lending operations
58:29
example in the Federal Reserve Federal
58:32
Reserve can lend reserves the commercial
58:34
bank in the 19th century in banks with
58:36
collapsing a lot of the real pleasure
58:37
both are badges parlor concern was
58:40
overrated political theorist and
58:42
economics material world money right you
58:44
know all their badges beloved by almost
58:46
every historian some obscurities name is
58:49
kind of a spell thibaut english thing
58:50
was called had no relation the concierge
58:52
Rafael da GE h.o.t pronounced Badgett
58:57
you know you have a piece of information
58:58
you didn’t know before so imagine issue
59:02
that’s pronuncia Mentos that thanks to
59:04
the central bank is morally obligated a
59:06
bailout old bank sometimes public three
59:08
convenient product the inventor oh and a
59:10
bank reports put to a lawyer but took
59:11
the water and it’s been established and
59:13
monetary theory or a sense of the banks
59:14
that somehow is a god-given more the
59:17
throat of the central bank must bail out
59:18
the banks this is called a theory of the
59:21
bank as the central bank as a lender of
59:22
last resort in other words the banks are
59:24
really in trouble as always the
59:25
Godfather over there the potato man come
59:28
in and they’ll a bank SAP okay that was
59:30
established it was established then the
59:33
Federal Reserve had to always bail out
59:34
the bank always have the stand ready to
59:36
lend money to wasn’t any any bank
59:37
regardless of how what bad shape and how
59:39
crooked or whatever the bank was but
59:41
however the power reserve bank is
59:43
charged interest they could change the
59:44
interest rate they could stand ready to
59:46
land back as mentor the punitive lee
59:48
high interest rate so a lot of publicity
59:50
is going to focus on the financial pages
59:52
on this other we discount rate is cool
59:54
so no with the wreath of the Federal
59:56
Reserve Bank’s charged with commercial
59:58
banks for lending them reserve the
60:00
interest rate it’s cool to read this
60:02
current rate every once awhile when
60:03
they’re going to throw ever want two
60:04
announcements really against some
60:05
stations raises the view discount rate
60:07
by a quarter of one percent a big deal
60:08
or wants to explain it lowers this but
60:10
really is again this is really Maloney
60:12
it’s really a psychological value or or
60:13
anything important first place the bank
60:15
aren’t that much in debt to the cellar
60:17
tonight
60:18
that’s not really very important
60:20
mechanism anymore also the banks are
60:22
created a race this typical sorta way
60:24
the market pops up in different areas
60:26
the banks are created by themselves
60:27
market in bank reserves if one bank us
60:31
out online is below twenty percent
60:32
website another bag a little bit above
60:34
20 percentage below bank borrows
60:37
reserves a couple of months surplus
60:38
bangs call the federal funds market and
60:41
they borrowed a certain interest rate
60:42
this is almost wiped out photo reserve
60:45
loan the banks so that instrument is
60:47
really out that gets a lot of publicity
60:49
was really weren’t worth anything the
60:51
real mechanism by which the federal
60:53
reserve banks manipulate public observe
60:55
and thereby manipulates money supply is
60:58
as follows here is a federal reserve
61:00
bank then we have the 140 1.21 for five
61:05
steps and here we have Reserve Bank
61:08
photos every bag let’s say want
61:09
someone’s plate look Valley to inflate
61:11
once will excite my old friend 1 billion
61:13
dollars how does it go about doing it
61:14
and thereby increase the money supply by
61:17
five billion then we’re doubling the
61:18
money supply in our example way it does
61:21
it is advised an asset it doesn’t matter
61:22
what advise the important things is
61:24
because it gets very confusing at this
61:25
point important thing is it can buy any
61:27
anti don’t want to if you go out and
61:29
spend the billion dollars on my old
61:31
portfolio which we work about in our 20
61:33
part sense they might however love me so
61:36
much I might have a black male putting
61:37
on number something like that they said
61:40
a billion dollars in my forefathers no
61:41
matter what they spend millions my old
61:42
houses they can buy paper clips for a
61:44
million dollars they can buy your
61:47
excessive minute I can never only have
61:48
to go out and buy something and pay a
61:50
check on it what was necessary hey buddy
61:52
by my old 4.4 billion dollar take a
61:54
really bizarre example like that in that
61:57
situation they buy me a stall out
62:00
discreetly surfer billion-dollar so my
62:02
portfolios about a quarter million off
62:05
huh federal reserve asset column
62:07
portfolio one thing is all they value it
62:13
at a million i made a border than a
62:14
budget who was anybody to say them they
62:16
all right i’m not challenging that
62:18
because we leave via billion dollars was
62:20
they pay for that by writing out a check
62:21
for a million dollars no I can’t do
62:24
anything a check a check says pay to the
62:26
order of marine rothbard one Binion’s
62:27
alla Spina cuddles are
62:29
back in New York what can I do what I on
62:30
the counter service in New York I go to
62:32
my bank my commercial bank oh say Chase
62:34
Manhattan I deposit it was Wrigley and
62:36
chase manhattan my bank account goes up
62:39
nor was the man deposits by Chase
62:41
Manhattan go up from 5 million of 16 yrs
62:43
the man deposited the banking system go
62:45
up from five to six so change their
62:47
hands even more gleeful about than i am
62:49
i’m only getting a billion dollars Chase
62:50
is getting a billion all-weather
62:51
reserves on which the banking system
62:53
could pyramid 5 to 15 million am I the
62:55
one vignette so the chief said hen runs
62:57
the taxes they’re little I’ve seen
62:59
Carolyn for the Federal Reserve Bank in
63:00
New York causes the check as far as
63:02
every bank in New York gets an increase
63:04
in its reserves so that’s well that’s
63:05
why the federal reserve bank is the
63:07
banker is a bank they have now two
63:10
billion dollars deserves the man
63:12
deposits outstanding of the pros verb
63:14
magazine out two billion notice it all
63:15
