4 ms·

I mean a bank is literally a money printer.

by petermcneeley 1y ago

elcritch 1y ago
On a serious side note, only certain banks get to print money.
- HPsquared 1y ago
  They don't physically print the notes, but they do magically add money to a person's account when they take a loan. That kind of thing is where most "money" (in banks, anyway) comes from. It's just like matter and antimatter being created at the same time, money and anti-money (debt) are created at the same time and when they meet, they cancel each other out. So borrowing literally creates money (and debt), and repaying debts literally deletes money (and debt).
  - mulmen 1y ago
    How does interest fit in here? Isn’t that what creates money AKA inflation?
    - bfg_9k 1y ago
      What the poster you're replying to is talking about is called fractional reserve banking. That's how they "create" money.
    - mitthrowaway2 1y ago
      No, interest is a typical zero-sum transaction where the borrower spends and the lender earns. The loan itself represents a temporary net increase in the money supply, appearing from nothing and then vanishing when it is paid back.
      - HPsquared 1y ago
        I'm a bit unsure what happens when a borrower defaults on their loan. The money that was borrowed remains out in circulation, but what happens to the debt (anti-money)? Does the bank itself use its own money to pay off the debt (deleting some of their own money), or do they simply delete the debt?
        kaibee 1y ago
        I'm commiting the faux paus of providing a chat-gpt answer, but I've worked in fintech (annuities though) and I can confirm that this answer is broadly correct. https://chatgpt.com/share/687bbde1-4ba8-800c-92e5-93edd49b01ec https://chatgpt.com/share/687bbde1-4ba8-800c-92e5-93edd49b01... In principle, it is 'the bank uses its own money to pay off the debt', as long as you accept that the bank's own 'credit worthiness reputation' and other assets count as 'money'. The hit is _ultimately_ taken by the capital shareholders in the bank, which is the important part.

I mean a bank is literally a money printer.

elcritch 1y ago

On a serious side note, only certain banks get to print money.

HPsquared 1y ago
They don't physically print the notes, but they do magically add money to a person's account when they take a loan. That kind of thing is where most "money" (in banks, anyway) comes from. It's just like matter and antimatter being created at the same time, money and anti-money (debt) are created at the same time and when they meet, they cancel each other out. So borrowing literally creates money (and debt), and repaying debts literally deletes money (and debt).
- mulmen 1y ago
  How does interest fit in here? Isn’t that what creates money AKA inflation?
  - bfg_9k 1y ago
    What the poster you're replying to is talking about is called fractional reserve banking. That's how they "create" money.
  - mitthrowaway2 1y ago
    No, interest is a typical zero-sum transaction where the borrower spends and the lender earns. The loan itself represents a temporary net increase in the money supply, appearing from nothing and then vanishing when it is paid back.
    - HPsquared 1y ago
      I'm a bit unsure what happens when a borrower defaults on their loan. The money that was borrowed remains out in circulation, but what happens to the debt (anti-money)? Does the bank itself use its own money to pay off the debt (deleting some of their own money), or do they simply delete the debt?
      - kaibee 1y ago
        I'm commiting the faux paus of providing a chat-gpt answer, but I've worked in fintech (annuities though) and I can confirm that this answer is broadly correct. https://chatgpt.com/share/687bbde1-4ba8-800c-92e5-93edd49b01ec https://chatgpt.com/share/687bbde1-4ba8-800c-92e5-93edd49b01... In principle, it is 'the bank uses its own money to pay off the debt', as long as you accept that the bank's own 'credit worthiness reputation' and other assets count as 'money'. The hit is _ultimately_ taken by the capital shareholders in the bank, which is the important part.