19 ms·

Money Creation in the Modern Economy (2014) [pdf]

89 points by rfreytag 11y ago

sedeki 11y ago
How does this differ from the explanation given in the Zeitgeist movie?
- jsprogrammer 11y ago
  What explanation does the Zeitgeist movie give? Bank loans create money. Principal payments destroy money.
  - branchless 11y ago
    and the interest comes from where then? By creating more than we destroy, continuously. So long as there isn't a big change in demographics coming like say the boomers which was hardly a surprise...
- digi_owl 11y ago
  https://www.youtube.com/watch?v=t5ayg3hbhoM https://www.youtube.com/watch?v=t5ayg3hbhoM this?
- aklein 11y ago
  The movie suggests that the central government directly manufactures an initial amount of money to be put into circulation by issuing debt that is bought by the central bank. The proceeds are deposited at commercial banks, who then lend money out to the maximum extent allowed under fractional bank lending requirements. This paper argues that in reality, the relationship is exactly the reverse: most money (=debt) creation starts as loans between private commercial banks. Loans become deposits in other bank accounts. If a bank finds itself short on a reserve requirement, it can just borrow reserves from other banks to meet its reserves, or from the central bank. In sum, at least in the United States and England, most money creation stems from loans within the private sector, as opposed to what the movie and textbooks typically suggest. This is explained in the paper: " For the [money multiplier] theory to hold, the amount of reserves must be a binding constraint on lending, and the central bank must directly determine the amount of reserves. While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality. Rather than controlling the quantity of reserves, central banks today typically implement monetary policy by setting the price of reserves — that is, interest rates. In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available. As with the relationship between deposits and loans, the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks. Banks first decide how much to lend depending on the profitable lending opportunities available to them — which will, crucially, depend on the interest rate set by the Bank of England. It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England. The rest of this article discusses these practices in more detail."
  - sedeki 11y ago
    Thank you!
  - branchless 11y ago
    and most of that lending (money creation) is against land, not businesses. UK: http://bsd.wpengine.com/wp-content/uploads/2013/05/Sectoral-Lending.png http://bsd.wpengine.com/wp-content/uploads/2013/05/Sectoral-...
  - alanwatts 11y ago
    >In sum, at least in the United States and England, most money creation stems from loans within the private sector, as opposed to what the movie and textbooks typically suggest. I'm having trouble finding it at the moment but I remember reading a while back on the Federal Reserve's FAQ section about this. They were actually quite explicit about this, stating that if one of the big banks went under they would bail it out by printing what they needed, like they did in 2008. It is a bizarre design
drostie 11y ago
So if you've never taken an economics class, here's the basic craziness that crucially underpins our modern economy: There is a central bank sitting in the middle of most modern economies, and it is a bank-for-banks: they either borrow from it or deposit into it. It sets an all-important interest rate: this rate is the rate-of-return that those other banks will compare possible loans to, when saying 'is it worth it to loan to this person, or should I just put my money in the central bank?' -- if you lower this rate, then presumably banks make more loans, stimulating the economy; if you raise this rate, then presumably banks make fewer, stifling the economy. The hope is not that different from storing up food in years of plenty in order to weather years of famine; during a recession you lower the interest rate, but afterwards in the upswing you raise it again. When you deposit money in a bank, it is not required to hold onto all of it and keep it safe. Instead it usually takes a chunk of that money and promises it as a loan to someone else, who will hopefully in the end pay them more in interest than they're paying you, enough more that the difference is better than just shoving the money in the central bank. When it makes this loan, that comes in the form of saying "I still owe you $x, and now I also owe this other person $y." So the true money stored by the bank is still only $x, but the money now in circulation in the economy -- in the sense that there's the illusion of people having it, which is the only sense that money exists anyway -- is $x + $y. If that other person needs to immediately cash out a quantity of dollar bills, then $y < $x, so the bank can comfortably do that. If you both try to cash out at the same time, there is an obvious problem (the bank has failed!), but remember that this is a sort of insurance scheme of "divide that risk among lots of people and trust that their decisions follow a binomial distribution" -- in reality there is some proportion p of a lot of individuals who collectively need to withdraw in order for the bank to fail. Furthermore when this happens the federal government may declare the bank "too big to fail" and funnel tax money into it, to keep it going. This PDF is arguing that the above explanation is precise in ways that many economics textbooks are loose; notice that the extra value has nothing, for example, to do with your putting the money into the