In 2014, an economics professor walked

into a small bank in Germany and

convinced them to do something nobody

had ever done in the history of banking.

They let him sit right there in the room

while they approved a loan. The books

were open and the system was running.

He watched the bankers, step-by-step,

create money out of absolutely nothing

and became the first person in history

to prove it on paper.

The man was Richard Werner. He's a

professor of banking and finance from

Germany. Shortly after his study came

out, the Bank of England admitted the

exact same thing in their own official

papers.

See, money creation is so simple your

brain refuses to accept it. We think

something this powerful has to be

complex,

sacred, mysterious.

It isn't.

Every time a bank makes a loan, they

don't touch their reserves. They don't

borrow from someone else's deposit. They

just open a computer,

type the loan amount into your account,

and in that exact moment, money is

created.

10,000 bucks that didn't exist a minute

ago is suddenly sitting in your account.

And if you think,

"No way. That can't be right."

You aren't alone.

When over 1,000 people were asked who

creates the money in their country, 84%

said the central bank or the government.

If you asked me a few years ago, I would

have said the exact same thing.

We were all wrong.

The government barely creates any money

at all. By the end of this video, you

will have the entire hidden map of how

this system works

and how it affects your wallet. Let me

show you.

There are basically three types of money

in the system. The first type is central

bank reserves.

You and I can't touch this money. Only

banks can use it to settle payments

between each other.

The second one is cash.

This is the paper banknotes and coins in

your wallet. Your central bank prints

it. Cash makes up less than 3% of all

the money in the economy.

The third type is digital money.

The official name for this is commercial

bank money,

which is just a fancy way of saying

money that private banks created and

typed into your [music] account.

This is the remaining 97%

of all the money in the economy.

Look at that ratio.

Government made money, 3%,

privately made money, 97%.

So, how do they actually do it?

Well, the answer most people have is

wrong.

Here's the story you've probably been

told.

You deposit your savings at the bank.

The bank keeps 10% as reserves. They

lend out the other 90% to someone else

and charge interest. The cycle repeats.

And that's supposedly how money gets

created. That model is wrong.

If banks actually needed your deposits

to survive, they would fight to get your

cash. They would offer you 10% or 15%

interest just to store your savings.

Instead,

they offer you almost nothing.

They don't need your money.

So, if banks don't need your deposit to

make a loan,

where does the loan money actually come

from?

It doesn't come from anywhere.

They just type it.

Here's what that looks like on their

books.

Banks keep their accounts in two

columns.

On the left side is what they own. On

the right side is what they owe.

Every transaction has to appear on both

sides.

It's called a double entry bookkeeping.

Let me explain.

When the bank types $10,000 into your

account, two things happen at the same

time.

On the left side, they write "This

customer owes us $10,000."

That's the loan contract you just

signed.

The bank now owns your future payments.

That's their asset.

On the right side, they write

"We owe this customer $10,000."

That's the money now sitting in your

account. The bank now owes you every

dollar of it. That's their liability.

Both sides grow by $10,000

out of nothing.

Just because the bank wrote it down

twice.

That's the entire mechanic. That's all

it is.

And here's the most interesting part.

By law, banks don't even need to hold

any money in reserve to do this.

In most Western countries, the legal

reserve requirement is zero.

>> Mhm.

>> Let me say that again.

Zero.

Not 10%. It's just

zero.

The bank doesn't have to keep a single

dollar in their vault before giving you

a loan.

Which means the only real limit on how

much money a bank creates

is who they decide to lend it to.

Hold on to that. We'll come back to it.

And don't take my word for any of this.

The Bank of England, the actual central

bank, published this in their own

official paper in 2014.

Commercial banks create money in the

form of bank deposits by making new

loans.

When a bank makes a loan, for example,

to someone taking out a mortgage to buy

a house, it does not typically do so by

giving them thousands of bank notes.

Instead, it credits their bank account

for the size of the mortgage.

At that moment, money is created.

That's the central bank itself

saying out loud that the system works

exactly the way I just described.

So, back to your loan.

Money was typed into your account. Real

enough that you can spend it on whatever

you want.

You start paying the bank back month by

month for the next 5 years.

This is where it gets interesting.

A loan has two parts and most people

only see one of them.

The first part is the principal.

That's the $10,000 the bank typed into

your account.

The second part is the interest.

Let's say an extra $2,000 over 5 years.

When you pay back the principal, it

doesn't go to another customer.

It doesn't go into a vault, either.

It just

vanishes.

$10,000 real dollars just

gone.

The same keyboard that made it

deletes it.

Banks don't just create money,

they also destroy it.

I know it it sounds wild, so let me give

you a thought experiment to bring this

to life. It's not a perfect legal

analogy, but it exposes the raw

mechanics of how this works.

Imagine the bank rents you a car,

but the car isn't real. It's imaginary.

But the moment you sign the rental

papers, the car becomes real.

You drive it around for 5 years.

Every single month you pay real rent on

it.

Then, on the day you finish paying,

you return the car and the car vanishes

the same way it appeared.

Like it was never there in the first

place.

The only real thing was the rent you

paid every single month.

Now replace the car with a standard bank

loan.

The loan money isn't real. It gets

created when you sign the contract and

it gets deleted when you pay it back.

But the interest you paid every month

for 5 years,

that was very real, and that's exactly

what the bank keeps as a profit.

It's almost like the bank lent you an

imaginary car and collected real rent on

it. Which brings us back to the question

I asked you to hold on to.

If the only real limit on bank lending

is who they choose to lend it to,

who do they choose?

And the answer is not you.

Not the small business owner, not anyone

trying to build something new.

