[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.00,0:00:03.80,Default,,0000,0000,0000,,After one of the previous banking videos, I got a comment:
Dialogue: 0,0:00:03.80,0:00:06.21,Default,,0000,0000,0000,,"If everyone puts gold in the banks,
Dialogue: 0,0:00:06.21,0:00:08.25,Default,,0000,0000,0000,,what can they use to transact,
Dialogue: 0,0:00:08.25,0:00:11.70,Default,,0000,0000,0000,,or to buy food, or to pay for services, et cetera?"
Dialogue: 0,0:00:11.70,0:00:17.20,Default,,0000,0000,0000,,And that is an excellent segue into the notion of a bank note.
Dialogue: 0,0:00:17.20,0:00:19.20,Default,,0000,0000,0000,,bank note...
Dialogue: 0,0:00:19.20,0:00:21.30,Default,,0000,0000,0000,,You've probably heard the word before,
Dialogue: 0,0:00:21.30,0:00:25.70,Default,,0000,0000,0000,,maybe in some Charles Dickens' novel or something,
Dialogue: 0,0:00:25.70,0:00:27.79,Default,,0000,0000,0000,,but we're going to find out in this video
Dialogue: 0,0:00:27.79,0:00:30.88,Default,,0000,0000,0000,,it's actually a much more familiar concept than you ever realized
Dialogue: 0,0:00:30.88,0:00:33.94,Default,,0000,0000,0000,,and you probably have some of these bank notes
Dialogue: 0,0:00:33.94,0:00:36.17,Default,,0000,0000,0000,,in your wallet as we speak.
Dialogue: 0,0:00:36.17,0:00:38.06,Default,,0000,0000,0000,,Let's go back to our example.
Dialogue: 0,0:00:38.06,0:00:39.99,Default,,0000,0000,0000,,I have the Bank of Sal.
Dialogue: 0,0:00:39.99,0:00:41.78,Default,,0000,0000,0000,,I use 100 gold pieces.
Dialogue: 0,0:00:41.78,0:00:43.37,Default,,0000,0000,0000,,That's my equity.
Dialogue: 0,0:00:43.37,0:00:44.66,Default,,0000,0000,0000,,Let me draw that.
Dialogue: 0,0:00:44.66,0:00:48.59,Default,,0000,0000,0000,,My equity... I have 100 gold pieces.
Dialogue: 0,0:00:48.59,0:00:51.39,Default,,0000,0000,0000,,And I use that to build a building.
Dialogue: 0,0:00:51.39,0:00:53.29,Default,,0000,0000,0000,,So the 100 gold pieces actually go to the builders
Dialogue: 0,0:00:53.29,0:00:54.59,Default,,0000,0000,0000,,and they're from out of town,
Dialogue: 0,0:00:54.59,0:00:57.39,Default,,0000,0000,0000,,so they're not going to deposit it back with me.
Dialogue: 0,0:00:57.39,0:00:58.99,Default,,0000,0000,0000,,So that's my building.
Dialogue: 0,0:00:58.99,0:00:59.69,Default,,0000,0000,0000,,I don't know if you can see that.
Dialogue: 0,0:00:59.69,0:01:00.99,Default,,0000,0000,0000,,It's a little picture of a building.
Dialogue: 0,0:01:00.99,0:01:02.89,Default,,0000,0000,0000,,And all of the villagers in my city,
Dialogue: 0,0:01:02.89,0:01:04.89,Default,,0000,0000,0000,,they come and deposit their gold with me,
Dialogue: 0,0:01:04.89,0:01:09.19,Default,,0000,0000,0000,,because my building looks very solid and safe.
Dialogue: 0,0:01:09.19,0:01:10.99,Default,,0000,0000,0000,,It's safer than their mattresses,
Dialogue: 0,0:01:10.99,0:01:18.39,Default,,0000,0000,0000,,so they then deposit 1,000 gold pieces with me.