balances you now have the first set of
63:18
balance here you have a commercial banks
63:21
iou’s four billion reserves to Binion’s
63:24
Amanda positive six million all right
63:25
balance truth and the throes of account
63:28
we have portfolio now we’ve added
63:30
portfolio of 1 billion dollars the asset
63:32
before calling these ups at bonds and
63:34
these my portfolio of 1 billion dollars
63:37
we’ve added another billion dollars of
63:40
the man that pauses those of the
63:41
commercial banks it’s not the end of it
63:43
of court what happens now is the bank’s
63:45
nor the complete cat sits here of joy
63:48
and they spend my five to one either if
63:51
chases the monopoly to expand right away
63:53
if the competing bank reserve is now
63:54
takes a little bit more time but we wind
63:56
up sense to me and also the rugs
63:58
reserves we wind up with Amanda
64:00
positives not a six million of 10
64:01
billion and iou’s a pinion and we now
64:05
have expanded the money to double the
64:06
money supplies in five to 10 billion
64:08
just by a third bank buying my old
64:10
portfolio per billion dollars I say it
64:13
doesn’t matter what they buy what they
64:14
buy it on imports the important thing is
64:15
what they pay out panacek assume they’ve
64:18
had a check this mechanism goes into
64:19
aspect of quick coupling the money
64:21
supply in practice of course they don’t
64:24
buy my old copia to blakes good later
64:28
you’ll buy old houses all that but they
64:30
buy is government bond the US government
64:33
month they buy old government bonds and
64:35
we go now is a drive onto allows
64:37
buy new ones they buy old government
64:39
bonds it’s not important leave I’ll
64:41
guard monta it’s important for the bond
64:43
market but it’s not that crucial crucial
64:45
thing here is that my opinion dollars
64:47
worth of government bonds the bond
64:49
dealers Russia out take the check throws
64:52
our bank deposit them in their
64:53
commercial bank chase bank website they
64:56
get an increase net amount of positive
64:57
chase yet Nick reasons reserves and they
65:00
can now quintuple their money that’s the
65:02
process by which we have processes cold
65:04
when market operations by federal
65:06
reserve banks are open market purchases
65:09
usually the sales are very few and far
65:11
between sales is when the photos are
65:14
sells bonds then of course you have the
65:17
reverse situation when the Federal
65:18
Reserve Banks this gorgeous some of
65:20
these bonds then people buy it I write
65:24
out a check us out by a government bond
65:26
billion dollars I ran a check out my
65:28
bank my bank loses reserves and the bank
65:30
he says has to contract that’s the other
65:32
side of the coin is called the market
65:33
sales so in other words in practice
65:36
instead of this portfolio thing the io
65:38
u–‘s here the 1.8 million our
65:40
government US government securities over
65:42
the years of course a Federal Reserve
65:43
which started with zero government
65:44
securities now has billions and billions
65:46
up I know the figures all that they’re
65:48
enormous because every year that’s
65:49
piling on more in other words the way in
65:52
which the federal government increases
65:53
money supply year after year by
65:55
approximately ten percent gamers takers
65:56
bit by the Federal Reserve Bank only out
65:59
on the open market and buying government
66:00
bonds seemingly harmless operations done
66:04
continually with almost no publicity
66:06
financial pages do not you know promise
66:08
on every time of the buys bonds which
66:10
was a normal thing every day and as a
66:13
Federal Open Market Committee which
66:14
meets something once a week in the size
66:16
how much to buy all that jazz but the
66:17
point is that the upshot of all this
66:19
thing is this is a way in which money
66:22
supply is regulated and inflated the
66:25
Federal Reserve field of the New York is
66:26
inflating too much beyond Boston might
66:28
be some Tamil enforcement bank calling
66:30
upon New York banks production it just
66:32
shovel bond-buying at the boston market
66:34
and an equalizing situation so the whole
66:38
the economy all the banks can excite
66:39
beautifully together but not too much
66:41
coin upon redemption of one
66:43
for another bank because everybody’s
66:45
been cleaning together you know the
66:46
amount the chase quarter financial city
66:48
for exemption will be more or less
66:49
offset by the amount of National City or
66:51
on chase redemptions they can clear it
66:53
and nothing nothing happens the one
66:56
checked here on one limitation I federal
66:58
reserve the balance sheet preserve
67:01
expansion of course goals the fact that
67:03
the Federal Reserve used to have to pay
67:05
if their their liabilities and goal on
67:07
the gold standard well that’s what was
67:09
eliminated first was eliminated very
67:11
gradually by the governments and my
67:13
establishment by spreading the cultural
67:15
value around that’s really like the old
67:17
geezer who didn’t wanna have a money the
67:18
bank the other old geezer of the same
67:20
old geezer doesn’t want to have his
67:22
money in gold carry gold around this is
67:24
a certain Neanderthals that sort of
67:26
ridiculousness considered a lots of
67:28
stories about ratio of using with having
67:30
money go why does he have a million
67:31
paper or Bank credits just more
67:33
comfortable it’s a lighter and wait a
67:35
lot sort of start and so the idea of
67:37
people actually using gold coins as a
67:39
today’s transaction was gradually the
67:41
last out of court people stopped using
67:43
it more and more and more and more go
67:45
with confined to the bars or bling on it
67:47
and international transactions
67:49
large-scale transaction this meant has
67:51
it extremely important because this
67:53
meant that they were easy that’s for the
67:54
government that polished at old Spanish
67:55
as the public we had really been using
67:57
gold day today in 1933 and all their
68:00
transactions that fight all the gold
68:01
pieces everything else then it would
68:03
have been enormous outcry this
68:04
confiscation but nobody was hardly using
68:06
it all except for presents their kids we
68:08
got to the point you see the average
68:09
