4 ms·

I know little of money. What drives it? I would assume that an accurate model would be beneficial for everyone? Or, is it that there are accurate models, but th

by nomel 3y ago

I know little of money. What drives it? I would assume that an accurate model would be beneficial for everyone? Or, is it that there are accurate models, but they're used by private institutions? Who pushes/uses these mainstream models?

crazygringo 3y ago
It's actually quite astonishing how hard it is to get answers to these questions. I spent some time last year trying to understand money "once and for all", and it's astonishing how complicated it is, and how even the general educated public has no inkling whatsoever. (E.g. just basic understandings such as that money is created by banks not governments, and that banks create money out of thin air and not out of deposits.) I gave up after a while because the information is just so non-accessible. My biggest takeaway is just how a modern educated person is relatively easily able to have a working knowledge of domestic politics and foreign affairs, of basic literary and artistic culture, of history and geography, and of basic math and sciences -- but trying to gain a basic working knowledge of how money actually works -- as opposed to the bunch of shockingly oversimplified and misleading models you learn in Econ 101 -- is shockingly difficult. Which is not a great state of affairs in democracies, when things like inflation and interest rates can wind up affecting elections. It's relatively easy to judge whether you think Biden is doing the right or wrong thing on Ukraine or Israel; it's virtually impossible to judge what you think the central bank is doing under him. Ultimately the best starting resource I found was "Where Does Money Come From?": https://www.goodreads.com/book/show/19241338-where-does-money-come-from https://www.goodreads.com/book/show/19241338-where-does-mone...
- firecall 3y ago
  It seems to be a common misconception that money is created out of thin air! If it was just created as needed in an uncontrolled fashion, then we’d end up with up consequences such as runaway inflation. https://cepr.org/voxeu/columns/banks-do-not-create-money-out-thin-air https://cepr.org/voxeu/columns/banks-do-not-create-money-out...
  - crazygringo 3y ago
    That's a very weird counter argument: > This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. When a bank makes a loan of $10K to a person, it's not "transformed" out of anything. Saying it's "transformed out of the borrower's ability to repay" is sheer nonsense. It makes as much sense as saying it's transformed out of fairy dust. It's not transformed out of anything. It's simply created, the way any IOU is. But nobody is claiming the creation is money is unconstrained, on the other hand. Just because it's generated out of nothing doesn't mean there aren't rules around it if you want to keep your bank in business.
  - RetroTechie 3y ago
    That is conflating 2 aspects: Money is created out of thin air. But in a controlled fashion (as in: regulated, central bank / government policy).
- landemva 3y ago
  > what you think the central bank is doing under him. The central bank of USA "Federal Reserve" is not under the President. It is a private bank cartel which answers to Congress, which steadfastly refuses to do a real audit of this contractor. Federal Reserve has no government employees.
deleted 3y ago
[deleted]
hitpointdrew 3y ago
> I would assume that an accurate model would be beneficial for everyone? Beneficial to everyone except for those that print it, which is why is intentionally and needlessly over complex and laden with deceptive jargon.

by nomel 3y ago

crazygringo 3y ago

It's actually quite astonishing how hard it is to get answers to these questions. I spent some time last year trying to understand money "once and for all", and it's astonishing how complicated it is, and how even the general educated public has no inkling whatsoever. (E.g. just basic understandings such as that money is created by banks not governments, and that banks create money out of thin air and not out of deposits.) I gave up after a while because the information is just so non-accessible. My biggest takeaway is just how a modern educated person is relatively easily able to have a working knowledge of domestic politics and foreign affairs, of basic literary and artistic culture, of history and geography, and of basic math and sciences -- but trying to gain a basic working knowledge of how money actually works -- as opposed to the bunch of shockingly oversimplified and misleading models you learn in Econ 101 -- is shockingly difficult. Which is not a great state of affairs in democracies, when things like inflation and interest rates can wind up affecting elections. It's relatively easy to judge whether you think Biden is doing the right or wrong thing on Ukraine or Israel; it's virtually impossible to judge what you think the central bank is doing under him. Ultimately the best starting resource I found was "Where Does Money Come From?": https://www.goodreads.com/book/show/19241338-where-does-money-come-from https://www.goodreads.com/book/show/19241338-where-does-mone...

firecall 3y ago
It seems to be a common misconception that money is created out of thin air! If it was just created as needed in an uncontrolled fashion, then we’d end up with up consequences such as runaway inflation. https://cepr.org/voxeu/columns/banks-do-not-create-money-out-thin-air https://cepr.org/voxeu/columns/banks-do-not-create-money-out...
- crazygringo 3y ago
  That's a very weird counter argument: > This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. When a bank makes a loan of $10K to a person, it's not "transformed" out of anything. Saying it's "transformed out of the borrower's ability to repay" is sheer nonsense. It makes as much sense as saying it's transformed out of fairy dust. It's not transformed out of anything. It's simply created, the way any IOU is. But nobody is claiming the creation is money is unconstrained, on the other hand. Just because it's generated out of nothing doesn't mean there aren't rules around it if you want to keep your bank in business.
- RetroTechie 3y ago
  That is conflating 2 aspects: Money is created out of thin air. But in a controlled fashion (as in: regulated, central bank / government policy).
landemva 3y ago
> what you think the central bank is doing under him. The central bank of USA "Federal Reserve" is not under the President. It is a private bank cartel which answers to Congress, which steadfastly refuses to do a real audit of this contractor. Federal Reserve has no government employees.

deleted 3y ago

[deleted]

hitpointdrew 3y ago

> I would assume that an accurate model would be beneficial for everyone? Beneficial to everyone except for those that print it, which is why is intentionally and needlessly over complex and laden with deceptive jargon.