Dialogue: 0,0:01:18.39,0:01:21.09,Default,,0000,0000,0000,,1000 gold pieces
Dialogue: 0,0:01:21.09,0:01:23.49,Default,,0000,0000,0000,,For the liability side of my balance sheet
Dialogue: 0,0:01:23.49,0:01:28.48,Default,,0000,0000,0000,,I could say owe 1,000 gold pieces
Dialogue: 0,0:01:28.48,0:01:33.86,Default,,0000,0000,0000,,owe 1000 gold
Dialogue: 0,0:01:33.86,0:01:36.15,Default,,0000,0000,0000,,And on my asset side, I actually get the gold pieces.
Dialogue: 0,0:01:36.15,0:01:39.13,Default,,0000,0000,0000,,I should have done that in yellow.
Dialogue: 0,0:01:39.13,0:01:42.49,Default,,0000,0000,0000,,So on my asset side of the balance sheet
Dialogue: 0,0:01:42.49,0:01:46.09,Default,,0000,0000,0000,,it's just strangely tilting to the left
Dialogue: 0,0:01:46.09,0:01:51.19,Default,,0000,0000,0000,,On the asset side, I actually have 1000 gold pieces
Dialogue: 0,0:01:51.19,0:01:55.19,Default,,0000,0000,0000,,So they're actually sitting in my vaults.
Dialogue: 0,0:01:55.19,0:01:56.49,Default,,0000,0000,0000,,Now the question was
Dialogue: 0,0:01:56.49,0:02:00.39,Default,,0000,0000,0000,,if all of the villagers put all of their gold into my vaults
Dialogue: 0,0:02:00.39,0:02:03.59,Default,,0000,0000,0000,,what can they use to transact every day?
Dialogue: 0,0:02:03.59,0:02:05.19,Default,,0000,0000,0000,,The way I do it right now
Dialogue: 0,0:02:05.19,0:02:07.49,Default,,0000,0000,0000,,-- this side is my assets
Dialogue: 0,0:02:07.49,0:02:09.09,Default,,0000,0000,0000,,and these are my liabilities, right?
Dialogue: 0,0:02:09.09,0:02:11.69,Default,,0000,0000,0000,,I owe them 1,000 gold pieces
Dialogue: 0,0:02:11.69,0:02:14.19,Default,,0000,0000,0000,,that they can come and get at any moment
Dialogue: 0,0:02:14.19,0:02:16.89,Default,,0000,0000,0000,,And this could kind of be viewed as a checking deposit.
Dialogue: 0,0:02:16.89,0:02:18.79,Default,,0000,0000,0000,,I'll go into that in a second.
Dialogue: 0,0:02:18.79,0:02:20.09,Default,,0000,0000,0000,,I'll probably go into that in the next video.
Dialogue: 0,0:02:20.09,0:02:24.19,Default,,0000,0000,0000,,But if all of their 1,000 gold pieces are sitting right here on the asset side,
Dialogue: 0,0:02:24.19,0:02:25.29,Default,,0000,0000,0000,,or at least in my vault,
Dialogue: 0,0:02:25.29,0:02:27.63,Default,,0000,0000,0000,,what can they use to transact?
Dialogue: 0,0:02:27.63,0:02:28.59,Default,,0000,0000,0000,,Well, the solution is, I say, hey, you know
Dialogue: 0,0:02:28.59,0:02:34.79,Default,,0000,0000,0000,,instead of taking some of your gold out and using that as essentially money
Dialogue: 0,0:02:34.79,0:02:38.39,Default,,0000,0000,0000,,why don't I give you a note
Dialogue: 0,0:02:38.39,0:02:42.69,Default,,0000,0000,0000,,a note that says you put X amount of gold into my vault
Dialogue: 0,0:02:42.69,0:02:50.11,Default,,0000,0000,0000,,So, for example, for each one gold piece
Dialogue: 0,0:02:50.11,0:02:53.42,Default,,0000,0000,0000,,I will issue a bank note
Dialogue: 0,0:02:54.80,0:03:06.37,Default,,0000,0000,0000,,So let's say I'll say one gold piece bank note outstanding
Dialogue: 0,0:03:06.37,0:03:09.17,Default,,0000,0000,0000,,And then I hand you a slip of paper
Dialogue: 0,0:03:09.17,0:03:10.37,Default,,0000,0000,0000,,and that slip of paper
Dialogue: 0,0:03:10.37,0:03:13.97,Default,,0000,0000,0000,,-- and this might start to look a little familiar to you --
Dialogue: 0,0:03:13.97,0:03:20.47,Default,,0000,0000,0000,,says it looks about this shape.
