4 ms·

Say you buy a house for $500,000 with $100,000 down. The bank takes your $100,000 and writes a check to the seller for $500,000. The $400,000 has been created

Say you buy a house for $500,000 with $100,000 down. The bank takes your $100,000 and writes a check to the seller for $500,000. The $400,000 has been created ex-nihilo by the bank. Loans for houses, properties, businesses, etc. which function in this way are how most of the money in existence today has been created.

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quickthrowman 4y ago
You forgot to mention that the bank has $100,000 cash and a debt instrument (asset) that is worth more than $400,000 on its balance sheet after writing the $500,000 check to the seller. Also, the question was ‘How does the government print money?’ and not ‘How does a bank lend money?’
- jollyllama 4y ago
  >You forgot to mention that the bank has $100,000 cash That much seemed obvious; of course they have the money you paid them. >and a debt instrument (asset) that is worth more than $400,000 on its balance sheet Yes, the buyer is now in their debt; this is of course why they do it. They give money now for money later. None of that changes the fact that the money still came out of the ether. >Also, the question was ‘How does the government print money?’ and not ‘How does a bank lend money?’ The topic is germane to the topic of monetary creation. Ultimately, the creation of debt is the creation of money and the destruction of debt is the destruction of money.
quickthrower2 4y ago
$400k and also -$400k is created ex-nihilo by the bank, balancing to $0. If the bank just created $400k and you paid it back and it made $400k profit plus interest for printing that money, then they would be much more aggresive in giving you a mortgage, in fact you would see negative interest rate loans, because if they give you the $400k from thin air, and you only pay back $40k real money, they still make $40k profit! Hell they would probably just go around buying houses from other banks in circles in a scheme a bit like modern web3 defi wrapping all sorts of coins and reselling them.
- jollyllama 4y ago
  >$400k and also -$400k is created ex-nihilo by the bank, balancing to $0. Yes, over the term of a 10, 20, or 30 year loan. However, the immediate effect is such that the money supply is increased, $400k is created. The destruction of the money is gradual as the loan is repaid. The reality of the situation is not that far off from what you're describing here.

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quickthrowman 4y ago

You forgot to mention that the bank has $100,000 cash and a debt instrument (asset) that is worth more than $400,000 on its balance sheet after writing the $500,000 check to the seller. Also, the question was ‘How does the government print money?’ and not ‘How does a bank lend money?’

jollyllama 4y ago
>You forgot to mention that the bank has $100,000 cash That much seemed obvious; of course they have the money you paid them. >and a debt instrument (asset) that is worth more than $400,000 on its balance sheet Yes, the buyer is now in their debt; this is of course why they do it. They give money now for money later. None of that changes the fact that the money still came out of the ether. >Also, the question was ‘How does the government print money?’ and not ‘How does a bank lend money?’ The topic is germane to the topic of monetary creation. Ultimately, the creation of debt is the creation of money and the destruction of debt is the destruction of money.

quickthrower2 4y ago

$400k and also -$400k is created ex-nihilo by the bank, balancing to $0. If the bank just created $400k and you paid it back and it made $400k profit plus interest for printing that money, then they would be much more aggresive in giving you a mortgage, in fact you would see negative interest rate loans, because if they give you the $400k from thin air, and you only pay back $40k real money, they still make $40k profit! Hell they would probably just go around buying houses from other banks in circles in a scheme a bit like modern web3 defi wrapping all sorts of coins and reselling them.

jollyllama 4y ago
>$400k and also -$400k is created ex-nihilo by the bank, balancing to $0. Yes, over the term of a 10, 20, or 30 year loan. However, the immediate effect is such that the money supply is increased, $400k is created. The destruction of the money is gradual as the loan is repaid. The reality of the situation is not that far off from what you're describing here.