bank. Why? Because suppose you spent that on a new car: your car dealership that you're buying from has an account with this bank (or some other bank; the economy collectively includes all of them after all) and they take this amount of money and put it in the bank! So that $x is getting deposited somewhere, assuming that you do not take it out of circulation yourself (in which case, it doesn't help mediate your purchasing of goods and services, so is it really money?). Modern textbooks omit this and refer instead to the banks as a "money multiplier" where "there is $100 deposited at first, the bank saves 20% of its deposits, it loans out $80 which gets immediately spent hence re-deposited in some similar bank, so that bank saves $16 and loans out $64 which similarly gets re-deposited, saving $13 and loaning out $51, at this point the economy has nominally $100 + $80 + $64 + $51 = $295, so we've multiplied the amount of money deposited into the economy by a factor of ~3x, and if you continue the progression out to infinity you find that this multiplier approaches 1/(20%) = 1/0.2 = 5." The problem with this thinking is that there's nobody in the economy who comes into this system at that crucial step 0 -- you got your money from the bank account of your employer or from a loan from some other bank. So, from your perspective, there's kind of nothing to multiply. If that makes you feel breathlessly like everything is an illusion resting on an insane Ponzi scheme, that's mostly correct and you should feel all of that. You can spend hours thinking about "what is money, I mean really?" and if you're a founder-mentality you might even spend years on this wondering if there's an opportunity for disruption at an epic scale somewhere therein. Probably the best way to understand money is still the engineer's, "I do something that someone finds useful, so they give me points in this augmented-reality game where the rules force them to give those points out of their own personal stash. As long as we collectively agree that useful things are happening, those points have some form of meaning as a way to symbolically trade hypothetical goods and services. When we lose this collective confidence then the points will no longer matter to us."
cs702 11y ago
IMHO, the easiest way for an engineer to understand "money" is as a network of debits and credits. Forget theory, ideology, and politics for a moment. Let's focus on the mechanics of how things work. When a bank lends money to a company, the bank and the company book corresponding accounting entries and money is created "out of thin air." (The bank is required to hold a minimum reserve balance, which they can borrow as needed from others in the financial system, or from a central bank). When a central bank (like the Federal Reserve or the Bank of England) lends money to a bank, the central bank and the bank book corresponding accounting entries and money is created "out of thin air." Central banks literally click a button and create accounting entries. When you borrow money from a bank, the bank books the corresponding accounting entries, and you probably won't record anything on an accounting program -- but your bank will keep track of all balances, to the cent. When a borrower cannot pay back a loan from a bank, the bank writes off the loan balance, and reduces the borrower's liability by an equal amount. The balance you have on your bank account is a liability on your bank's accounting books. The balance on your credit card is an asset on your credit card company's accounting books. When you buy something and pay with a check or a debit card, the financial system records all the necessary accounting transactions to update everyone's debit and credit balances. The dollar bills you hold in your wallet are nothing less than 'certificates' indicating that the US government has a liability of the amount shown on those dollar bills, payable to the holder of those dollar bills. In our modern economic system, the easiest way to understand money is as a global, mostly electronic network of accounting debits and credits, with balances varying as people conduct transactions. For every debit there is an equal credit, and vice versa, so globally, total debit balances are always equal to total credit balances, and total debit transactions are always equal to total credit transactions. Double-entry bookkeeping all the way down. It is really quite something to behold.
- Retric 11y ago
  Many things that are not money get treated as money. The Fed has a database that lists each bank and the actual money they have, that plus physical cash makes up the actual money supply. On top of that we have a huge range of money like debts and credits, but that's why they talk about M1 vs M2 vs M3 etc. Remember, if you deposit a 100$ bill the bank now has 100$ and marks you down with an IOU. That does not mean there is suddenly an extra 100$, you have an IOU and the bank has 100$.
RobertoG 11y ago
This is part of what Modern Monetary Theory has been explaining but it's always hidden in the public discourse. The consequences of what money is in modern economies, are not well understood or accepted. I suspect that the possibilities that this open scare a lot of powerful people. If somebody want to dig further in the rabbit hole, I recommend: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf (this one is a pdf) http://neweconomicperspectives.org/modern-monetary-theory-primer.html http://neweconomicperspectives.org/modern-monetary-theory-pr...
- flurben 11y ago