Dialogue: 0,0:03:20.47,0:03:24.27,Default,,0000,0000,0000,,It has a nice picture of Sal in the middle,
Dialogue: 0,0:03:24.27,0:03:25.27,Default,,0000,0000,0000,,because it's the Bank of Sal,
Dialogue: 0,0:03:25.27,0:03:35.37,Default,,0000,0000,0000,,and it is denominated as one gold piece.
Dialogue: 0,0:03:35.37,0:03:37.47,Default,,0000,0000,0000,,And now you gave me that gold piece
Dialogue: 0,0:03:37.47,0:03:41.80,Default,,0000,0000,0000,,and you get this green piece of paper that only I can\Nprint
Dialogue: 0,0:03:41.80,0:03:45.50,Default,,0000,0000,0000,,and no one else has the sophistication to do something\Nthis fancy.
Dialogue: 0,0:03:45.50,0:03:49.60,Default,,0000,0000,0000,,Maybe I use some colors here and I sign it Sal
Dialogue: 0,0:03:49.60,0:03:52.90,Default,,0000,0000,0000,,and I do all sorts of stuff that makes it really hard to forge
Dialogue: 0,0:03:52.90,0:03:56.80,Default,,0000,0000,0000,,so that no one else can-- I put some holograms on it.
Dialogue: 0,0:03:56.80,0:03:58.70,Default,,0000,0000,0000,,Who knows what I do to it, but no one else can forge it.
Dialogue: 0,0:03:58.70,0:04:01.00,Default,,0000,0000,0000,,So this is essentially a piece of paper that I hand you
Dialogue: 0,0:04:01.00,0:04:02.60,Default,,0000,0000,0000,,that says, you know what?
Dialogue: 0,0:04:02.60,0:04:04.20,Default,,0000,0000,0000,,Anyone who holds this piece of paper
Dialogue: 0,0:04:04.20,0:04:10.69,Default,,0000,0000,0000,,can go back to the Bank of Sal and get back a gold piece.
Dialogue: 0,0:04:10.69,0:04:13.02,Default,,0000,0000,0000,,Then since everyone in the village,
Dialogue: 0,0:04:13.02,0:04:15.90,Default,,0000,0000,0000,,they trust that the Bank of Sal will always be willing to exchange
Dialogue: 0,0:04:15.90,0:04:18.60,Default,,0000,0000,0000,,one of these slips of paper for a gold piece,
Dialogue: 0,0:04:18.60,0:04:24.90,Default,,0000,0000,0000,,instead of using a gold piece to buy something,
Dialogue: 0,0:04:25.50,0:04:26.55,Default,,0000,0000,0000,,why don't you just this slip of paper?
Dialogue: 0,0:04:26.55,0:04:27.60,Default,,0000,0000,0000,,And even more, for one gold piece,
Dialogue: 0,0:04:27.60,0:04:29.50,Default,,0000,0000,0000,,you don't want to just have a stack of
Dialogue: 0,0:04:29.50,0:04:30.85,Default,,0000,0000,0000,,one gold piece pieces of paper around.
