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#money #moneymaking #explained # Indianmoney
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00:04Not long ago, I had my aunt and niece come visit me for dinner.
00:10Except, all I could think about was the bandage on her head.
00:14So I asked her, how did this happen?
00:20I saw it on the news.
00:22My bank just collapsed, Achoo.
00:25I panicked.
00:26I ran to the bank.
00:28I was going to just withdraw everything and move it someplace safe.
00:32But I guess I was not the only one with that idea because when I got there,
00:36there was a massive crowd making all sorts of demands.
00:40And they had no money to give.
00:42The bank just didn't have the money.
00:44And like that, in an instant, Neetu's college fund, gone.
00:50It was complete chaos.
00:52There was this old man standing next to me and he kept shouting,
00:55my pension, my pension, again and again.
00:58People were screaming, yelling at the top of their lungs.
01:03And suddenly, everything just shattered.
01:09I decided I was going to get out of there.
01:11But before I knew it, someone crashed into me.
01:15And this is what happened.
01:18Hearing all this made me dig deep into the matter.
01:21I had to understand, why couldn't the bank return people's money?
01:26What exactly is money?
01:28And how do banks create it out of thin air?
01:31If you want to level up your finances and get better at playing the game of wealth,
01:36you need to wrap your head around this absolutely mind-boggling detail.
01:4095% of money in existence, including what's in your bank account, isn't actually real.
01:48It only exists because we agree that it does.
02:01To understand why your money doesn't exist,
02:04we need to go back in time to understand why money was invented in the first place.
02:09Imagine you're a farmer 5,000 years ago.
02:12You grow wheat.
02:13Your neighbor raises goats.
02:15Should be simple to trade, right?
02:17Some wheat for some milk.
02:19But your neighbor doesn't want wheat.
02:21He wants pottery.
02:22The potter wants metal tools.
02:24The blacksmith wants leather.
02:25The leather worker wants wheat.
02:27But not your wheat.
02:29He wants the higher quality wheat from the farmer across the river.
02:32This is what economists call the double coincidence of wants.
02:37Both parties need to want what the other has at the exact same time in exactly the right quantities.
02:44It's an impossible puzzle that our ancestors faced every single day.
02:48And even when trades aligned, how did you value things?
02:51Is one goat worth 20 pounds of wheat?
02:5350?
02:54What if it's a young goat versus an old one?
02:56What about seasonal variations?
02:58Plus, wealth was impossible to store.
03:00You couldn't save wheat for decades.
03:02It would rot.
03:03You couldn't accumulate goats indefinitely.
03:05They'd die.
03:06There was no way to build long-term wealth or security.
03:10So humans did what we always do.
03:12We innovated and created a middleman.
03:15Money.
03:17You know, the early forms of money were so fascinating.
03:20The Aztecs used cacao beans, literally chocolate as currency.
03:24Pacific Islanders used massive stone discs called rye stones.
03:27Some so large, they couldn't be moved.
03:30So ownership was simply declared and remembered by the community.
03:34Coastal regions used curry shells.
03:36Ancient China used knife and spade-shaped metal pieces.
03:40But all of these had a fatal flop.
03:43Anyone could create more.
03:45Pictures from the beach.
03:46Grow more cacao.
03:47Carve more stones.
03:48There was no control over supply.
03:50So, breakthrough finally came with government-based currency.
03:55First metal coins in ancient Lydia around 600 BCE.
03:58Then paper money in China during the Tang Dynasty.
04:01These could be standardized control and crucially backed by something valuable.
04:06So for centuries, this backing was gold.
04:09The gold standard meant every rupee, dollar or pound in circulation could theoretically be exchanged for a fixed amount of
04:16gold.
04:16It basically limited how much money governments could create.
04:20No gold.
04:21No new money.
04:22It was simple.
04:22And this system was what built the modern world.
04:26It enabled trade between strangers, allowed wealth accumulation across generations and created the foundation for every economic innovation we enjoy
04:35today.
04:36But then, we abandoned it and that's where our story really begins.