  MMT is simultaneously a) a "heterodox" theory that mainstream economists don't consider entirely legitimate, and b) precisely how central banks in the US and UK describe their own routine monetary operations. I still struggle to understand how and why these statements can both be true.
  - RobertoG 11y ago
    Yes. I also find that funny. And MMT has another interesting property: when you take the time to learn a little, it makes a lot of sense. They have been always saying how money is really created, now the Bank of England confirm it, but we should keep believing the text books from the gold standard era I suppose.
    - bubbleRefuge 11y ago
      Its because unfortunately politicians and the financial press cannot touch it. Its too easy for the public to draw comparisons between household budget constraints and currency issuer budget constraints (which need not exist). FUD sells.
- bubbleRefuge 11y ago
  Warren Mosler once told a story about how he's presented MMT to politicians ( Joe Lieberman was one) who agreed with him, but felt MMT realities are to politically sensitive to do anything about now.
solotronics 11y ago
Do you find yourself disenchanted with the current system of Central banks and government backed Fiat currency? Do you ever ask what will happen as we create money at an unprecedented velocity with unknown consequences? Research bitcoin. Bitcoin is to money as bittorrent is to downloading files. It is a decentralized trustless system built on cryptology and it is absolutely beautiful.
- Mikeb85 11y ago
  Except for the fact it has a tendency to concentrate wealth by design, the exact opposite of what you want in fiat currency.
  - Natanael_L 11y ago
    And inflation doesn't, when new money primarily goes to the few closest to the mint? With deflation, you have to work harder to expand your share of the economy. Just holding doesn't contribute to the economy and thus means an already large held share is less likely to grow in value relative to the desired goods.
    - Mikeb85 11y ago
      > With deflation, you have to work harder to expand your share of the economy. Just holding doesn't contribute to the economy and thus means an already large held share is less likely to grow in value relative to the desired goods. Deflation literally increases the value of already-held cash (when prices go down, cash becomes more valuable). Deflation literally encourages hoarding, this is probably the one single tenet of economics that no one disputes. > And inflation doesn't, when new money primarily goes to the few closest to the mint? Inflation decreases the value of cash, so it encourages spending. New money is issued when the central bank buys securities on the open market - usually from the government, sometimes from banks and businesses. Theoretically they can lend to whomever, but because of arbitrage (if the centra bank offers debt at 0.25%, interbank lending rate will fall/rise to that level, because if banks offered worse rates, lenders/borrowers would just go to the central bank) it winds up not mattering who they lend to. They don't just wheel piles of cash to the nearest bank for them to hoard and pay CEOs with... Anyhow, wiki article: https://en.wikipedia.org/wiki/Central_bank#Currency_issuance https://en.wikipedia.org/wiki/Central_bank#Currency_issuance And there's plenty of other material online.
gedy 11y ago
This reminds me of one problem I have with people and politicians when discussing hot-button "income inequality" topics: Many people act as if the world is still on the gold-standard, and if this person has more, they took it from those who have less, etc in a zero-sum game. The real problem is not that simple though, and money being created and diluted in a way that makes simplistic solutions like "capping CEO pay" and setting living wages do not target the people and systems outside this who are the real problem.
- toomuchtodo 11y ago
  Instead of capping CEO pay, how would you feel about indexing work week hours to productivity? For example, we should be around 15-20 hours/week with the productivity gains seen over the last 40 years, yet everyone still works 40+ hours a week (with excess being absorbed by corporations and shareholders). If productivity goes up, ratchet hours per week worked down.
  - dnautics 11y ago
    I think what gedy means is "not using monetary policy to transfer wealth from the poor to the rich"
    - toomuchtodo 11y ago
      Thanks for clarifying that!
  - RobertoG 11y ago
    or if that is impractical, the possibility to retire sooner, or more holiday days. I mean, if productivity goes up, waves keep the same, and people have to work more, where goes the difference?
    - toomuchtodo 11y ago
      > where goes the difference? Corporations and shareholders. That's what needs to be fixed.
green_spun 11y ago
Ray Dalio's "How the Economic Machine Works in 30 Minutes" https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0 is a worthy 30 minute investment...
deleted 11y ago
[deleted]
Sealy 11y ago
Right here is a pdf on why you should consider owning an asset such as Bitcoin. I'm not saying everyone should go all in, just consider owning it as part of your investment portfolio...
smaddox 11y ago
For those interested in this topic, I highly recommend: 1) Steve Keen's blog - http://debtdeflation.com/blogs/ http://debtdeflation.com/blogs/ 2) Debt: the first 5000 years - https://en.m.wikipedia.org/wiki/Debt:_The_First_5000_Years https://en.m.wikipedia.org/wiki/Debt:_The_First_5000_Years
zaro 11y ago
Ok, so even Bank of England confirms the current money system is a big Ponzi scheme type of scam. But since everyone is in the scheme the topic of "why do we keep tolerating this?" never comes up.
- agumonkey 11y ago
  A closed ponzi-scheme looks like a fair description of an economy.