Dialogue: 0,0:04:30.85,0:04:32.20,Default,,0000,0000,0000,,Maybe if you gave me 5 gold pieces
Dialogue: 0,0:04:32.20,0:04:39.70,Default,,0000,0000,0000,,-- I'll do that in another color --Maybe if you gave me 5 gold pieces
Dialogue: 0,0:04:39.70,0:04:43.18,Default,,0000,0000,0000,,-- that rectangle is much larger than it should be relative to 1,000,
Dialogue: 0,0:04:43.18,0:04:44.28,Default,,0000,0000,0000,,but I think you get the point --
Dialogue: 0,0:04:44.28,0:04:48.12,Default,,0000,0000,0000,,then I'll do - I'll have a liability here that says:
Dialogue: 0,0:04:48.12,0:04:51.98,Default,,0000,0000,0000,,five gold pieces bank note outstanding.
Dialogue: 0,0:04:51.98,0:04:54.50,Default,,0000,0000,0000,,I'll call it b-note outstanding.
Dialogue: 0,0:04:54.50,0:04:58.39,Default,,0000,0000,0000,,And I'll issue a -- I think you have guessed it.
Dialogue: 0,0:04:58.39,0:05:00.52,Default,,0000,0000,0000,,Maybe I'll do it in different colors
Dialogue: 0,0:05:00.52,0:05:04.94,Default,,0000,0000,0000,,to show you that these bank notes can come in different colors
Dialogue: 0,0:05:04.94,0:05:08.02,Default,,0000,0000,0000,,but once again, I'll put a famous person there maybe
Dialogue: 0,0:05:08.02,0:05:10.05,Default,,0000,0000,0000,,and I'll make it really hard to forge,
Dialogue: 0,0:05:10.05,0:05:12.36,Default,,0000,0000,0000,,and I'll put holograms on it
Dialogue: 0,0:05:12.36,0:05:16.56,Default,,0000,0000,0000,,but it'll be denominated as a five gold-piece bank note.
Dialogue: 0,0:05:16.56,0:05:19.00,Default,,0000,0000,0000,,And now, if you were one of the villagers,
Dialogue: 0,0:05:19.00,0:05:20.20,Default,,0000,0000,0000,,you gave me your gold pieces,
Dialogue: 0,0:05:20.20,0:05:23.30,Default,,0000,0000,0000,,now not only is your gold safe,
Dialogue: 0,0:05:23.30,0:05:27.40,Default,,0000,0000,0000,,you have these pieces of paper that are very hard to forge,
Dialogue: 0,0:05:27.40,0:05:28.70,Default,,0000,0000,0000,,and that's a key issue there,
Dialogue: 0,0:05:28.70,0:05:30.00,Default,,0000,0000,0000,,because if they were easy to forge,
Dialogue: 0,0:05:30.00,0:05:33.30,Default,,0000,0000,0000,,then someone maybe completely unaffiliated with this trustworthy bank,
Dialogue: 0,0:05:33.30,0:05:37.20,Default,,0000,0000,0000,,completely unaffiliated with Sal, could go out and print these things.
Dialogue: 0,0:05:37.20,0:05:38.30,Default,,0000,0000,0000,,So you don't want that to happen.
Dialogue: 0,0:05:38.30,0:05:41.60,Default,,0000,0000,0000,,So we're assuming that you can't forge this thing.
Dialogue: 0,0:05:41.60,0:05:43.50,Default,,0000,0000,0000,,And now not only is your gold safe,
Dialogue: 0,0:05:43.50,0:05:47.40,Default,,0000,0000,0000,,but you have something that you can transact with
Dialogue: 0,0:05:47.40,0:05:48.55,Default,,0000,0000,0000,,-- that's frankly a lot easier than gold.
Dialogue: 0,0:05:48.55,0:05:49.70,Default,,0000,0000,0000,,I mean, I could even have a denomination
Dialogue: 0,0:05:49.70,0:05:54.20,Default,,0000,0000,0000,,that's -- it could be a 500 gold piece.
Dialogue: 0,0:05:54.20,0:05:55.70,Default,,0000,0000,0000,,So if someone gave me 500 gold pieces,
Dialogue: 0,0:05:55.70,0:06:02.20,Default,,0000,0000,0000,,I could give a 500 gold-piece bank note out.