person only you go coins with christmas
68:11
hanukkah give the kid a gold corner
68:13
should sock Santa Claus would posit the
68:15
gold coin I was about it was really so
68:17
like a toy for most people and so then
68:19
it was easy for the government that
68:21
confiscated which they did in 1933 and
68:23
black day in 1933 because of the
68:26
so-called depression emergency the
68:27
government confiscated the goal in and
68:29
just a limit of the hordes of Fort Knox
68:31
supposed to be only for the brief
68:34
emergencies Attila banks were cleared up
68:36
again at all the bike holidays over the
68:38
maximum good shape thanks for a good
68:39
shake very shortly thereafter the
68:41
Depression was over when several years
68:43
thereafter of course it will not yet
68:45
been slicing bakula public coffers here
68:48
we are thirty-five years approximately
68:50
since the depression or eat no role
68:51
anymore the goal was not been paid back
68:54
to us
68:55
another word government confiscated the
68:57
gold incidentally this is sort of a
68:59
pecan note here favorite characters
69:01
American history as a time you’ll chase
69:04
who of the secretaries of jacksonian
69:06
hard money man was Secretary of Treasury
69:08
during the Civil War the Union side
69:10
friends of the greenback persuader
69:12
inflated and then when the several years
69:14
after the Civil War case comes before
69:15
Supreme Court worthy greenback
69:17
constitutional was a legal sort of an
69:19
issue a paper money at all not even
69:21
talking about irredeemable paper after
69:23
him some are just paper money you’re
69:24
doing overtime easy Green Bank was it
69:27
legal and the Supreme Court on the side
69:29
of 423 ability or two vacancies on the
69:31
court for defeat was unconstitutional so
69:33
for a few glorious years paper money a
69:36
renewal paper money was our
69:37
constitutional I Chief Justice chase
69:39
wrote the decision which made his own
69:41
actions Secretary of Treasury illegal
69:43
and constitution a beautiful probably
69:46
unique act on history of the world then
69:48
i would say himself for evil paper money
69:51
especially paper money okay what
69:54
happened was it was gonna take a peek on
69:56
interesting note is that the President
69:59
Grant who was going to pay of the word
70:01
gay types of upon the inflationary
70:04
government-subsidized pipes then
70:07
appointed to the to Vegas ease in the
70:08
Supreme Court two gentlemen I think
70:10
Bradley and somebody else both of whom
70:12
turn out to be lawyers for big railroads
70:14
and both of whom then when the decision
70:17
with re argue a couple years later
70:18
argued on a pro paper money side the
70:21
decision was reversed by five before the
70:23
reason why the railroad lawyer in pain
70:25
becomes important is that the railroads
70:26
are heavily in debt there was a great
70:28
bond issuers of the part of course
70:30
bondholders letters bond issuers rather
70:33
like to have an inflation because it’s
70:34
wipes out the virtually part of the
70:36
money they have to pay back so the
70:38
railroad connection then becomes the
70:39
interesting touch white paper money is
70:42
going became legitimated anyway then we
70:44
might have a 1933 we go being
70:46
confiscated and so the the way by which
70:49
this legalized money counterfeiting
70:51
takes place and ours through the federal
70:53
reserve purchases of the bond another
70:55
peek on tight remember I talked about
70:57
the Bank of England when you’re
70:58
Patterson we have a similar thing of
71:00
government deficits the government say
71:03
is a deficit both ended up with 10
71:05
billion dollars how does it
71:08
well the three ways it can finance it or
71:10
any combination of these three way one
71:12
way to just principen video are the
71:14
old-fashioned method printing the paper
71:15
money in spending so this would mean we
71:19
have a 10 billion order if it’s simply
71:22
two answers actresses let’s say its
71:24
revenue 30 billion of the expenditures
71:26
of 40 billion or whatever however gets
71:28
with ten billion our lesson number one
71:31
is financing as the deficit is by
71:33
printing on money put the old greenbacks
71:35
the Continental Chris of 10 billion
71:38
spend it now of course this is
71:40
inflationary we can say there’s a
71:41
pending in other words of inflation has
71:43
been injected into the system prices
71:46
will go up accordingly the other hand is
71:48
something sort of lovable about this
71:49
message because it’s clearing on us I
71:51
mean the fence was there at it everybody
71:53
knows you printed the 10 million
71:54
everybody knows that’s inflationary and
71:56
that’s it okay its one mess second
71:59
method financing the deficit is
72:01
borrowing money from the public so a
72:04
government issued bonds and selva
72:07
through you and I and also the
72:08
microphone or Wiseman so borrowing from
72:12
the public now this method of telling 10
72:15
million all where the boss to the public
72:16
does not inflationary at all it doesn’t
72:18
increase the money supply at all the
72:20
person has an increase in minus five x
72:21
10 million dollar that’s in place that’s
72:23
that second method is not on stationery
72:26
because we reduce our bank of deposits
72:29
you I and ups and rocket car reduce our
72:31
bank deposits by 10 billion and the bank
72:33
depositors get turn over the Treasury
72:35
Department and Treasury takes the money
72:37
to spend on little paper cut some other
72:38
productive things and that’s it it’s the
72:41
money circulating they get the resources
72:43
get shifted from high five sets of paper
72:46
clips the missiles missiles but that’s
72:47
not inflationary has other bad things
72:49
wrong with it it’s shifts money from
72:51
private hands to public hands at least
72:52
it’s not inflation earring however the
72:55
bad saying here so I can use this shift
72:57
of resources is it then government have
73:00
to pay back the ten billion who
73:01
bondholders plus interest on the
73:04
interval of depending on the instances
73:05
now have a lot more in other words over
73:08
the years the government let’s say have
73:09
to pay back plenty vision so we have
73:11
taxes go up by 20 million so the second
73:14
method of bars and public is lovably non
73:16