04:47In 1971, US President Richard Nixon made an announcement that changed everything.
04:54I have directed Secretary Connolly to suspend temporarily the convertibility of the dollar into gold or other reserve assets.
05:01And with that single decision, money became fiat currency backed by nothing except government decree and collective faith.
05:09Every major economy followed suit.
05:12Suddenly, money wasn't tied to anything physical.
05:15It was just trust, paper and promises.
05:18But even this paper money, the notes in your wallet, represents only about 5% of all money in existence
05:24today.
05:25The other 95%, it's a shared hallucination of sorts.
05:29It exists only because we believe it exists.
05:33Let me show you what I mean with real numbers.
05:35So, around 1960, India's GDP was 37 billion dollars.
05:39Today, it's over 4.2 trillion dollars.
05:42That's 4 trillion in new money that had to come from somewhere.
05:46We didn't discover 4 trillion worth of gold.
05:49We didn't print 4 trillion in notes that would cause a hyperinflation like Zimbabwe,
05:53where they literally had 100 trillion dollar notes that couldn't buy a loaf of bread.
05:57So, question is, where did all this money come from?
06:02Banks created.
06:03Not the government, not the reserve bank, but regular commercial banks.
06:08Your neighborhood, HDFC, ICICI, SBI, they literally create money out of nothing.
06:14And it's completely legal.
06:16Now, this is very interesting because here's how I thought banks always worked and how most laymen think that banks
06:21work.
06:21You deposit money, they keep it safe, maybe lend some of it out carefully and pay you interest for the
06:26privilege.
06:27Like a giant locker with an investment fund attached.
06:30But, I was completely wrong.
06:32So, Richard Werner, a German economist, was the first to empirically prove what actually happens.
06:38When you deposit 1 lakh in a bank, they don't put it in a vault.
06:41By law, they only need to keep about 10%.
06:44That's just 10,000 rupees as reserves.
06:46The other 90,000, they can lend it out.
06:49But, they don't lend out your 90,000, they create new 90,000.
06:54Let me repeat that because it takes some time to fathom.
06:56Let's say you deposited a lakh in the bank.
06:58The next day, someone walks into the bank with the hopes of starting a cafe.
07:02They borrow 90,000 from the bank and are credited with the same.
07:06Suddenly, new money exists that didn't before.
07:09The cafe owner now uses it to pay a carpenter for furniture,
07:12a supplier for coffee beans, and an employee for their first month's salary.
07:16Each of these people deposits their salaries into their banks.
07:20This system keeps repeating every time money is deposited,
07:24a portion of it is held in reserve,
07:26and the rest becomes the basis for a new loan and therefore, new money.
07:31So, in theory actually, that single 90,000 loan could eventually lead to 9 lakh in total money
07:37circulating in the economy and all from one initial deposit.
07:41This system of fractional reserve banking is the backbone of every modern economy
07:46and it only works because we live in a world of fiat money
07:49where money is created through trust.
07:52Trust in the system, trust in the legal frameworks that enforce it,
07:56and the belief that when you open your banking app and see a number on the screen,
08:00that number actually means something.
08:03Clearly, money at its core is a collective hallucination
08:06or a shared fiction, one that we believe to be a fact.
08:10You know, this is how 95% of all money came into existence,
08:14not from governments or printing presses, but from banks making loans.
08:18Now, you might be thinking, if banks can just create money,
08:21why don't they create infinite amounts?
08:23Why isn't everybody rich?
08:25Why does this system not immediately collapse?
08:28Well, the answer reveals something very profound about money itself.
08:33Banks can only create money when someone borrows it
08:36and they'll only lend it if they believe you can pay it back with interest.
08:40It's like having a money printer that only works
08:43when someone promises to bring back more money later.
08:46Here's the crucial distinction Richard Werner discovered.
08:49Not all money creation is equal.
08:52And you need to understand this for all your future financial decisions.
08:56But before I break that down for you, I want to share another insight with you.
09:01You see, banks are fascinating institutions.
