6 ms·

Bit what if they didn't, and just changed some numbers in their database?

tintor 5y ago
Then you have inflation, and rise of prices.
Aunche 5y ago
If anyone suspects that, then everyone will try to withdraw their money from their account and they'd soon get exposed of fraud.
- orangepurple 5y ago
  Well, it hasn't happened yet and reality is staring at you in the face https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE
waterheater 5y ago
Then you have fraud, likely leading to an economic crisis. Consider the 2007-2008 financial crisis. Abstractly, investors believed that homes had significant value until, one day, society realized the value didn't exist in reality but only "on paper." We know that investment bankers were hiding the problem until the proverbial lid blew. You might consider that our current financial paradigm has never been tried before in human history. For thousands of years, currency was based upon various measures of value which attempted to be as objective as possible. Semi-rare materials (e.g. gold and silver) and difficult-to-replicate coinage were some examples. The US dollar was decoupled from the gold standard under the Nixon administration. The end result is, one dollar now holds value relative to the amount of dollars in existence. To increase the relative amount of precious metals into the world is relatively difficult (actual physical labor is required), but to increase the total amount of dollars in existence is as simple as updating a database entry. If financial controls work exceedingly well, the current economic system is viable. We know, however, that they don't.
- lisper 5y ago
  > We know, however, that they don't. We know no such thing. The only objective fact is that there have been fewer financial crises since the dollar went off the gold standard than before. Financial controls don't work perfectly, but having money tied to a commodity is fraught with its own difficulties. It's actually quite handy to have fine-grained control over the money supply that is not coupled to external physical circumstances because then at least we have the option of controlling it to produce better outcomes even if we don't always succeed.
  - landemva 5y ago
    ' we have the option of controlling it to produce better outcomes ' Following that logic, every country can simply print fiat money until everyone is rich.
    - lisper 5y ago
      It's true that every country can print as much fiat money as they want. It is obviously not true that this will make everyone rich because money is not wealth. Money is just an accounting system. It is useful to have a money supply that tracks actual wealth because it is useful to have stable prices. It makes planning easier. Fiat money is useful because it allows inflation/defaltion to be controlled by policy rather than the whims of fate. But it's still up to us to choose the right policy.
- mohanmcgeek 5y ago
  > The end result is, one dollar now holds value relative to the amount of dollars in existence. This idea of commodity money is far detached from how it actually works. Thread has several good links if you want to learn how it actually works. What is the reason behind so many people believing this? Do they teach it like this at school? (This resurfaces everytime money is discussed here)
- nradov 5y ago
  One dollar now holds value relative to your tax bill. If you're subject to US taxes then you have to hold dollars. The IRS doesn't accept precious metals, and if you fail to pay in dollars then they'll seize your other assets. (Technically the IRS might accept official US minted gold coins at face value but that's not really something that happens in practice.)
majormajor 5y ago
Other comments are making comparisons to asset bubbles or governmental money-printing, which is rather different than immediate bald-faced fraud on the part of a single actor. Do you really think it's that easy? That *nobody else involved in the system ever was like "wait, what if someone tries to defraud us?"? That there aren't various levels of checks and methods to prevent such easy, easy things? That, say, the FDIC in the US is just telling banks "sure, we'll insure your bank accounts, don't bother sending us verification, we trust you!" Whenever you hear someone complain about onerous reporting requirements or other such business regulations, remember that those things get put in place to catch shit like this.
- dannyw 5y ago
  Yeah, right. Ask anyone in accounting in a large enough corporation how many millions of dollars go unaccounted each quarter. Ask the Inspector General of the Defense Department how many trillions of dollars are fudged (answer: $2.6 trillion as of 2016).
- landemva 5y ago
  Actually the regulators encouraged backdated deposits to allow IndyMac to appear solvent. https://abcnews.go.com/Business/story?id=6514493 https://abcnews.go.com/Business/story?id=6514493 "The impact of Western Director Dochow's approval to record the capital infusion in the quarter ending March 31, was that IndyMac was able to maintain its 'well-capitalized' status," ... https://www.cnbc.com/2011/11/23/financial-fingerpointing-turns-to-regulators.html https://www.cnbc.com/2011/11/23/financial-fingerpointing-tur... ' Even if regulators are involved in wrongdoing, they have some immunity. Internal disciplinary measures are rarely taken against regulators who perform badly in their jobs, say government officials. '
mohanmcgeek 5y ago
Then the left side and the right side of their balance sheet will not add up to the same value

Then you have inflation, and rise of prices.