inflation or the other hands not so
73:17
lovable and aesthetic
73:19
actually go up by partially pricing map
73:21
of the previous inflation taxpayers have
73:24
to pay now and in the future on and on
73:26
the next 20 years or so for the debt I
73:28
only have a third method which is a
73:30
method generally use a method most
73:32
sophisticated look for love it by the
73:34
consecutive sandwich when genomics that
73:37
is you prancer deficit by borrowing
73:38
money from the banking system so this is
73:42
the equivalent of the King financing his
73:44
deference that is personal level by
73:45
borrowing money from william paterson
73:48
more money from the banking system when
73:51
you do that increase the money supply by
73:53
10 billion dollars the same way because
73:55
what happens is we now have you look at
73:57
the bank’s virtual bank’s assets and
74:00
liabilities you now have the man
74:02
deposits go up by ten billion dollars I
74:05
was a banks create 10 billion dollars of
74:06
new money new demand upon they hand over
74:09
to the government Treasury Department’s
74:11
it tons of money on paper functional
74:13
etcetera and returns with Adam thanks
74:16
yet vaio use now government bonds short
74:19
convenient so in other words the money
74:22
supply is going up by ten billion
74:23
dollars through the issuers are more
74:25
bank money so we have inflation 10
74:27
million dollars worth of the place you
74:29
know less than three however in addition
74:32
of ten billion dollars worth of
74:33
inflation which we suffer from printing
74:34
press the old fashioned printing press
74:37
mattress we now have to pay the banks
74:39
back in quotes so to the 20 billion
74:41
other words taxes go up by plenty of
74:43
billions in order to pay off the
74:44
principal in the interest of government
74:46
bonds like 20 years message 3 which is
74:49
it to the dominant mess of the fort is
74:51
the matter which we suffer the worst of
74:52
both worlds we both have inflation and
74:54
trees tax taxes go up actually increased
74:58
by 20 minute another sort of a moral
75:01
situation here are the moral dimension
75:03
of this system we the taxpayer we
75:06
Americans actually are paying the banks
75:08
both the principal and half the interest
75:11
rate for the dubious service of
75:13
inflating the money supply which they
75:15
themselves masters from look after many
75:17
ethical system or pleasurable principles
75:19
kind of bizarre bad enough to have a
75:22
bank explaining if that’s even worse to
75:23
have the taxpayer reach fully paying
75:25
them back and
75:26
she felt comfortable paying the Mac
75:28
assumed that they say their own money
75:30
off are they more among other people in
75:32
heavy the money the capital and things
75:34
up by the small savers overcoming this
75:36
investment government bonds and the
75:38
commitment to pay them back the bank’s
75:40
remember created new money and then
75:42
embarked yvonnes with the newly created
75:43
checkbook money all right good moring
75:46
from the rankings we’re combining the
75:48
worst of both methods and I say this is
75:50
the dominant who is Amon about this is
75:53
the modern sophisticated equivalent of a
75:55
king borrowing and william paterson both
75:57
of making this deal with william
75:58
paterson any money king of any money
76:00
they both wind up a lots of money same
76:02
way here with the government early banks
76:04
you might ask the question how the banks
76:07
get the 10 million by the government
76:10
bonds with because they’re all
76:11
previously fully loaded up well the way
76:13
they get it is the Federal Reserve Banks
76:15
how about by pumping 1 billion dollars
76:17
worth of reserves to be known as the
76:20
ratio of twenty percent pumping in two
76:22
billion and thereby giving the bank’s
76:25
depends million to spend to the speaker
76:27
on a billions that increased by eight
76:28
billion dollars more so we have reserves
76:31
going up by two billion this is done by
76:33
the Federal Reserve Bank buying two
76:34
billion dollars worth of old bonds in
76:36
the open market this completes this
76:37
complicated change the treasure he wants
76:40
to borrow 10 billion dollars inflate the
76:43
finances deficit the federal reserve
76:45
banks don’t in the open market by 2
76:46
million dollars worth of illegal
76:47
government bond old existing government
76:50
laws there by increasingly paying out
76:52
checks two million dogs worth of checks
76:53
with old bond dealers get and the old
76:56
bond dealers take this money and they
76:58
posit an airbag their banks get pooping
76:59
girls working more reserve bank since
77:02
late 10 billion dollars on top of that
77:04
and the insight by buying 10 million
77:07
other words a new bonds issued by the
77:08
government the Treasury to finance their
77:10
deficit complicated process he wound up
77:13
attending all other inflation is
77:14
something like 20 mins alter worth of
77:16
new packs hold it over the years okay so
77:20
so this more or less of the monetary
77:23
inflation sharing mechanism going on now
77:25
the question is is
77:26
final point of the course talk about 11
77:29
of the effects of this place sharing
77:31
practice which we don’t take much of
77:32
math in addition to the increase in
77:35
prices growing a bad from equation
77:36
addition to a possible probable runaway
77:38
inflation eventually as another effect
77:41
of increasing bank credit which is to
77:43
generate the dread and famous business
77:45
cycle regular final topic the business
77:48
cycle is obviously sort of losers go
77:52
through the entire business cycle
77:53
process in about a half hour I’ll try to
77:55
do my best in the old days in other
77:59
words in the day before approximately
78:00
seventeen fifty well if I mean right now
78:02
by the old days there were bad times
78:05
with this is hard time we were cool once
78:07
in a while but what happened this is the
78:09
hard times are pretty evident it was
78:10
pretty evident what the cause was in
78:12
other words the course of business in
78:13
order somewhat opposite of them really
78:16
simplify fashioned be going a little
78:17
fairly smoothly and bingo to be a big
78:19
collapse sudden collapse usually this
78:22
would happen because the King say was
78:23
