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"Bankers talk about “governance”, ways to ensure private banks and central bankers make sound decisions—so they create just enough money make commerce easier, b

"Bankers talk about “governance”, ways to ensure private banks and central bankers make sound decisions—so they create just enough money make commerce easier, but not so much that the system collapses through inflation or panics." Many people don't know that central bankers literally, not figuratively, mean CREATE money out of nothing.

betterunix2 9y ago
Someone has always been able to "create money out of nothing." At some point there was no money; some time later there was. Someone or some group of people had to create the first money. People have actually "initialized" money many times throughout history e.g. when starting a country. As long as you can separate "money" from its representation, there is nothing particularly problematic about some people being able to create money, at least some of the time. In fact it is necessary to provide money with liquidity as the economy grows and money is needed for more and more things (liquidity problems have triggered or worsened economic crises several times in history, especially when countries were trying to base their money on weights of metals).
- aorloff 9y ago
  Actually, only since August 15, 1971 here in the USA. Not "always."
  - jcranmer 9y ago
    Actually, since 1777. For as long as the government is able to print paper currency instead of using metal coinage, it is able to make up as much money as it wants. Since not everyone is going to demand conversion to bullion, it generally doesn't matter--this is the principle behind fractional-reserve banking as well. If the government is caught out on printing too much money, then either the paper currency is accepted at less than face value (as happened to the original Continental Currency), or the government decides to suspend conversion (as most recently happened in 1971, but also in 1933).
  - alexasmyths 9y ago
    No. Before 1971 dollars were backed by Gold, now they are backed by US Tbills (and some real-estate since 2008). It's not that different. Gold and US TBills are both valuable assets.
    - wallace_f 9y ago
      No, he is right. What the OP meant by creating money out of nothing was fiat currency, which we do have now. If you decide to use a commodity also as money, that's fundamentally different, and econ textbooks can confirm this for you. T-Bills are backed by fiat currency, not by a commodity. The Fed, and also the banks through fractional reserve banking, genuinely do create "money out of nothing." Check out A Monetary History of the US by Milton Friedman and Anna Schwarz. Here you will find a Nobel Prize winning econonist who wanted to dramatically reign in, or even end, the Fed and get rid of fractional reserve banking.
      - alexasmyths 9y ago
        "T-Bills are backed by fiat currency, not by a commodity." What? No. TBills just bonds. They are 'backed' by the US Governments credibility to pay back the loan. USD is generally backed by an asset - fractional reserving not withstanding.
        wallace_f 9y ago
        Think about it again. You said T-Bills back currency today like gold used to, but that's not true. T-Bills are just notes to pay back more dollars. So it is dollars backed by dollars if you really are honest about your statement that USD is backed by an asset.
  - betterunix2 9y ago
    Sounds like you are referring to the gold standard. A few things: 1. The dollar itself was created two centuries before the US left the gold standard. "Created" being the operative word. Created by Congress because America needed its own national currency. 2. Anyone who dug some gold up in their backyard was creating money when we were on the gold standard. 3. In 1862 paper money became legal tender in the USA without any guaranteed convertibility to any metal; that remained the situation until 1879. I.e. the government simply created money. 4. On January 31, 1934, the US dollar was devalued from $20.67 per gold ounce to $34. In other words money was created by an act of Congress. Or to sum all that up for you: at a minimum Congress has always had the power to create money. All the metallic standards ever conceived of have been arbitrarily decided and governments have always had the ability to change the standard at will to create more money.
- tbabb 9y ago
  Not to mention that the value of a currency, like everything else, is driven by supply and demand; so in the face of fluctuating demand, adjusting the supply is necessary to ensure the currency measures a consistent amount of wealth, and doesn't inflate/crash.
- neilwilson 9y ago
  Everybody creates money out of nothing all the time. That's what business credit is for example. We just swap promises around.
alexasmyths 9y ago
"mean CREATE money out of nothing." No, this is not true. Central banks do 'create' money, but they trade it on the market for real assets. The Fed creates dollars and exchanges them for an equal amount of US Tbills (bought at market rates). $1 created = $1 in Tbills on their balance sheet. They're not just creating money and keeping it, or giving it away. The practice of 'fractional lending' by retail/commercial banks amplifies this, but as far as central banks go - every dollar they 'create' is essentially backed by an asset that they keep on the books for that dollar. The idea is to manage how much currency is in circulation at any given time, so that inflation (and employment) hover at certain target. If politicians were 'printing money' to pay national debts, or buy stuff or whatever - that would be straight forward dilution. What the Fed does is not dilution, and it's not a bad thing, it's a good thing. Same for ECB.
- neilwilson 9y ago
  There is as much money in circulation as is required to clear the promises between people that are worth doing. At the summit of the tree the assets are just 'other assets'. An accounting fiction. The state can purchase whatever is for sale in the token it controls. And it can make sure there are things available for sale by imposing a liability on you in that token you cannot avoid. The value then depends upon how much stuff the state extracts for the public purpose in return for its token. And the belief in the coercive power that gives that process weight.
- mrb 9y ago
  «The Fed creates dollars» Exactly what the parent said. The fact it is used to buy TBills is irrelevant: the Fed creates money out of thin air. Period.
  - nikcub 9y ago
    Replace TBills with gold - is it still being created out of thin air? The point is it’s backed by an asset
    - dmichulke 9y ago
woogiewonka 9y ago
I don't know about nothing.. I think paper and ink were used.
Kiro 9y ago
So can I. I just give you a piece of paper that says I owe you $1000, which you can use to buy things. $1000 was created out of nothing.