89 points by rfreytag 11y ago

sedeki 11y ago

How does this differ from the explanation given in the Zeitgeist movie?

jsprogrammer 11y ago
What explanation does the Zeitgeist movie give? Bank loans create money. Principal payments destroy money.
- branchless 11y ago
  and the interest comes from where then? By creating more than we destroy, continuously. So long as there isn't a big change in demographics coming like say the boomers which was hardly a surprise...
digi_owl 11y ago
https://www.youtube.com/watch?v=t5ayg3hbhoM https://www.youtube.com/watch?v=t5ayg3hbhoM this?
aklein 11y ago
The movie suggests that the central government directly manufactures an initial amount of money to be put into circulation by issuing debt that is bought by the central bank. The proceeds are deposited at commercial banks, who then lend money out to the maximum extent allowed under fractional bank lending requirements. This paper argues that in reality, the relationship is exactly the reverse: most money (=debt) creation starts as loans between private commercial banks. Loans become deposits in other bank accounts. If a bank finds itself short on a reserve requirement, it can just borrow reserves from other banks to meet its reserves, or from the central bank. In sum, at least in the United States and England, most money creation stems from loans within the private sector, as opposed to what the movie and textbooks typically suggest. This is explained in the paper: " For the [money multiplier] theory to hold, the amount of reserves must be a binding constraint on lending, and the central bank must directly determine the amount of reserves. While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality. Rather than controlling the quantity of reserves, central banks today typically implement monetary policy by setting the price of reserves — that is, interest rates. In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available. As with the relationship between deposits and loans, the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks. Banks first decide how much to lend depending on the profitable lending opportunities available to them — which will, crucially, depend on the interest rate set by the Bank of England. It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England. The rest of this article discusses these practices in more detail."
- sedeki 11y ago
  Thank you!
- branchless 11y ago
  and most of that lending (money creation) is against land, not businesses. UK: http://bsd.wpengine.com/wp-content/uploads/2013/05/Sectoral-Lending.png http://bsd.wpengine.com/wp-content/uploads/2013/05/Sectoral-...
- alanwatts 11y ago
  >In sum, at least in the United States and England, most money creation stems from loans within the private sector, as opposed to what the movie and textbooks typically suggest. I'm having trouble finding it at the moment but I remember reading a while back on the Federal Reserve's FAQ section about this. They were actually quite explicit about this, stating that if one of the big banks went under they would bail it out by printing what they needed, like they did in 2008. It is a bizarre design