something complicated all the money in
78:25
the country all the merchants to get
78:26
confiscated you need money fast you
78:29
confiscate the merchants gravel they’re
78:31
going away this will cause depression
78:32
pretty obvious or a specific event or a
78:35
war with PEG plate and create you’ll get
78:37
shuttle one of the last famous cases of
78:39
this was during the Civil War American
78:41
Civil War Britain’s major industry was
78:44
cotton textiles they were dependent with
78:46
a major supplier of cotton was the
78:47
American South and comes with Civil War
78:50
little the cotton survival cut off so
78:51
the British countenance she goes in the
78:53
depression Britney oohs and fresh it’s
78:55
obvious why I’m leaving sophisticated
78:56
with this icon theory to figure it out
78:58
this is the sort of depressions in the
79:00
takes place before approximately
79:02
seventeen fifty where you get it easily
79:04
10-point the cord anybody who has any
79:06
sense they’ll know the scene knows what
79:09
the score weather usually for government
79:10
all right then what happens is that are
79:13
possibly 1750 there occurs a phenomenon
79:15
in the year western world and the
79:18
walmart market economy read phenomenon
79:22
whereby you have a seemingly regular
79:24
alternation of booms and busts local
79:27
business cycle or trade cycle where
79:29
business will sort of go up and then
79:31
collapse suddenly and off again and so
79:33
what’s the one you have
79:34
some kind of a cycle a phenomenon
79:39
scientists became evident an economist
79:42
again a fortune products Florida’s
79:43
economist of the profession of economic
79:45
grew up or people think about economic
79:48
problems the try to figure out what the
79:50
cause of this whole thing work there’s
79:51
certainly not obvious it shouldn’t
79:53
happen if you look at at the point of
79:55
view of micro theory everything can be
79:57
stored hunky dory market always clear
79:59
there’s always full employment or
80:01
tendency toward it so what’s the matter
80:03
stenosis boomin busted as a matter of
80:06
fact or canes and are the worst chapter
80:09
of that book general theory wrote a
80:13
historical chapter about five pages or
80:15
something so that for him nobody ever
80:17
swore by business fact the people who
80:19
form a classically karma didn’t even
80:21
consider those a problem you think it
80:23
was such things on employment or crises
80:25
or bankruptcy and only he has come along
80:27
and give us give us a theory of
80:30
unemployment depression courses was not
80:33
the case at all where people they kind
80:34
of the thinking about business cycles
80:36
for many years not decade okay so what’s
80:39
the cause of the first I silicon is one
80:42
of mostly to investigate the crash they
80:44
weren’t really concerned by the boom a
80:45
little bit why is there a fact why the
80:47
sudden panic why is this on one day the
80:50
stock market collapses and banks
80:52
collapsed the so-called panico so-called
80:54
crisis it’s the most evident dramatic
80:56
and disturbing event and if a while
80:59
there it so happened about every ten
81:01
years of the big fight so there is a
81:02
theory of periodicity where the idea was
81:06
it was some kind of periodic cycle is
81:07
only nine point eight years in the
81:09
plumbing Thomas privy to the sunspot has
81:12
the whole thing on that this was a
81:13
fortunate even forgot so anyway that a
81:15
turnout wasn’t periodic wasn’t my party
81:17
a year that’s what one now the brain and
81:20
what you have is a series of means is
81:22
bus with your not periodic but keep
81:24
going anyway people donating now there
81:28
have been two kinds of explanations of
81:30
the cause of the business cycle one is
81:33
the dominant explanation now for many
81:35
years and the idea that while a dominant
81:38
type of explanation is the cause that
81:39
somehow deep within the Industrial
81:42
Revolution all comes without
81:43
not sure Aleutian the market economy
81:45
there’s something within the process of
81:47
the industrial system I bring about a
81:49
boom-and-bust cycle most people don’t
81:52
like a balloon box documents here at
81:53
evil therefore there’s something evil
81:55
about the market or something evil about
81:56
the industrial system in one way or the
81:59
other of the Keynesian system the
82:00
marketing system of pepper pepper will
82:02
come under this rubric of blaming duster
82:06
revolution blaming the market even if
82:08
they don’t have any specific causal
82:10
explanation also say well something
82:11
within the mark or something enough
82:13
rivage and therefore usually includes
82:15
the government has to step in and do
82:17
something about either abolish the
82:19
market or regulate it or whatever
82:22
another system another group of theories
82:25
of explaining the business cycle which
82:26
is but almost forgotten until fairly
82:28
recently but used to be dominant 19th
82:31
century which essentially says no it’s
82:33
not the frame mark it’s not the
82:34
Industrial Revolution which comes about
82:36
around the mid-eighteenth century
82:37
something else which came back in mid
82:39
18th century which is move your cause
82:41
comes about in other words at the same
82:43
time approximately just revolution
82:45
that’s the arrival of commercial banking
82:47
always in other words the fractional
82:48
reserve banking at this process which is
82:50
obviously not a market process which
82:52
intervenes in the market either by the
82:54
maximum seller by the government or
82:56
combination that this is the worm in the
82:58
Apple no that’s a monetary intervention
83:01
the market that’s a fractional reserve
83:02
banking we wouldn’t have the movement
83:04
bus cycle basically is literally one
83:08
meters I think we the first one really
83:10
point out the save the human species for
83:13
pricing mechanism is really the first
83:14
primitive business cycle model in other
83:17
words if you look at it remember i
83:19
talked about england and france and
83:21
england of plates and so forth on
83:22
england’s in the english banks the
83:24
behalf of the English government inflate
83:26
English prices go up and then what
83:29
happens is that Gold flows out from
83:31
France in England the deference of the
83:34