betterunix2 9y ago

Someone has always been able to "create money out of nothing." At some point there was no money; some time later there was. Someone or some group of people had to create the first money. People have actually "initialized" money many times throughout history e.g. when starting a country. As long as you can separate "money" from its representation, there is nothing particularly problematic about some people being able to create money, at least some of the time. In fact it is necessary to provide money with liquidity as the economy grows and money is needed for more and more things (liquidity problems have triggered or worsened economic crises several times in history, especially when countries were trying to base their money on weights of metals).

aorloff 9y ago
Actually, only since August 15, 1971 here in the USA. Not "always."
- jcranmer 9y ago
  Actually, since 1777. For as long as the government is able to print paper currency instead of using metal coinage, it is able to make up as much money as it wants. Since not everyone is going to demand conversion to bullion, it generally doesn't matter--this is the principle behind fractional-reserve banking as well. If the government is caught out on printing too much money, then either the paper currency is accepted at less than face value (as happened to the original Continental Currency), or the government decides to suspend conversion (as most recently happened in 1971, but also in 1933).
- alexasmyths 9y ago
  No. Before 1971 dollars were backed by Gold, now they are backed by US Tbills (and some real-estate since 2008). It's not that different. Gold and US TBills are both valuable assets.
  - wallace_f 9y ago
    No, he is right. What the OP meant by creating money out of nothing was fiat currency, which we do have now. If you decide to use a commodity also as money, that's fundamentally different, and econ textbooks can confirm this for you. T-Bills are backed by fiat currency, not by a commodity. The Fed, and also the banks through fractional reserve banking, genuinely do create "money out of nothing." Check out A Monetary History of the US by Milton Friedman and Anna Schwarz. Here you will find a Nobel Prize winning econonist who wanted to dramatically reign in, or even end, the Fed and get rid of fractional reserve banking.
    - alexasmyths 9y ago
      "T-Bills are backed by fiat currency, not by a commodity." What? No. TBills just bonds. They are 'backed' by the US Governments credibility to pay back the loan. USD is generally backed by an asset - fractional reserving not withstanding.
      - wallace_f 9y ago
        Think about it again. You said T-Bills back currency today like gold used to, but that's not true. T-Bills are just notes to pay back more dollars. So it is dollars backed by dollars if you really are honest about your statement that USD is backed by an asset.
- betterunix2 9y ago
  Sounds like you are referring to the gold standard. A few things: 1. The dollar itself was created two centuries before the US left the gold standard. "Created" being the operative word. Created by Congress because America needed its own national currency. 2. Anyone who dug some gold up in their backyard was creating money when we were on the gold standard. 3. In 1862 paper money became legal tender in the USA without any guaranteed convertibility to any metal; that remained the situation until 1879. I.e. the government simply created money. 4. On January 31, 1934, the US dollar was devalued from $20.67 per gold ounce to $34. In other words money was created by an act of Congress. Or to sum all that up for you: at a minimum Congress has always had the power to create money. All the metallic standards ever conceived of have been arbitrarily decided and governments have always had the ability to change the standard at will to create more money.
tbabb 9y ago
Not to mention that the value of a currency, like everything else, is driven by supply and demand; so in the face of fluctuating demand, adjusting the supply is necessary to ensure the currency measures a consistent amount of wealth, and doesn't inflate/crash.
neilwilson 9y ago
Everybody creates money out of nothing all the time. That's what business credit is for example. We just swap promises around.

alexasmyths 9y ago

"mean CREATE money out of nothing." No, this is not true. Central banks do 'create' money, but they trade it on the market for real assets. The Fed creates dollars and exchanges them for an equal amount of US Tbills (bought at market rates). $1 created = $1 in Tbills on their balance sheet. They're not just creating money and keeping it, or giving it away. The practice of 'fractional lending' by retail/commercial banks amplifies this, but as far as central banks go - every dollar they 'create' is essentially backed by an asset that they keep on the books for that dollar. The idea is to manage how much currency is in circulation at any given time, so that inflation (and employment) hover at certain target. If politicians were 'printing money' to pay national debts, or buy stuff or whatever - that would be straight forward dilution. What the Fed does is not dilution, and it's not a bad thing, it's a good thing. Same for ECB.

neilwilson 9y ago
There is as much money in circulation as is required to clear the promises between people that are worth doing. At the summit of the tree the assets are just 'other assets'. An accounting fiction. The state can purchase whatever is for sale in the token it controls. And it can make sure there are things available for sale by imposing a liability on you in that token you cannot avoid. The value then depends upon how much stuff the state extracts for the public purpose in return for its token. And the belief in the coercive power that gives that process weight.
mrb 9y ago
«The Fed creates dollars» Exactly what the parent said. The fact it is used to buy TBills is irrelevant: the Fed creates money out of thin air. Period.
- nikcub 9y ago
  Replace TBills with gold - is it still being created out of thin air? The point is it’s backed by an asset
  - dmichulke 9y ago

woogiewonka 9y ago

I don't know about nothing.. I think paper and ink were used.

Kiro 9y ago

So can I. I just give you a piece of paper that says I owe you $1000, which you can use to buy things. $1000 was created out of nothing.