drostie 11y ago

So if you've never taken an economics class, here's the basic craziness that crucially underpins our modern economy: There is a central bank sitting in the middle of most modern economies, and it is a bank-for-banks: they either borrow from it or deposit into it. It sets an all-important interest rate: this rate is the rate-of-return that those other banks will compare possible loans to, when saying 'is it worth it to loan to this person, or should I just put my money in the central bank?' -- if you lower this rate, then presumably banks make more loans, stimulating the economy; if you raise this rate, then presumably banks make fewer, stifling the economy. The hope is not that different from storing up food in years of plenty in order to weather years of famine; during a recession you lower the interest rate, but afterwards in the upswing you raise it again. When you deposit money in a bank, it is not required to hold onto all of it and keep it safe. Instead it usually takes a chunk of that money and promises it as a loan to someone else, who will hopefully in the end pay them more in interest than they're paying you, enough more that the difference is better than just shoving the money in the central bank. When it makes this loan, that comes in the form of saying "I still owe you $x, and now I also owe this other person $y." So the true money stored by the bank is still only $x, but the money now in circulation in the economy -- in the sense that there's the illusion of people having it, which is the only sense that money exists anyway -- is $x + $y. If that other person needs to immediately cash out a quantity of dollar bills, then $y < $x, so the bank can comfortably do that. If you both try to cash out at the same time, there is an obvious problem (the bank has failed!), but remember that this is a sort of insurance scheme of "divide that risk among lots of people and trust that their decisions follow a binomial distribution" -- in reality there is some proportion p of a lot of individuals who collectively need to withdraw in order for the bank to fail. Furthermore when this happens the federal government may declare the bank "too big to fail" and funnel tax money into it, to keep it going. This PDF is arguing that the above explanation is precise in ways that many economics textbooks are loose; notice that the extra value has nothing, for example, to do with your putting the money into the bank. Why? Because suppose you spent that on a new car: your car dealership that you're buying from has an account with this bank (or some other bank; the economy collectively includes all of them after all) and they take this amount of money and put it in the bank! So that $x is getting deposited somewhere, assuming that you do not take it out of circulation yourself (in which case, it doesn't help mediate your purchasing of goods and services, so is it really money?). Modern textbooks omit this and refer instead to the banks as a "money multiplier" where "there is $100 deposited at first, the bank saves 20% of its deposits, it loans out $80 which gets immediately spent hence re-deposited in some similar bank, so that bank saves $16 and loans out $64 which similarly gets re-deposited, saving $13 and loaning out $51, at this point the economy has nominally $100 + $80 + $64 + $51 = $295, so we've multiplied the amount of money deposited into the economy by a factor of ~3x, and if you continue the progression out to infinity you find that this multiplier approaches 1/(20%) = 1/0.2 = 5." The problem with this thinking is that there's nobody in the economy who comes into this system at that crucial step 0 -- you got your money from the bank account of your employer or from a loan from some other bank. So, from your perspective, there's kind of nothing to multiply. If that makes you feel breathlessly like everything is an illusion resting on an insane Ponzi scheme, that's mostly correct and you should feel all of that. You can spend hours thinking about "what is money, I mean really?" and if you're a founder-mentality you might even spend years on this wondering if there's an opportunity for disruption at an epic scale somewhere therein. Probably the best way to understand money is still the engineer's, "I do something that someone finds useful, so they give me points in this augmented-reality game where the rules force them to give those points out of their own personal stash. As long as we collectively agree that useful things are happening, those points have some form of meaning as a way to symbolically trade hypothetical goods and services. When we lose this collective confidence then the points will no longer matter to us."