English balance of payment surplus my
83:35
French balance of payments and finally
83:37
these the pyramiding aspect of the bank
83:39
bank notes or bank deposit on top of
83:41
gold become so top-heavy and bank
83:43
robbery suspect bad shape they have to
83:45
contract then they can track there’s a
83:48
recession spices for bankruptcies and
83:51
gold stops falling out starts going back
83:53
again this is a one-shot
83:56
model visitors bike or as an inflation
83:59
brought about by the bank bank credit
84:00
expansion prices go up as a feeling of
84:03
prosperity and generations of receptor
84:05
that finally is a contraction within
84:07
Goldman falling out and the banks
84:09
collapsed and put the sites they have a
84:10
boom-bust cycle the next question of
84:13
course why does would mean start up
84:15
again why isn’t just a one-shot thing
84:17
and then a reason of course of these is
84:19
pointed out because the banks are
84:21
inherently inflationary inherently want
84:22
create money and the government’s joins
84:24
them soon as they get the chance they
84:26
thought I was fighting again assume this
84:28
is gonna Vancouver reestablish their
84:31
credibility as we now say we’re off
84:33
again on the other cycle a boom-bust
84:35
cycle and you go on now that I think is
84:38
a pretty good explanation it’s not
84:39
sufficient the chemo is a purely
84:42
monetary theory of business cycle which
84:44
the Freeman Dyson essentially brought
84:45
back us on a weird car away weirdo sense
84:48
the record ians Ricardo his school had
84:52
the the initial theory of the monetary
84:55
theory business cycle their view are
84:57
therefore you shouldn’t in flight
84:58
therefore we have hard money of pure
84:59
gold fan or whatever and don’t inflate
85:01
because they what they want to do so not
85:03
to have a boom-bust cycle the other hand
85:05
the demonizing interest is largely and
85:07
stabilizing the price level and
85:10
realizing that Frankie will terms of
85:11
fall as the five goods and services
85:14
increases in the productivity therefore
85:16
want to pump in more money in order to
85:17
offset the general tendency toward a
85:19
falling price love with a very different
85:21
kind of situation but the answer is on a
85:23
purely monetary explanation business
85:25
cycle still there the what meeses
85:27
contributed and I’m using an Hayek
85:29
following trivia is very business cycle
85:32
vocal Austrian period business cycle
85:34
which I am here is joining with this or
85:38
another strand to this monetary nation
85:40
namely and when the bank decrease the
85:43
expanded credit expand the money supply
85:45
they’re also doing something else in
85:46
addition to being inflationary they’re
85:48
also lowering interest rate below the
85:50
free market level and pouring that money
85:52
that new money into basically the new
85:54
business loans were then mostly lending
85:56
money not their consumers with the
85:58
businessmen to invest more in doing that
86:01
they’re causing over investment in the
86:03
so-called higher orders of production
86:05
and so cool
86:06
and the remote orders are capital and
86:08
goods and they’re causing in other words
86:10
and over investment of capital does an
86:11
under investment in a consumer goods
86:13
according to much resources to the
86:15
investment in the nails and cement and
86:18
construction and too little in clothing
86:20
and I five sets in whatever as a result
86:23
of this distorts the production
86:25
structure and as a fascia nary process
86:27
continue the credit expansion continued
86:29
the sorcerer piles up more and more
86:32
necessitating a final we ship our
86:36
shifting back of resources this shifting
86:38
back is essentially the pressure of the
86:40
recession for example we’re very rough
86:44
depart lane in a few minutes this is the
86:48
magnificent Austrian theory of the
86:49
structure of production essentially I
86:51
guess and this hint adapt I call menya
86:54
of the final of the Austrian school
86:55
developed in great detail my mom
86:57
barbarically great leader the Austrian
86:59
school and finally like I acta point of
87:01
business cycles by Hayek the student
87:04
will leave on news essentially what you
87:06
have consider other consumers are
87:08
spending a certain amount of money a bar
87:10
like the lib are being in that they
87:12
spent it Sumer spent 200 billion dollars
87:15
a year retail products so this is
87:19
consumption so money money of going home
87:21
consumers and retail saw where retailers
87:24
there here’s two billion 200 billion
87:26
going from the consumers to retailer
87:28
let’s say that they got a hundred
87:28
billion make it simpler hundred billion
87:30
dollars going from the steamer to
87:31
retailers overcoat say over a year and
87:33
month doesn’t matter matter with pine
87:35
period and goodly services are going to
87:37
retailer to life people consumers okay
87:40
retailers take a certain amount of that
87:42
they take a certain amount of the
87:43
hundred billion spending on our own
87:45
payment of wages two people working
87:48
retail industry rents to landlords and
87:51
retail industry in profits interest rate
87:53
so they know a certain amount of
87:54
payments to factors of production in
87:56
that industry up they 10 billion worth
87:58
the 10 billion goes up with killing here
88:01
will is back your payments 90 billion
88:05
that they go to the wholesalers and 10
88:08
billion goes off to LA
88:10
so the practice production and industry
88:12
9 you’re bending over the wholesalers
88:13
and the same thing happens the wholesale
88:15
10 billion let’s say gets paid adelaide
88:17
land labor and capital and under
88:19
printers and the hotel industry another
88:22
80 then you go to the jobbers another 10
88:25
billion up here and even goes with
88:27
jabbers and 70 million manufacture is a
88:29
separate separate so what you have in
88:31
other words the structure of production
88:32
at each stage of production every time
88:34
the money is turned over I’ll be kind of
88:36
going up to the stage of production more
88:37
money gets hived off wind up with
88:39
something like first or the let’s step
88:42
by triangular effective for over 100
88:45
million being pay down and factors and
88:47
then all these not taking a hundred