If anyone suspects that, then everyone will try to withdraw their money from their account and they'd soon get exposed of fraud.

orangepurple 5y ago
Well, it hasn't happened yet and reality is staring at you in the face https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE

waterheater 5y ago

Then you have fraud, likely leading to an economic crisis. Consider the 2007-2008 financial crisis. Abstractly, investors believed that homes had significant value until, one day, society realized the value didn't exist in reality but only "on paper." We know that investment bankers were hiding the problem until the proverbial lid blew. You might consider that our current financial paradigm has never been tried before in human history. For thousands of years, currency was based upon various measures of value which attempted to be as objective as possible. Semi-rare materials (e.g. gold and silver) and difficult-to-replicate coinage were some examples. The US dollar was decoupled from the gold standard under the Nixon administration. The end result is, one dollar now holds value relative to the amount of dollars in existence. To increase the relative amount of precious metals into the world is relatively difficult (actual physical labor is required), but to increase the total amount of dollars in existence is as simple as updating a database entry. If financial controls work exceedingly well, the current economic system is viable. We know, however, that they don't.

lisper 5y ago
> We know, however, that they don't. We know no such thing. The only objective fact is that there have been fewer financial crises since the dollar went off the gold standard than before. Financial controls don't work perfectly, but having money tied to a commodity is fraught with its own difficulties. It's actually quite handy to have fine-grained control over the money supply that is not coupled to external physical circumstances because then at least we have the option of controlling it to produce better outcomes even if we don't always succeed.
- landemva 5y ago
  ' we have the option of controlling it to produce better outcomes ' Following that logic, every country can simply print fiat money until everyone is rich.
  - lisper 5y ago
    It's true that every country can print as much fiat money as they want. It is obviously not true that this will make everyone rich because money is not wealth. Money is just an accounting system. It is useful to have a money supply that tracks actual wealth because it is useful to have stable prices. It makes planning easier. Fiat money is useful because it allows inflation/defaltion to be controlled by policy rather than the whims of fate. But it's still up to us to choose the right policy.
mohanmcgeek 5y ago
> The end result is, one dollar now holds value relative to the amount of dollars in existence. This idea of commodity money is far detached from how it actually works. Thread has several good links if you want to learn how it actually works. What is the reason behind so many people believing this? Do they teach it like this at school? (This resurfaces everytime money is discussed here)
nradov 5y ago
One dollar now holds value relative to your tax bill. If you're subject to US taxes then you have to hold dollars. The IRS doesn't accept precious metals, and if you fail to pay in dollars then they'll seize your other assets. (Technically the IRS might accept official US minted gold coins at face value but that's not really something that happens in practice.)

majormajor 5y ago

Other comments are making comparisons to asset bubbles or governmental money-printing, which is rather different than immediate bald-faced fraud on the part of a single actor. Do you really think it's that easy? That *nobody else involved in the system ever was like "wait, what if someone tries to defraud us?"? That there aren't various levels of checks and methods to prevent such easy, easy things? That, say, the FDIC in the US is just telling banks "sure, we'll insure your bank accounts, don't bother sending us verification, we trust you!" Whenever you hear someone complain about onerous reporting requirements or other such business regulations, remember that those things get put in place to catch shit like this.

dannyw 5y ago
Yeah, right. Ask anyone in accounting in a large enough corporation how many millions of dollars go unaccounted each quarter. Ask the Inspector General of the Defense Department how many trillions of dollars are fudged (answer: $2.6 trillion as of 2016).
landemva 5y ago
Actually the regulators encouraged backdated deposits to allow IndyMac to appear solvent. https://abcnews.go.com/Business/story?id=6514493 https://abcnews.go.com/Business/story?id=6514493 "The impact of Western Director Dochow's approval to record the capital infusion in the quarter ending March 31, was that IndyMac was able to maintain its 'well-capitalized' status," ... https://www.cnbc.com/2011/11/23/financial-fingerpointing-turns-to-regulators.html https://www.cnbc.com/2011/11/23/financial-fingerpointing-tur... ' Even if regulators are involved in wrongdoing, they have some immunity. Internal disciplinary measures are rarely taken against regulators who perform badly in their jobs, say government officials. '

mohanmcgeek 5y ago

Then the left side and the right side of their balance sheet will not add up to the same value