cs702 11y ago

IMHO, the easiest way for an engineer to understand "money" is as a network of debits and credits. Forget theory, ideology, and politics for a moment. Let's focus on the mechanics of how things work. When a bank lends money to a company, the bank and the company book corresponding accounting entries and money is created "out of thin air." (The bank is required to hold a minimum reserve balance, which they can borrow as needed from others in the financial system, or from a central bank). When a central bank (like the Federal Reserve or the Bank of England) lends money to a bank, the central bank and the bank book corresponding accounting entries and money is created "out of thin air." Central banks literally click a button and create accounting entries. When you borrow money from a bank, the bank books the corresponding accounting entries, and you probably won't record anything on an accounting program -- but your bank will keep track of all balances, to the cent. When a borrower cannot pay back a loan from a bank, the bank writes off the loan balance, and reduces the borrower's liability by an equal amount. The balance you have on your bank account is a liability on your bank's accounting books. The balance on your credit card is an asset on your credit card company's accounting books. When you buy something and pay with a check or a debit card, the financial system records all the necessary accounting transactions to update everyone's debit and credit balances. The dollar bills you hold in your wallet are nothing less than 'certificates' indicating that the US government has a liability of the amount shown on those dollar bills, payable to the holder of those dollar bills. In our modern economic system, the easiest way to understand money is as a global, mostly electronic network of accounting debits and credits, with balances varying as people conduct transactions. For every debit there is an equal credit, and vice versa, so globally, total debit balances are always equal to total credit balances, and total debit transactions are always equal to total credit transactions. Double-entry bookkeeping all the way down. It is really quite something to behold.

Retric 11y ago
Many things that are not money get treated as money. The Fed has a database that lists each bank and the actual money they have, that plus physical cash makes up the actual money supply. On top of that we have a huge range of money like debts and credits, but that's why they talk about M1 vs M2 vs M3 etc. Remember, if you deposit a 100$ bill the bank now has 100$ and marks you down with an IOU. That does not mean there is suddenly an extra 100$, you have an IOU and the bank has 100$.

RobertoG 11y ago

This is part of what Modern Monetary Theory has been explaining but it's always hidden in the public discourse. The consequences of what money is in modern economies, are not well understood or accepted. I suspect that the possibilities that this open scare a lot of powerful people. If somebody want to dig further in the rabbit hole, I recommend: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf (this one is a pdf) http://neweconomicperspectives.org/modern-monetary-theory-primer.html http://neweconomicperspectives.org/modern-monetary-theory-pr...

flurben 11y ago
MMT is simultaneously a) a "heterodox" theory that mainstream economists don't consider entirely legitimate, and b) precisely how central banks in the US and UK describe their own routine monetary operations. I still struggle to understand how and why these statements can both be true.
- RobertoG 11y ago
  Yes. I also find that funny. And MMT has another interesting property: when you take the time to learn a little, it makes a lot of sense. They have been always saying how money is really created, now the Bank of England confirm it, but we should keep believing the text books from the gold standard era I suppose.
  - bubbleRefuge 11y ago
    Its because unfortunately politicians and the financial press cannot touch it. Its too easy for the public to draw comparisons between household budget constraints and currency issuer budget constraints (which need not exist). FUD sells.
bubbleRefuge 11y ago
Warren Mosler once told a story about how he's presented MMT to politicians ( Joe Lieberman was one) who agreed with him, but felt MMT realities are to politically sensitive to do anything about now.

solotronics 11y ago

Do you find yourself disenchanted with the current system of Central banks and government backed Fiat currency? Do you ever ask what will happen as we create money at an unprecedented velocity with unknown consequences? Research bitcoin. Bitcoin is to money as bittorrent is to downloading files. It is a decentralized trustless system built on cryptology and it is absolutely beautiful.