88:48
billion of spending in our consumption
88:50
again roughly and you have this this is
88:52
known as now the Expos is a circular
88:54
flow except it’s not really circular
88:56
it’s really more like overall and also
88:58
be the usual petrol analysis ignore the
89:01
early stages it just has a lump of
89:02
producers and a lump of consumers and
89:05
what happens is a capitalist system of
89:06
mansions it gets more productive and
89:08
more capital equipment you’re not in the
89:10
number of stages of production increases
89:12
so you haven’t what hiya corazon
89:14
lengthening and structure of production
89:16
saving investment increase let’s say the
89:18
number of stages of the structure of
89:20
reduction lengthens and we’re not going
89:23
to the whole out of all the triangles
89:24
under credit expansion too much gets
89:27
less than of the pile where the
89:29
production’s too much stuff a
89:31
construction work or a higher order they
89:33
got the consumer goods of lower orders
89:34
so much this investor up here not enough
89:37
down here these sources a big
89:39
opportunity very land labor and capital
89:41
of shift into these areas and there’s
89:44
too much investor there and then what
89:46
happened was one that lets say people
89:47
where were the dams and construction
89:49
projects of a business center get the
89:52
get the money for construction projects
89:54
came out of the workers these workers
89:55
take the money and expended on consumer
89:57
ago they then it may increase their
89:59
savings in all their savings ASCO let’s
90:01
say the old proportional temper sound or
90:03
income if not twenty percent of those
90:05
would have to be to validate new
90:06
investment we establish our consumption
90:10
proportions that they do that the
90:12
industry diet out here collapse the
90:14
image using the high order the
90:15
production collapse the structure of
90:18
reduction shortenings again or
90:19
satisfy the consumer the best possible
90:21
way over the oldest a lot of time
90:22
preference and consumers so the credit
90:24
expansion as it violates the time
90:26
preference to consumer in other words
90:28
consumer never certain time preference
90:29
structure they assume a certain amount
90:32
of kind of goods in saving a vest a
90:34
certain amount for future goods credit
90:36
expansion bank credit expansion of
90:38
fascia neri money supply in the business
90:40
loan makes it appear that there’s a lot
90:42
more savings available for future
90:44
investment and there really isn’t Thank
90:46
You the peers of five traffic of our
90:47
wall rather than really is it took too
90:49
much invested lose remove orders of
90:52
production so then the question is okay
90:54
if consumer than reestablish the role
90:55
proportion why doesn’t the business
90:57
cycle come the end in a couple of months
90:59
you know as soon as the producers wasn’t
91:01
going to pay out the money and the
91:02
workers start spending it the whole
91:04
thing should be over a couple months why
91:05
the business cycle lasts about several
91:07
years four five six seven eight years
91:09
where reason is the reason why the broom
91:11
continues its nicely because more bank
91:13
credit is being poured in other words
91:14
the bank credit expansion on a one-shot
91:16
thing if the u.s. thing and it’s a
91:18
process by which the business system is
91:21
lavik remain one step ahead of
91:23
retribution and the word the
91:24
over-investment the calling of account
91:26
the calling the judgment of over
91:28
investments costly postponed the fact
91:30
that new bank right has been poured in
91:31
and so the thing is one step ahead of
91:34
the workers least average annual
91:35
proportions this is now often called
91:37
liquidity crisis or liquidity crunch
91:39
returns I believe I don’t have enough
91:41
money anymore and it simply means I
91:43
think I didn’t expanding fast enough in
91:45
these situations to validate these this
91:48
over investment when men cut expansion
91:51
stops then this whole process took like
91:53
a shortening process and workers get
91:57
unemployed in these areas of the porn
91:59
prices and Kapil Dev industry that we
92:02
establish bring a bill or is a
92:03
production so accordingly Austrian
92:06
theory business cycle recessions not
92:09
simply it was all a contraction money
92:10
supply recession becomes inevitable and
92:12
healthy once there was a boom boom of
92:15
the bad thing a really the storage
92:16
production process source of age
92:19
difference whether consumers want and
92:20
the recession of the process by which
92:22
the painful but necessary process by
92:24
which the free market restores the
92:26
popular production structure in relation
92:28
of time preference and consumers
92:30
session then becomes inevitable and a
92:32
good thing in protein relation of the
92:34
breed therefore a policy concluded of
92:37
course the exact opposite of the current
92:39
will change in a post Keynesian policy
92:41
conclusion k zapata conclusion is for
92:44
various reasons you having a chance know
92:46
where the Keynesian theory her various
92:48
reasons it is if there’s a recession
92:49
pump more money and probably more
92:51
spending in inflate security the
92:54
austrian theory the personal is an
92:56
inflation stop inflating stop increasing
92:58
money supply stop pouring more bank
93:00
credit in and then if there’s a
93:02
recession don’t do anything about it
93:04
government’s hands off breath allowing
93:07
the adjustment process to proceed as
93:09
fast as possible and like this whole
93:10
plan because the government refuse an
93:12
adjustment process by propping up wage
93:14
rates are popping up lending money to
93:16
unsound businesses etc or doesn’t
93:18
postponing the business cycle and
93:20
linking the depression postpones of the
93:22
adjustment process and keeps the economy
93:23
the state of solar chronic depression of
93:25
the 1930s the thing those who leave the
93:28
process along a lot to let us adjust as
93:30
fast as possible usually easy recessions
93:32
are very fast even if they’re very deep
93:34
example 1921 there was a recession
93:36
responds with a big puss war broom
93:38
biking 14 and it’s a very sharp
93:42
recession prices fall about a third of
