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> There's no such thing as a magic money-generating machine. Banks literally print bank reserves out of nothing. It's one of the more hilarious aspects of mode

by noch 2y ago

> There's no such thing as a magic money-generating machine. Banks literally print bank reserves out of nothing. It's one of the more hilarious aspects of modern economics.

rhelz 2y ago
chuckle that's true :) But it only happens when somebody borrows money, and somebody only borrows money if they think they can use that money to make even more money---i.e. improve their productivity. E.g. somebody might borrow money to buy a McDonald's franchise. Now the nation can produce more burgers. It's really weird how banks do that, but it's not magic.
- NomDePlum 2y ago
  Banks printing money means the burger is more expensive for everyone who uses the denomination that the bank printed money for surely? It increases cost and consequently reduces the incentive to produce outputs? So less incentive to produce, but if produced the result is a more expensive burger would be my read on this. Happy to hear why you think it's different.
  - rhelz 2y ago
    Because it doesn't just increase the supply of money--it increases the supply of burgers as well :-) Sure, the money is created out of thin air. But that money gets invested in things which actually increase productivity and increase the GDP. E.G. a factory borrows money to buy new machines, which makes their workers more productive. If the increasing money supply does start to cause excess inflation, the Fed tamps it down by increasing the interest rates. From Volker to Covid, it did a remarkably good job of keeping the inflation under 2%. Plague and unfunded tax cuts have pushed that up closer to 3%, but it is dropping.
    - NomDePlum 2y ago
      Are there any stats that burger availability increased? My observation is that quality, affordability and availability of burgers have went down whilst price has increased since 2008, the date I became aware of th use of printing money. I attribute this to the printed money being kept to a large degree by banks instead of going into the wider economy. Most of that money has led to increases in housing stock value/cost and subsequently unavoidable cost to most, than contributing to the wider economy. I'm not in the US so maybe have a different experience from yourself, but printing money has largely just devalued money and decreased wages as opposed to ending up benefitting burger availability :-)
      - noch 2y ago
        > Most of that money has led to increases in housing stock value/cost You're of course correct in general about asset prices. The entire game over the past 2 decades or so of low interest rates has been: borrow money and acquire more assets because U.S. monetary and fiscal policy has mostly only cared about the U.S. stock market (despite what pronouncements about other priorities might be made, the effect was the same). We all knew this and it was almost irresponsible to do anything other than keep acquiring assets. The government will inflate their prices for you so why fight the Fed? One didn't even need to gamble by trading, just accumulate.
        NomDePlum 2y ago
        > We all knew this and it was almost irresponsible to do anything other than keep acquiring assets Is this not the underlying argument for SBR? Buy and hold and have on your books something that has on paper appreciated, similar to Gold?
        noch 2y ago
        > Is this not the underlying argument for SBR? Buy and hold and have on your books something that has on paper appreciated, similar to Gold? Exactly. And the best part about it, to me, is that literally anyone in the world can own Bitcoin and is aware that nation states will be buying it. Unlike Gold, for now, Bitcoin's price can't be manipulated by removing it from the market and replacing it with a gold-backed instrument e.g $GLD. Also unlike Gold, Bitcoin's supply is fixed and independently auditable by anyone in the world.
- noch 2y ago
  > But it only happens when somebody borrows money, and somebody only borrows money if they think they can use that money to make even more money---i.e. improve their productivity. You might remember years ago during ZIRP when most of us on HN figured out this "infinite money glitch". Basically as long as you're willing to start a company, and know who to talk to, you could issue shares, borrow money, buy assets, use them as collateral to borrow more and basically have all the money you need for the rest of your life. It was a severe red pill and rather cool. Money really is free. Productivity is a story one learns how to tell but is not really related to how loans are taken or given. I think most people understand this about loans at some level, if credit card debt is any indicator.

by noch 2y ago

> There's no such thing as a magic money-generating machine. Banks literally print bank reserves out of nothing. It's one of the more hilarious aspects of modern economics.

rhelz 2y ago

chuckle that's true :) But it only happens when somebody borrows money, and somebody only borrows money if they think they can use that money to make even more money---i.e. improve their productivity. E.g. somebody might borrow money to buy a McDonald's franchise. Now the nation can produce more burgers. It's really weird how banks do that, but it's not magic.

NomDePlum 2y ago
Banks printing money means the burger is more expensive for everyone who uses the denomination that the bank printed money for surely? It increases cost and consequently reduces the incentive to produce outputs? So less incentive to produce, but if produced the result is a more expensive burger would be my read on this. Happy to hear why you think it's different.
- rhelz 2y ago
  Because it doesn't just increase the supply of money--it increases the supply of burgers as well :-) Sure, the money is created out of thin air. But that money gets invested in things which actually increase productivity and increase the GDP. E.G. a factory borrows money to buy new machines, which makes their workers more productive. If the increasing money supply does start to cause excess inflation, the Fed tamps it down by increasing the interest rates. From Volker to Covid, it did a remarkably good job of keeping the inflation under 2%. Plague and unfunded tax cuts have pushed that up closer to 3%, but it is dropping.
  - NomDePlum 2y ago
    Are there any stats that burger availability increased? My observation is that quality, affordability and availability of burgers have went down whilst price has increased since 2008, the date I became aware of th use of printing money. I attribute this to the printed money being kept to a large degree by banks instead of going into the wider economy. Most of that money has led to increases in housing stock value/cost and subsequently unavoidable cost to most, than contributing to the wider economy. I'm not in the US so maybe have a different experience from yourself, but printing money has largely just devalued money and decreased wages as opposed to ending up benefitting burger availability :-)
    - noch 2y ago
      > Most of that money has led to increases in housing stock value/cost You're of course correct in general about asset prices. The entire game over the past 2 decades or so of low interest rates has been: borrow money and acquire more assets because U.S. monetary and fiscal policy has mostly only cared about the U.S. stock market (despite what pronouncements about other priorities might be made, the effect was the same). We all knew this and it was almost irresponsible to do anything other than keep acquiring assets. The government will inflate their prices for you so why fight the Fed? One didn't even need to gamble by trading, just accumulate.
      - NomDePlum 2y ago
        > We all knew this and it was almost irresponsible to do anything other than keep acquiring assets Is this not the underlying argument for SBR? Buy and hold and have on your books something that has on paper appreciated, similar to Gold?
        noch 2y ago
        > Is this not the underlying argument for SBR? Buy and hold and have on your books something that has on paper appreciated, similar to Gold? Exactly. And the best part about it, to me, is that literally anyone in the world can own Bitcoin and is aware that nation states will be buying it. Unlike Gold, for now, Bitcoin's price can't be manipulated by removing it from the market and replacing it with a gold-backed instrument e.g $GLD. Also unlike Gold, Bitcoin's supply is fixed and independently auditable by anyone in the world.
noch 2y ago
> But it only happens when somebody borrows money, and somebody only borrows money if they think they can use that money to make even more money---i.e. improve their productivity. You might remember years ago during ZIRP when most of us on HN figured out this "infinite money glitch". Basically as long as you're willing to start a company, and know who to talk to, you could issue shares, borrow money, buy assets, use them as collateral to borrow more and basically have all the money you need for the rest of your life. It was a severe red pill and rather cool. Money really is free. Productivity is a story one learns how to tell but is not really related to how loans are taken or given. I think most people understand this about loans at some level, if credit card debt is any indicator.