09:03They help create opportunities and influence economic growth like we just saw.
09:07So, imagine you want to start saving for a terribly rainy day
09:10or build an emergency fund.
09:11You walk into a traditional bank looking for a savings account
09:14that helps your money grow.
09:15The bank offers you an interest rate, but it's low, maybe around 2.5 or 3%.
09:19Given the current inflation rates, you are actually losing money here.
09:23And worse, a lot of these banks have minimum balance requirements,
09:27maintenance fees and the interest is only credited annually.
09:31Which means you're not really seeing your money grow day by day.
09:34When banks borrow money from RBI, they do it at repo rate which is at 5.5% currently.
09:39However, when they use your money, you only get 2-3% interest
09:43and the rest of the gap becomes their profit.
09:46This is where slice comes in.
09:48You see, banks should amplify, not erode your savings.
09:52That's the gap slice set out to fix.
09:54Their savings account mirrors 100% of the RBI repo rate.
09:58Currently, 5.5% from the very first rupee.
10:02And they credit interest daily.
10:03So, compounding starts instantly instead of once a year.
10:07For example, if you have 5 lakh in your account,
10:09that'll make you around 31,000 in a year.
10:12That's nearly 2.5x what you'd get in most savings accounts from other banks.
10:17No minimum balance traps, no maintenance fees, no hidden clauses.
10:21Whether you have 5 rupees or 5 lakh, the rate is the same and the meter never stops.
10:26Need certainty for idle cash?
10:28Slicer's fixed deposit pays 8.5% for 18 months among the highest non-senior rates on the market.
10:34Opening up is as friction-free as sending a UPI payment.
10:37You download the app, set up your account in 2 clicks and immediately have access to the most seamless banking
10:43experience.
10:44Everything from UPI transactions to booking FDs all happens paper-free on one app.
10:49Plus, you get assured cashback on every UPI transaction.
10:53It's built to work the way most people already manage money today.
10:57Digital, clean and simple.
10:59The real innovation is actually transparency.
11:01Slice shows, line by line, how your money earns.
11:05Turning the opaque black box of traditional banking into a glass box you can audit anytime.
11:10In a world where 95% of money exists only because we collectively agree it does,
11:14that clarity is priceless.
11:16It lets you keep your emergency fund growing in real terms while you focus on bigger financial moves.
11:24Now, let's go back to the cafe owner's example, okay?
11:26After taking the loan, he runs a successful business.
11:30In doing so, customers transfer their money that they earn somewhere else in the economy into his wallet.
11:36The owner uses that to repay the loan.
11:38So, in monetary terms, money has simply moved from the wallets of customers to the bank's books,
11:43from one part of the system to another.
11:45That's redistribution, right?
11:47Except, something important happened in the process.
11:50While the quote-unquote non-existent money was moved around,
11:54people were fed, workers got paid, goods were produced, services were delivered,
11:59and even taxes were paid.
12:01That is economic velocity.
12:03And it gets counted as part of a country's GDP.
12:06You see, from our perspective, money is a tool to measure value, to store wealth,
12:10and to exchange resources fairly.
12:12But from the perspective of banks and policymakers,
12:15money is productivity, or to be specific, a tool to generate productivity.
12:20Earlier, we talked about Professor Richard Werner,
12:23the German economist who changed the way we perceived banks.
12:26He went on to develop what's called the
12:27quantity theory of disaggregated credit,
12:30in which he makes a simple but powerful distinction.
12:33There's productive credit, and then there's unproductive credit.
12:36See, when banks create money for productive purposes,
12:39that's building factories, starting businesses, developing technology,
12:43that new money leads to new goods and services, the economy grows, everyone benefits.
12:48But when banks create money for unproductive purposes,
12:51that's speculation, buying existing assets,
12:54consumer spending on depreciating items,
12:56you get inflation without growth.
12:58Prices rise, but wealth does not.
13:01Think about it this way, okay?
13:02Person A borrows 50 lakh to start a software company.