93:43
forty percent of something like that but
93:46
the research the Holy sessions over
93:47
about nine months when the governor
93:48
leaves them alone was a free-market
93:50
attitude toward recessions no word there
93:53
over very very quickly can or they know
93:55
they’re there it’s only a government
93:57
steps in this cure them unquote of the
93:58
hormone and almost rendered permanent
94:01
and the only other thing that culture
94:03
can do sort of speak to to speed up the
94:06
adjustment process on alleviated
94:07
oppression is in contrast Maccabeus is
94:09
going to probably get people to spend
94:10
more you know spend more than ever i
94:12
prime the pump obviously the culture
94:15
should be doing that we gave the
94:16
pressures of course you will save more
94:18
the more they say when unless they
94:19
consumed during recessions the paschal
94:21
recession be cured because the more of
94:23
these investments will no longer be
94:25
excessive of now be validated by genuine
94:27
ships and time preference if these e
94:29
fitted in shifts course the more you get
94:32
people will save and that’s
94:33
what 50 you get on the date the most
94:36
painful recession one bait and of course
94:37
the more capitalized in such a rate
94:39
structure on base just the exact reverse
94:41
of the Keynesian prescription this
94:45
explanation on why the accounts for
94:46
every boom-bust cycle since 1750 of
94:49
before wratten localized cases 9029
94:53
depression is a beautiful example of
94:54
Austrian theory work the Aussie analysis
94:57
of the situation of work most people
94:59
think of 1920 year its era lays a fairly
95:02
isolated was not an area like a fair
95:04
especially in the area of money and
95:05
banking where the Federal Reserve System
95:06
and established the photo services is
95:08
deliberately inflating the money supply
95:10
expanding bank credit for various
95:12
reasons in order how Britain was the
95:14
usual argument because Britain wasn’t
95:17
fighting rapidly those days as usual one
95:20
we had them with plain order not allowed
95:22
Britain and I put the pressure of
95:24
brigham losing a lot of gold or us
95:26
because if we weren’t excited about the
95:28
same proportion rittenberg they would
95:30
move much gold to us actually the
95:32
situation is even more sinister than
95:33
that since the growth of federal reserve
95:36
system in the 20s and the Bank of
95:39
England essentially run by the Morgan
95:40
interests yeah but that’s another really
95:42
another story and then we have the
95:46
phenomenon of inflation airy recession
95:48
is explained by the Austrian theory
95:50
because the only depression pirie what
95:52
happens is the prices of capital the
95:54
prices of construction goes wage rates
95:55
in these industries supposed to fall and
95:57
prices a consumer goods industry
95:59
supposed to rise thereby inducing
96:01
resources that shift back from the
96:04
construction capital goes to consumer
96:06
goods so there always is a rise in
96:07
consumer goods industry during
96:09
depression in other words say during the
96:11
ranking 29 depression all prices fell
96:13
but the prices of capital with the price
96:16
of construction machine tools fell much
96:18
faster than prices consumer good much
96:19
more hour they were food saved by fifty
96:22
percent earning construction in the
96:23
stream by twenty percent and retail
96:25
industry what happened in all the
96:27
questions classic depression was all
96:29
prices will fall and then capital go to
96:32
follow up
96:33
consumer goods so this matter consumer
96:36
goes really went up relatives and price
96:38
relatives other products but nobody care
96:40
about that because consumers because the
96:42
one good thing about an old-fashioned
96:43
depression is one good thing one of the
96:44
thing alone and that is you can enjoy a
96:46
nice form of similar prices my parents
96:49
were better off the whole rise and the
96:51
great depression because it since they
96:52
were employed in most I most people are
96:54
employed everything is a great bargain
96:56
furniture a cheap houses were cheaper he
96:59
was terrific so those the one good thing
97:01
by depression now they’ve taken that
97:02
away from us because they if they’re
97:04
allowing a deflation of bank credit
97:07
isn’t every in every classic depression
97:10
banks the captor contracted feather the
97:12
oil prices were for the result now forth
97:14
they don’t allow any bank credit
97:15
contraction ever it’s the prices are
97:16
never allowed to fall again and
97:18
therefore this healthy the equation is
97:20
eliminated and we now have all we have
97:22
is a rising a tumor that’s prices rise
97:24
with other prices which means that the
97:26
prices are going up and you may surprise
97:28
inflating a lot of deflating we now
97:30
suffer it during a recession from a
97:32
rising consumer goods prices in other
97:34
way we now have the worst of both worlds
97:35
we have a bankruptcy unemployment
97:38
Norwest of its associated with recession
97:40
we also have what’s crash late
97:41
associated with an inflation which is
97:43
lies in prices now the caedians can’t
97:45
meet this thing because the convenience
97:47
whole theory less on economy and what
97:50
you have to add mrs. to functional a
97:52
government that steer the car so to
97:54
speak of course this tightrope however
97:56
this and either side one of the listen
97:57
inflation the others of there’s an
97:58
unemployment since we’re having both
98:00
them what do you deal with the Kings you
98:02
had no answer whatsoever for this the
98:04
female I don’t have the answer either
98:05
actually why napoli none of the
98:07
establishment e-commerce knowing what to
98:09
do about the current situation whether
98:10
this whole series of inflationary
98:12
recessions punctuated by runaway
98:13
inflation in the plane or increasingly
98:16
want a lion fight scene between only the
98:17
Austrian fury really can explain that
98:19
solution a crazy situation and also come
98:21
up with a solution of solution it’s
98:23
actually being get the government out of
98:24
the whole business which is really I
98:27
guess the lesson in the more whole whole
98:29
course and again

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