Dialogue: 0,0:06:02.20,0:06:03.95,Default,,0000,0000,0000,,That'd be my liability, right?
Dialogue: 0,0:06:03.95,0:06:05.40,Default,,0000,0000,0000,,Because I know that at some point,
Dialogue: 0,0:06:05.40,0:06:08.40,Default,,0000,0000,0000,,someone might give me back that 500-gold-piece bank\Nnote,
Dialogue: 0,0:06:08.40,0:06:11.40,Default,,0000,0000,0000,,and I'll have to give them 500 pieces of gold,
Dialogue: 0,0:06:11.40,0:06:14.20,Default,,0000,0000,0000,,so that's why it's a liability.
Dialogue: 0,0:06:14.20,0:06:18.15,Default,,0000,0000,0000,,And maybe that piece of currency is orange.
Dialogue: 0,0:06:20.60,0:06:29.69,Default,,0000,0000,0000,,So it's 500... to kick the idea
Dialogue: 0,0:06:29.71,0:06:31.15,Default,,0000,0000,0000,,And now this is super useful.
Dialogue: 0,0:06:31.15,0:06:34.10,Default,,0000,0000,0000,,Now my bank-- we've done all of the other things,
Dialogue: 0,0:06:34.10,0:06:35.33,Default,,0000,0000,0000,,how the bank increases the money supply,
Dialogue: 0,0:06:35.33,0:06:36.58,Default,,0000,0000,0000,,and fractional lending,
Dialogue: 0,0:06:36.58,0:06:39.91,Default,,0000,0000,0000,,and how the money supply adjusts for the total production
Dialogue: 0,0:06:39.91,0:06:41.69,Default,,0000,0000,0000,,and wealth creation in the economy,
Dialogue: 0,0:06:41.69,0:06:45.80,Default,,0000,0000,0000,,but now we've found another useful thing that a bank can do, is that
Dialogue: 0,0:06:45.80,0:06:47.40,Default,,0000,0000,0000,,besides securing your gold,
Dialogue: 0,0:06:47.40,0:06:50.12,Default,,0000,0000,0000,,it's actually providing a unit of exchange
Dialogue: 0,0:06:50.13,0:06:53.67,Default,,0000,0000,0000,,that's frankly a lot easier to deal with than gold.
Dialogue: 0,0:06:53.67,0:06:55.60,Default,,0000,0000,0000,,I mean, could you imagine lugging around
Dialogue: 0,0:06:55.60,0:06:59.80,Default,,0000,0000,0000,,and counting and verifying 500 gold pieces every time you had to spend it?
Dialogue: 0,0:06:59.80,0:07:02.10,Default,,0000,0000,0000,,Or everyone would have to have scales, et cetera.
Dialogue: 0,0:07:02.10,0:07:03.40,Default,,0000,0000,0000,,Now people can just count there,
Dialogue: 0,0:07:03.40,0:07:06.40,Default,,0000,0000,0000,,and as you see, this is money or this is cash.
Dialogue: 0,0:07:06.40,0:07:10.80,Default,,0000,0000,0000,,You might be experiencing some form of dissonance in your head
Dialogue: 0,0:07:10.80,0:07:12.63,Default,,0000,0000,0000,,because right when I drew that, you were like, wait,
Dialogue: 0,0:07:12.63,0:07:15.20,Default,,0000,0000,0000,,Sal, that looks a lot like a dollar bill.
Dialogue: 0,0:07:15.20,0:07:20.60,Default,,0000,0000,0000,,And that's true because a dollar bill is a Federal Reserve bank note.
