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And is zero-sum, thus not creating money. If a bank wants to pay everyone's invoices early they can, but unless that bank is using a fed account to pay the acco

And is zero-sum, thus not creating money. If a bank wants to pay everyone's invoices early they can, but unless that bank is using a fed account to pay the account, the result will be zero sum and no money will be created. The critical point is whether the final lender in the chain is lending $$ that previously existed, or whether they are lending $$ that popped up in a Fed Account 20 minutes ago. The first case is zero-sum, the second case is only zero sum _when(if?) the loan is repayed_.

JumpCrisscross 4y ago
> critical point is whether the final lender in the chain is lending $$ that previously existed, or whether they are lending $$ that popped up in a Fed Account 20 minutes ago The Fed isn't fundamental. Money precedes central banking by millennia. Banks, even today, can create money willy nilly intraday. (They'll get boned EOD.) But whether the money is created at the Fed is an accounting matter, not monetary.
- brutusborn 4y ago
  And why would they get boned EOD?
  - JumpCrisscross 4y ago
    > why would they get boned EOD? Because they can't meet their reserve requirement. If JPMorgan creates a trillion dollars of deposits at 11AM, that's fine. If, at the end of the day, they have insufficient reserves, they'll go into receivership. This system is far superior to the old method, which more resembled FTX.
    - brutusborn 4y ago
      Exactly! Their money-creating behavior is practically restricted by fundamental Reserve Requirements set by the Fed. Thus the Fed _is_ fundamental for money creation. If you want to create new money you either need reserves (set by the Fed), or a Fed account to buy reserves temporarily. The alternative is loaning out deposits, which is zero-sum, and thus is not 'money creation.' [Edit: I am not suggesting this actually happens - I am suggesting it is the only alternative to lending within Fed limits, which is also the only way to lend without creating money]
      - JumpCrisscross 4y ago
        > money-creating behavior is practically restricted by fundamental Reserve Requirements set by the Fed Fundamentally, for money, the Fed and central banks, generally, are irrelevant. Even practically, for modern U.S. dollars, the reserve requirement is close to irrelevant. It's an archaic tool; most countries simply set it to zero. > loaning out deposits Did you read the link you're commenting on? Deposits aren't loaned out. Loans create deposits. This is the difference between middle-school monetarism and real banking.
      - kasey_junk 4y ago
        You are well into a philosophical discussion here but I want to point out reserve requirements are not the practical limit on lending (even when they are non-zero). The practical limits are actually the a&l requirements of their regulatory frameworks and the expectations of their equity holders. Right now equity holders get antsy if the deposit to loan ratio gets much above .8. Their regulators will almost certainly take them over if their total a:l ratio stays above 1. But! There are accredited US banks right now with deposit to loan ratios approaching 2 and there is no federal reserve requirement. Those banks are likely in dire financial straights but for the moment they have created money with no federal reserve requirements.
        brutusborn 4y ago
        Thanks for the response! I'm definitely no expert but I think I understand the basics. Other commenters made a similar point about reserve requirements, I definitely overstated their importance. Interesting to hear about the A&L limits and kind of terrifying to know the limits are self-imposed.
        kasey_junk 4y ago
        The a&l regulatory requirements are certainly not self imposed. And the limits aren’t just in the form of rough ratios. They outline the classes of debt the balance sheets can have, how they are accounted for, operational procedures around the balance sheet and extensive reporting requirements. But after 2008 equity holders became more risk adverse so demand tighter deposit to loan ratios. This caused the banks to disengage with lending, one of the things that caused the fed to remove the reserve requirement.

JumpCrisscross 4y ago

> critical point is whether the final lender in the chain is lending $$ that previously existed, or whether they are lending $$ that popped up in a Fed Account 20 minutes ago The Fed isn't fundamental. Money precedes central banking by millennia. Banks, even today, can create money willy nilly intraday. (They'll get boned EOD.) But whether the money is created at the Fed is an accounting matter, not monetary.

brutusborn 4y ago
And why would they get boned EOD?
- JumpCrisscross 4y ago
  > why would they get boned EOD? Because they can't meet their reserve requirement. If JPMorgan creates a trillion dollars of deposits at 11AM, that's fine. If, at the end of the day, they have insufficient reserves, they'll go into receivership. This system is far superior to the old method, which more resembled FTX.
  - brutusborn 4y ago
    Exactly! Their money-creating behavior is practically restricted by fundamental Reserve Requirements set by the Fed. Thus the Fed _is_ fundamental for money creation. If you want to create new money you either need reserves (set by the Fed), or a Fed account to buy reserves temporarily. The alternative is loaning out deposits, which is zero-sum, and thus is not 'money creation.' [Edit: I am not suggesting this actually happens - I am suggesting it is the only alternative to lending within Fed limits, which is also the only way to lend without creating money]
    - JumpCrisscross 4y ago
      > money-creating behavior is practically restricted by fundamental Reserve Requirements set by the Fed Fundamentally, for money, the Fed and central banks, generally, are irrelevant. Even practically, for modern U.S. dollars, the reserve requirement is close to irrelevant. It's an archaic tool; most countries simply set it to zero. > loaning out deposits Did you read the link you're commenting on? Deposits aren't loaned out. Loans create deposits. This is the difference between middle-school monetarism and real banking.
    - kasey_junk 4y ago
      You are well into a philosophical discussion here but I want to point out reserve requirements are not the practical limit on lending (even when they are non-zero). The practical limits are actually the a&l requirements of their regulatory frameworks and the expectations of their equity holders. Right now equity holders get antsy if the deposit to loan ratio gets much above .8. Their regulators will almost certainly take them over if their total a:l ratio stays above 1. But! There are accredited US banks right now with deposit to loan ratios approaching 2 and there is no federal reserve requirement. Those banks are likely in dire financial straights but for the moment they have created money with no federal reserve requirements.
      - brutusborn 4y ago
        Thanks for the response! I'm definitely no expert but I think I understand the basics. Other commenters made a similar point about reserve requirements, I definitely overstated their importance. Interesting to hear about the A&L limits and kind of terrifying to know the limits are self-imposed.
        kasey_junk 4y ago
        The a&l regulatory requirements are certainly not self imposed. And the limits aren’t just in the form of rough ratios. They outline the classes of debt the balance sheets can have, how they are accounted for, operational procedures around the balance sheet and extensive reporting requirements. But after 2008 equity holders became more risk adverse so demand tighter deposit to loan ratios. This caused the banks to disengage with lending, one of the things that caused the fed to remove the reserve requirement.