13:06They hire people, create products, generate exports, pay taxes,
13:10then new money created leads to new value.
13:13Now, person B, on the other hand, borrows the same 50 lakh to buy an expensive car
13:17that loses 20% value the moment they drive it off the lot.
13:21Now, that's the same amount of money borrowed,
13:23but no new value added to the economy.
13:27Both increased the money supply by 50 lakh, but only one increased actual wealth.
13:32This distinction between productive and unproductive credit is existential,
13:37because when too much credit goes towards unproductive uses,
13:40you get bubbles.
13:42And like we know, bubbles always burst.
13:47Now, let me explain something about these bubbles to you.
13:50See, to understand what happened to that ANZ Bank,
13:52we need to understand what happened in 2008,
13:54because it's the same story, just on a different scale.
13:57It started in the 1980s, when an investment banker pioneered something called the mortgage-backed securities.
14:04The idea was very simple.
14:05Take thousands of home loans, bundle them together,
14:08and sell shares in that bundle to investors.
14:11Now, the logic seemed bulletproof.
14:13Not everyone defaults on their mortgage at once.
14:15So, by diversifying across thousands of loans,
14:18you create a safe investment.
14:20Now, these bundles, they received AAA ratings,
14:22the same safety rating as government bonds.
14:25And for two decades, it worked perfectly.
14:28But then, something shifted.
14:30What started happening was, banks started realizing that they could make money in two ways.
14:35Creating loans and the interest on them,
14:37and immediately selling those loans to investment banks who would bundle them.
14:40Now, this meant, banks no longer cared if borrowers could actually repay.
14:43That was someone else's problem.
14:45So, lending standards collapsed.
14:47They basically created ninja loans.
14:49No income, no job, no assets.
14:52Yes, that's real.
14:53Banks were giving huge loans to people with no ability to repay,
14:57then immediately selling those loans to be bundled into safe investments.
15:02Now, why would anybody buy these toxic bundles?
15:05Because the rating agencies, that's your Standard & Poor's, Moody's, Fitch,
15:09kept rating them AAA.
15:11These agencies were paid by the same banks selling the securities.
15:15The conflict of interest was obvious,
15:17but everyone was making too much money to care.
15:20House prices kept rising.
15:21So, even bad loans seemed safe.
15:23If someone defaulted, the bank could seize the house and sell it for profit.
15:27It was a machine that printed money until house prices fell.
15:32We all know the story from here.
15:35Suddenly, millions of loans went bad simultaneously.
15:38Those AAA-rated securities became worthless.
15:41Banks that had bought them faced massive losses.
15:45Lemon Brothers, a 158-year-old institution, collapsed in a single weekend.
15:50This was further amplified by a collective unrealistic optimism and a widespread,
15:56almost blind belief in efficient markets that blinded many to the emerging bubble.
16:01But here's what made it a global catastrophe.
16:04See, banks don't exist in isolation.
16:06They also lend to each other, invest in each other, depend on each other for daily operations.
16:11It's an interconnected web of trust.
16:13So, when Lehman fell, banks that had lent to Lehman also lost money.
16:17Banks that were expecting payments from those banks panicked.
16:21Credits market froze.
16:22Banks stopped trusting each other, stopped lending to each other.
16:26And, remember what I said earlier, all new money comes from lending.
16:30The money creation machine, ground to a halt.
16:33Businesses couldn't get loans to make payroll.
16:36Projects were abandoned.
16:37Jobs vanished.
16:39The shockwaves reached everywhere.
16:41Even to Indian banks that had no direct exposure to American mortgages.
16:45Because in our interconnected world, no bank fails a loan.
16:51This also brings me to my aunt's local bank.
16:54You see, her small cooperative bank hadn't invested in American mortgages.
16:57They had done something much simpler and more common.
17:00They had lent too much to local real estate developers.
17:03And when the real estate market slowed, those developers couldn't repay their loans.
17:08The bank had created crores in new money by making these loans.
17:11But that money wasn't coming back.
17:13Word spread.
17:14Depositors got nervous.