Mikeb85 11y ago
Except for the fact it has a tendency to concentrate wealth by design, the exact opposite of what you want in fiat currency.
- Natanael_L 11y ago
  And inflation doesn't, when new money primarily goes to the few closest to the mint? With deflation, you have to work harder to expand your share of the economy. Just holding doesn't contribute to the economy and thus means an already large held share is less likely to grow in value relative to the desired goods.
  - Mikeb85 11y ago
    > With deflation, you have to work harder to expand your share of the economy. Just holding doesn't contribute to the economy and thus means an already large held share is less likely to grow in value relative to the desired goods. Deflation literally increases the value of already-held cash (when prices go down, cash becomes more valuable). Deflation literally encourages hoarding, this is probably the one single tenet of economics that no one disputes. > And inflation doesn't, when new money primarily goes to the few closest to the mint? Inflation decreases the value of cash, so it encourages spending. New money is issued when the central bank buys securities on the open market - usually from the government, sometimes from banks and businesses. Theoretically they can lend to whomever, but because of arbitrage (if the centra bank offers debt at 0.25%, interbank lending rate will fall/rise to that level, because if banks offered worse rates, lenders/borrowers would just go to the central bank) it winds up not mattering who they lend to. They don't just wheel piles of cash to the nearest bank for them to hoard and pay CEOs with... Anyhow, wiki article: https://en.wikipedia.org/wiki/Central_bank#Currency_issuance https://en.wikipedia.org/wiki/Central_bank#Currency_issuance And there's plenty of other material online.

gedy 11y ago

This reminds me of one problem I have with people and politicians when discussing hot-button "income inequality" topics: Many people act as if the world is still on the gold-standard, and if this person has more, they took it from those who have less, etc in a zero-sum game. The real problem is not that simple though, and money being created and diluted in a way that makes simplistic solutions like "capping CEO pay" and setting living wages do not target the people and systems outside this who are the real problem.

toomuchtodo 11y ago
Instead of capping CEO pay, how would you feel about indexing work week hours to productivity? For example, we should be around 15-20 hours/week with the productivity gains seen over the last 40 years, yet everyone still works 40+ hours a week (with excess being absorbed by corporations and shareholders). If productivity goes up, ratchet hours per week worked down.
- dnautics 11y ago
  I think what gedy means is "not using monetary policy to transfer wealth from the poor to the rich"
  - toomuchtodo 11y ago
    Thanks for clarifying that!
- RobertoG 11y ago
  or if that is impractical, the possibility to retire sooner, or more holiday days. I mean, if productivity goes up, waves keep the same, and people have to work more, where goes the difference?
  - toomuchtodo 11y ago
    > where goes the difference? Corporations and shareholders. That's what needs to be fixed.

green_spun 11y ago

Ray Dalio's "How the Economic Machine Works in 30 Minutes" https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0 is a worthy 30 minute investment...

deleted 11y ago

[deleted]

Sealy 11y ago

Right here is a pdf on why you should consider owning an asset such as Bitcoin. I'm not saying everyone should go all in, just consider owning it as part of your investment portfolio...

smaddox 11y ago

For those interested in this topic, I highly recommend: 1) Steve Keen's blog - http://debtdeflation.com/blogs/ http://debtdeflation.com/blogs/ 2) Debt: the first 5000 years - https://en.m.wikipedia.org/wiki/Debt:_The_First_5000_Years https://en.m.wikipedia.org/wiki/Debt:_The_First_5000_Years

zaro 11y ago

Ok, so even Bank of England confirms the current money system is a big Ponzi scheme type of scam. But since everyone is in the scheme the topic of "why do we keep tolerating this?" never comes up.

agumonkey 11y ago
A closed ponzi-scheme looks like a fair description of an economy.