4 ms·

> let's not forget that you "create" money when you use your credit card and "destroy" it when you pay your bill Can you elaborate on that? My understanding i

by hashkb 9y ago

> let's not forget that you "create" money when you use your credit card and "destroy" it when you pay your bill Can you elaborate on that? My understanding is: when you swipe your credit card, Visa loans you money and pays it to the merchant. When you pay your bill, Visa gets money from your bank. How is that creation or destruction of money? Seems like value is conserved to me.

ithkuil 9y ago
I believe the parent poster was mentioning the modern ability of commercial banks to actually create money through loans. There are many places to read about it, I quickly found http://positivemoney.org/how-money-works/advanced/how-commercial-banks-create-money/ http://positivemoney.org/how-money-works/advanced/how-commer... but there might be better sources
- hashkb 9y ago
  That article seems like an oversimplification. Isn't the bank is still on the hook for its liabilities? It might be playing a dangerous game, but it's betting against a bank run (which are rare) and on itself having enough liquid cash on hand to handle withdrawals during reasonable circumstances. We all know banks invest our cash (in loans and tons of other vehicles) in order to earn their profits (and our interest.)
shitgoose 9y ago
"Visa loans you money" edit: Visa doesn't loan the money, participating bank does. and when bank loans the money, most likely it is money that bank doesn't have, i.e. created money.
creepydata 9y ago
https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
gumby 9y ago
It's the second of June and you have $100 in your pocket. Case 1: You hand me $100, I hand you a widget. I put that $100 in the bank, and over the course of the month go to the ATM five times, take out $20 bucks each time, and spend it. The money supply in Palo Alto is the same all June long. Case 2: You use your credit card to give me $100; I hand you a widget. You still have $100 in your pocket while I have $100 in my bank account I can go spend. For the month of June the money supply is $100 larger. At the end of the month you pay off your bill and the money supply shrinks back to its prior level. Macroeconomists and central banks use various definitions of "the amount of money" (with names like M0, M1 etc) to measure different things, just as there are different measures of unemployment, inflation etc, all designed to adjust / smooth / emphasize different phenomena. Like different filters in a circuit: https://en.wikipedia.org/wiki/Money_supply https://en.wikipedia.org/wiki/Money_supply This is why I am always infuriated by politicians who use microeconomic analogies when discussing macroeconomic things like government debt and trade policy. I just assume they aren't as ignorant as they sound, which may be foolishness on my part.

by hashkb 9y ago

ithkuil 9y ago

I believe the parent poster was mentioning the modern ability of commercial banks to actually create money through loans. There are many places to read about it, I quickly found http://positivemoney.org/how-money-works/advanced/how-commercial-banks-create-money/ http://positivemoney.org/how-money-works/advanced/how-commer... but there might be better sources

hashkb 9y ago
That article seems like an oversimplification. Isn't the bank is still on the hook for its liabilities? It might be playing a dangerous game, but it's betting against a bank run (which are rare) and on itself having enough liquid cash on hand to handle withdrawals during reasonable circumstances. We all know banks invest our cash (in loans and tons of other vehicles) in order to earn their profits (and our interest.)

shitgoose 9y ago

"Visa loans you money" edit: Visa doesn't loan the money, participating bank does. and when bank loans the money, most likely it is money that bank doesn't have, i.e. created money.

creepydata 9y ago

https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking

gumby 9y ago

It's the second of June and you have $100 in your pocket. Case 1: You hand me $100, I hand you a widget. I put that $100 in the bank, and over the course of the month go to the ATM five times, take out $20 bucks each time, and spend it. The money supply in Palo Alto is the same all June long. Case 2: You use your credit card to give me $100; I hand you a widget. You still have $100 in your pocket while I have $100 in my bank account I can go spend. For the month of June the money supply is $100 larger. At the end of the month you pay off your bill and the money supply shrinks back to its prior level. Macroeconomists and central banks use various definitions of "the amount of money" (with names like M0, M1 etc) to measure different things, just as there are different measures of unemployment, inflation etc, all designed to adjust / smooth / emphasize different phenomena. Like different filters in a circuit: https://en.wikipedia.org/wiki/Money_supply https://en.wikipedia.org/wiki/Money_supply This is why I am always infuriated by politicians who use microeconomic analogies when discussing macroeconomic things like government debt and trade policy. I just assume they aren't as ignorant as they sound, which may be foolishness on my part.