The Money View: The Inherent Instability of Credit

The video tutorial explains the mechanisms behind a housing bubble, focusing on the roles of credit and money expansion. It uses a house buying and selling example to illustrate how mortgages and deposits function as assets and liabilities for banks. The tutorial highlights the importance of the interbank funding market and the wholesale money market in these transactions, especially during financial crises.

What is the primary role of banks in the transaction of buying a house?

• To provide legal advice

• To act as real estate agents

• To facilitate the mortgage and deposit process

• To set the price of the house

How is a mortgage typically funded initially?

• By using personal savings

• By issuing bonds

• By borrowing in the overnight federal funds market

• By selling stocks

What is the purpose of the federal funds market in the context of deposits?

• To increase interest rates

• To invest deposits overnight

• To convert deposits into foreign currency

• To provide insurance for deposits

What was a key factor in the recent financial crisis according to the video?

• The rise in housing prices

• The failure of traditional banks

• The wholesale money market between non-bank entities

• The collapse of the stock market

What is the relationship between the expansion of credit and money?

• Credit expansion leads to money contraction

• Money expansion causes credit to disappear

• They are interconnected and facilitate transactions

• They are unrelated