Now, don't get me wrong. I'm not trying

to say bankers are evil and they're

doing evil things.

I actually have banker friends.

They're regular people, just like you

and me, trying to take care of their

families.

Most don't even know this is how it all

works.

The problem is the system they're in.

Because the system rewards them for

lending in one specific direction.

Let me ask you a question.

Walk into a bank tomorrow.

Ask for $50,000 to start a small

business.

They'll grill you for weeks, charge you

a high rate,

and probably still say no.

Walk in and ask for a $400,000

loan to buy a house?

It's a completely different story.

It's way easier to get approved.

Why?

Because lending to a business is risky

for the bank.

Almost three times riskier than lending

against a house.

If your business fails, the bank loses

the money.

If you stop paying your mortgage, the

bank takes the house.

So, if you were running the bank, where

would you put the new money?

Of course, into mortgages.

Look at the data from the UK between

1997 and 2011.

14 years of bank lending.

As you can see,

mortgage lending exploded.

But lending to small businesses almost

stayed the same.

The new money the banks are creating

isn't going to people who build

businesses and grow the economy.

It's going to people who already own

things. Houses, property, stocks,

existing assets.

Now watch what that does.

Banks pump trillions of new dollars into

the property market. Same number of

houses, way more money chasing them.

You don't need to be an economist to

know what happens next.

Prices go up.

You've probably heard houses are

expensive because of supply and demand.

Like not enough houses, too many buyers,

immigration, foreign investors.

There's a little truth to all of that.

But the real reason houses keep getting

more expensive,

the one nobody talks about on the news,

is easy bank credit.

Every time the bank approves another

mortgage, new money gets typed into the

system. That money flows straight into

the property market and it pushes the

price up of the house you're trying to

buy.

That's why your parents bought a house

at 24

and you're 30, working harder than they

ever did,

still renting.

It's not because you're lazy.

It's because the rules of the game

changed and nobody bothered to tell you.

Now you know.

And if that's making you angry,

good.

Hold on to that feeling.

Because this system can be

fixed.

Remember Professor Richard Werner from

the beginning of the video?

He didn't just prove how the system

works.

He also got an answer for how to fix it.

Werner is one of the authors of the book

this whole video is built on, Where Does

Money Come From?

And the solution he gives is simple.

We don't need to tear down the whole

system. The problem isn't that money

[clears throat] is created out of thin

air. The problem is which direction it

flows.

Let me show you what he means.

Think about two different scenarios. The

first one,

bank lends $1 million to someone buying

an existing house.

That money flows to the seller. The

seller now has a million dollars. But

what was actually created in the

economy?

Nothing.

No new factory got built. No new jobs

got created. The same house changed

hands. More cash enters the market,

making housing more expensive for

everyone.

Now, look at the second scenario. A bank

lends $1 million to a small business

owner.

He uses it to hire 10 workers, buys

equipment, develops a product.

Now, the economy has more output, more

jobs, more actual wealth than it did

before.

Same banking system, completely

different outcomes.

One pushes prices up, making houses more

expensive. The other builds a real

economy.

So, the obvious answer is just lend to

small businesses instead.

So, why don't banks do that?

Big banks don't actually want to lend to

small businesses because the math

doesn't work for them.

Processing a $50,000 loan for a small

business takes almost the same effort

and time as processing a corporate loan

worth 50 million.

The paperwork is the same.

Only the number on the contract is

different.

Big banks focus entirely on massive

corporate deals

because the payout is a thousand times

larger.

If we want banks to actually fund the

part of the economy that builds real

things?

We need a different kind of bank.

We need many small banks.

Not a few giant ones that only do

business with big companies.

The kind of small bank where the manager

actually knows the small business owners

in town by name.

Two out of every three jobs in advanced

economies come from small businesses.

When the banking system is dominated by

a few giant banks, those small

businesses can't get the loans they

need.

The jobs that should exist don't get

created. The economy stops growing while

house prices keep running up.

Now, I know what you're thinking.

That all sounds great in theory, but has

any country actually done this?

Does it really work?

Yes.

And the example might surprise you.

It's China.

In 1978, Deng Xiaoping came to power.

And the first thing he did was fly to

Japan to figure out the secret behind

their economic miracle. He came back

knowing exactly what to do.

He founded thousands of banks. Small

banks, local banks,

village banks.

Everywhere.

His reasoning was simple.

One central bank can't run lending for

an entire country from one room.

Millions of bankers on the ground can.

And he was right.

China then delivered four decades of

skyrocketing economic growth.

Lifting more people out of poverty than

any country in human history.

They did that not by getting rid of

money creation,

but by pointing it at the right thing.

So, why don't we have this?

Because almost nobody knows the system

works this way.

I studied at economics faculty at

university and didn't learn any of this.

You probably didn't either.

But let's strip away the numbers and the

bank talk for a second. Let's talk about

what all this really means for you and

me.

We sell our lives to earn money.

Think about it. Every hour away from

people you love, every early morning,

every late night grind, that is your

limited precious time on this planet.

You are selling pieces of your life to

earn money.

Money is literally just your time stored

in a computer.

So when they create money out of nothing

and push prices up, they aren't just

messing with numbers. They are stealing

your time.

They are making it so the hours you

already spent working are worth less.

It is absolute madness and it hurts

every single one of us.

Look,

I honestly hate asking people to like or

share my videos. I don't like begging

for clicks, but I'm breaking my own rule

today

because we cannot change a system we

don't understand.

If you feel in your gut that this is

important,

please share this video with at least

one person you care about.

I genuinely believe this is the single

most important topic of our generation.

Thanks for watching.