Dialogue: 0,0:07:20.60,0:07:23.30,Default,,0000,0000,0000,,It is a bank notes from the U.S. that-- there was a time,
Dialogue: 0,0:07:23.30,0:07:26.00,Default,,0000,0000,0000,,and this was a time before central banks
Dialogue: 0,0:07:26.00,0:07:28.12,Default,,0000,0000,0000,,and especially if you think about colonial times,
Dialogue: 0,0:07:28.12,0:07:32.22,Default,,0000,0000,0000,,you had banks all over the colonies,
Dialogue: 0,0:07:32.22,0:07:34.00,Default,,0000,0000,0000,,and they would actually issue their own bank note,
Dialogue: 0,0:07:34.00,0:07:36.20,Default,,0000,0000,0000,,so you didn't have one uniform currency.
Dialogue: 0,0:07:36.20,0:07:37.69,Default,,0000,0000,0000,,So one bank note might look like that
Dialogue: 0,0:07:37.69,0:07:39.10,Default,,0000,0000,0000,,and have Bank of Sal.
Dialogue: 0,0:07:39.10,0:07:41.75,Default,,0000,0000,0000,,Another bank note might have Bank of
Dialogue: 0,0:07:41.75,0:07:44.72,Default,,0000,0000,0000,,-- I don't know-- Bank of George Bush or something,
Dialogue: 0,0:07:44.72,0:07:47.70,Default,,0000,0000,0000,,and people would kind of have to have exchanges between them
Dialogue: 0,0:07:47.70,0:07:50.90,Default,,0000,0000,0000,,to realize which banks are good for what.
Dialogue: 0,0:07:50.90,0:07:53.20,Default,,0000,0000,0000,,Now we're not as familiar with the term bank note
Dialogue: 0,0:07:53.20,0:07:56.80,Default,,0000,0000,0000,,because we only see one type, or at least one type per country.
Dialogue: 0,0:07:56.80,0:08:00.30,Default,,0000,0000,0000,,We only see bank notes from one bank,
Dialogue: 0,0:08:00.30,0:08:03.60,Default,,0000,0000,0000,,or at least one bank has the right to issue them within the United States
Dialogue: 0,0:08:03.60,0:08:06.00,Default,,0000,0000,0000,,and that's the Federal Reserve Bank.
Dialogue: 0,0:08:06.00,0:08:07.50,Default,,0000,0000,0000,,And it's not backed by gold.
Dialogue: 0,0:08:07.50,0:08:09.50,Default,,0000,0000,0000,,It's actually backed by U.S. Treasuries,
Dialogue: 0,0:08:09.50,0:08:12.10,Default,,0000,0000,0000,,and I'll go into that a little later on.
Dialogue: 0,0:08:12.10,0:08:15.40,Default,,0000,0000,0000,,Actually, that's a whole fascinating realm of thought.
Dialogue: 0,0:08:15.40,0:08:17.90,Default,,0000,0000,0000,,But I just wanted to get this point home,
Dialogue: 0,0:08:17.90,0:08:21.30,Default,,0000,0000,0000,,that all you have-- that this bank actually has this other service of
Dialogue: 0,0:08:21.30,0:08:24.50,Default,,0000,0000,0000,,issuing these bank notes that are different than
Dialogue: 0,0:08:24.50,0:08:27.80,Default,,0000,0000,0000,,the checking deposits, which I will cover in the next video.
Dialogue: 0,0:08:27.80,0:08:30.37,Default,,0000,0000,0000,,And then I will use both of those concepts
Dialogue: 0,0:08:30.37,0:08:36.00,Default,,0000,0000,0000,,to redo that lending that we did with the irrigation ditches and the factory
Dialogue: 0,0:08:36.00,0:08:39.80,Default,,0000,0000,0000,,to show you that the gold actually never even has to leave the bank.
Dialogue: 0,0:08:39.80,0:08:42.10,Default,,0000,0000,0000,,The gold just sits in the bank the whole time
Dialogue: 0,0:08:42.10,0:08:45.20,Default,,0000,0000,0000,,and the bank can just use its bank notes and checks
Dialogue: 0,0:08:45.20,0:08:47.80,Default,,0000,0000,0000,,to actually conduct all of the transactions.
Dialogue: 0,0:08:47.80,9:59:59.99,Default,,0000,0000,0000,,See you in the next video.