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> The Federal Reserve literally creates money out of nothing I hear this often, but while it's a literal fact, maybe it's not that simple. Central banks create
by return0 9y ago
> The Federal Reserve literally creates money out of nothing
I hear this often, but while it's a literal fact, maybe it's not that simple. Central banks create money out of the Trust that people put on them, and the trust has been built by the state for years or centuries.
- rtpg 9y agoThe main problem I see in these discussions is that you can either conceptualize currency as a Thing (and therefore creating it out of nothing is "weird"), or as an Illusion/Social Contract (and therefore you're now beholden to the will of society). Though the Thing conceptualization doesn't hold up too much when you realize that the practical value of BTC beyond the social value is zero. they're just numbers!
- irln 9y agoThe key is the trust that this special power that the Federal Reserve and Banks in general have to create the medium of exchange. If that power is used in such a way that all participants are not treated fairly, the system is ultimately unsustainable.
- vkreso 9y agoRegarding trust, have you heard of the Rai stones [0] from the island of Yap in Micronesia? From the wiki article: The extrinsic (perceived) value of a specific stone is based not only on its size and craftsmanship, but also on its history. If many people—or no one at all—died when the specific stone was transported, or a famous sailor brought it in, the value of the rai stone increases by reason of its anecdotal heft. [0] https://en.wikipedia.org/wiki/Rai_stones https://en.wikipedia.org/wiki/Rai_stones
- hidenotslide 9y agoThe primary mechanism that "creates" money is ordinary banks loaning money in the fractional reserve system. The Federal Reserve does not have as much control as people think.
- RobertoG 9y agoYou are right. Central banks can only influence the process, but what really decide the creation or "extinction" of money is the demand of credit in commercial private banks. In a way, the system is self-regulated. In fact, all the "fractional-reserve" thing is a myth. Banks loan when they see the opportunity of profit, and then they search for reserves. Not the other way around.
- ThomPete 9y agoIts not that simple but in this context it is. Quantitative easing is basically borrowing from the future.
- RobertoG 9y agoBorrowing what? Do we have time machines now? There is money and there is real resources. Money is just a real resources distribution technology. What is important is the real resources of a society. We (as a country, whatever is your country, if it has its own money) will never be short of money. It can, however, get short of real resource if it leave infrastructure and knowledge diminish.
- ThomPete 9y agoThe available capital far outstrips realizable capital. In other words money isn't a direct product of productivity but rather of trust in the ability to be able to realize the capital. There aren't enough things to buy from the available capital we are literally betting on not everyone realizing their capital at once if that was the case we would be failing completely. So borrowing from the future is the best way to think about it we are betting on the ability to keep the system of realized capital much much lower than available. Money is not a thing it's a concept of trust. All that would happen is prices would go up dramatically basically repeating germany in the 30's if not worse.