17:16And then came the death spiral.
17:18Every bank fears.
17:19A bank run.
17:20The 2023 Silicon Valley Bank crisis also, in fact, was a classic information run
17:25where news of asset losses triggered a rapid, digitally-fueled withdrawal of unprotected deposits,
17:31demonstrating how quickly trust can evaporate and spread.
17:35Remember, banks only keep 10% in reserves.
17:39They can handle normal withdrawals.
17:40Some people taking out money while others deposit.
17:43But when everyone wants their money at once because of some crisis,
17:46that's when there's trouble.
17:48The math is brutal.
17:49Even if 11% of depositors demand their money simultaneously, the bank cannot comply.
17:55Not because they're badly managed, because that's just how the system works.
17:59So after understanding all of this, how money is created and destroyed,
18:03here are three things all of you must remember.
18:06First is, your money is always someone else's debt.
18:09Every rupee in your account exists because someone, somewhere owes it.
18:13Your savings are actually someone else's loan.
18:15If they can't repay, your money simply ceases to exist.
18:19Second, the system is inherently very fragile.
18:23It's not designed to be stable.
18:24It's designed to expand, to create more money, more credit, more growth.
18:29But expansion always leads to excess.
18:32Excess always leads to bubbles.
18:34And bubbles, like I said, always burst.
18:36Thirdly, and lastly, that same mechanism that has destroyed many people's savings
18:41has also funded many startups, many home purchases, and many business expansion.
18:46This is the beautiful, terrifying paradox of our modern financial system.
18:52We live in a system of extraordinary power and extraordinary danger.
18:57The question is, how do we protect ourselves while still participating in the growth it enables?
19:02I think the very fundamental starting point is knowledge arbitrage.
19:07See, most people don't even understand how money works.
19:09This creates opportunity.
19:12The more you understand the system, the better you can navigate it.
19:15For example, remember Werner's distinction that we spoke of, productive and unproductive debt?
19:21Use that knowledge.
19:22Debt that generates income or appreciates in value can actually make you wealthy.
19:26But debt for consumption or depreciating assets makes bank wealthy at your expense.
19:32For example, a home loan for a property you rent out?
19:35Productive.
19:36The rent pays the EMI and you keep the asset.
19:39But an iPhone on EMI?
19:40That's unproductive.
19:42See, understanding these nuances about our financial system and how productive debt can be an insane tool
19:48can actually help you punch above your weight.
19:50Understanding of debt along with risk has honestly really helped me build the ecosystem we have here.
19:55So, another thing that I wanted to share, something that a lot of individuals inherently never think about
20:00is their relationship with money.
20:02How to save, how to spend, how to invest.
20:05Actually, a lot of Gen Z I see today don't even know why they spend the money,
20:09what they spend on, why they're buying the things they want.
20:12I read this quote recently that really stuck by me.
20:14It basically says, savings equals income minus ego.
20:18One of the most powerful ways to increase your savings isn't just by raising your income,
20:23but by raising your humility and avoiding spending money to show that you have money.
20:29Which is where a lot of the younger generation ends up spending money,
20:32buying things to curb their mimetic desires or indulging in status signaling.
20:37Honestly, there's a lot more to this, but that's for another video.
20:40Lastly, you need to make sure wherever, whichever bank you're storing your money,
20:46A, it's safe and B, your bank should also be increasing the value of your savings and money over time.
20:52The slice savings account is designed for anyone seeking simple and transparent banking
20:56with a lot of perks and no terms and conditions.
20:59So, click on the link in the description to check them out.
21:02Honestly, if there's one thing that you want to take away from today's video,
21:05is above all, you must educate yourself.
21:09Understand the forces that shape your finances.
21:12The question is not whether the system is perfect because it's not.
21:15The question is whether you understand it well enough to navigate it successfully.
21:20The illusion of money is real, the dangers are real,
21:23but so are the opportunities for those who see clearly.
21:26In a world built on collective fiction,
21:29understanding reality is the ultimate advantage.
21:32That is all for today's video.
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