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> worth around $5.4trn Note that the Fed has a $6.7tn balance sheet [1]. (This is a silly comparison. But still fun.) The real comparison: Nvidia's $500+ bill
by JumpCrisscross 1mo ago
> worth around $5.4trn
Note that the Fed has a $6.7tn balance sheet [1]. (This is a silly comparison. But still fun.)
The real comparison: Nvidia's $500+ billion of investments and commitments [2] is substantially more than any easing the Fed has done in the same time [3]. Monetarily, Nvidia is creating a lot of money in our economy.
The good news: I have seen no evidence Nvidia has borrowed against its stock or otherwise linked its equity value to these commitments. Its stock could crash without causing–as long as its cash flows continue–a credit crisis through its investments and commitments.
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
[2] https://www.sec.gov/Archives/edgar/data/1045810/000104581026000075/nvda-20260726.htm https://www.sec.gov/Archives/edgar/data/1045810/000104581026...
[3] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
- sailfast 1mo agoIt would also follow that by increasing the money supply significantly they’re also contributing to inflation a great deal correct? (Given the rest of the economy is not growing at near the same rate as the AI industry)
- tonyhart7 1mo agowell, M2 money supply is increasing with or without AI industry
- manlymuppet 1mo agoMaybe a dumb question but how is NVIDIA increasing the total supply of money? Only the fed can actually order more money to be "created". Private companies can only work within the existing supply, that is, their reserves, no?
- cyberpunk 1mo agoNV gives out a $100 to Party A, who puts it in their bank. Bank takes $90 of that deposit (assuming 10% fractional reserve rule, no idea what the actual number is), and loans it out to party B, who pays it into either the same or another bank. Same rules apply -- except now it's down to $81 being loaned out, and so on and so forth, until that 100$ generated $1000 in total bank deposits. edit: of course, it's never actually directly like this, a lot of other factors are involved, maybe the money is spent, maybe no one wants to borrow it, etc etc -- so it's more complicated but that's I think what they mean
- toenail 1mo ago0%. Zero percent is the actual reserve rule. https://www.stlouisfed.org/bank-supervision/reserve-administration https://www.stlouisfed.org/bank-supervision/reserve-administ...
- JumpCrisscross 1mo agoYup. Reserve requirements are functionally obsolete and never worked particularly well in the first place. Capital and liquidity requirements are far more robust and fine tuned.
- manlymuppet 1mo agoThat was my intuition at first too, but the original comment specified that they weren't borrowing all this money they're spending. The article also says how this is part of NVIDIA's strategy to enable demand, not create it, so supposedly these investments into their customers are actually going straight to paying for things. Even if this money eventually gets loaned out eventually by one of NVIDIA's customers putting it into a bank, it isn't NVIDIA inflating the money supply, it's the borrowers, no? Or is this an ineffective way to look at things?
- neilwilson 1mo agoThere is no such thing as fractional reserve banking. The multiplier is a myth. Quite why this persists when the Bank of England debunked it in 2014 [0] is anybody’s guess. Just another of those concepts that is neat, plausible and wrong. [0]: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
- idontwantthis 1mo agoPrivate banks increase money supply by lending. If 10 people deposit $1000 in a bank, it can loan $9000 to an 11th person. Now the economy has $19000 total.
- esikich 1mo agoThe $9000 has to be paid back, and then some. I sure hope you aren't an accountant.
- estearum 1mo agoEventually Which is, you know, the entire risk that people are worried about.
- mastax 1mo agoBut for the duration, there is more money. This isn’t some crank theory, it’s orthodox economics: https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
- esikich 1mo agoYeah, we all know what fractional reserve banking is. But a debt exists at the same time and the idea is the money that was lent builds something, creating value. Let me borrow some gold so I can use my herbalism expertise to make some potions and sell them for a price that is greater than the sum of ingredients. That's how value is created. Saying loaning money inflates money de facto is disingenuous. Wealth is being created on the other side via goods and services.
- arcanemachiner 1mo agoBanks create money when issuing a loan. This is how fractional reserve banking works. They lend money they don't have (most of). This is institutionalized fraud, and it's been standard operating procedure for centuries.
- conmod278 1mo agoBut the fraction to be kept in reserve has been zero for 4-5 years.
- neilwilson 1mo agoAlmost like the concept is complete bunkum. It’s been zero in the UK for hundreds of years.
- kennywinker 1mo agothat.. doesn't make it better
- jurgenburgen 1mo agoIt was replaced by other mechanisms. It’s not literally zero any kind of reserves.
- kennywinker 1mo agoI’m not worried about the lack of reserve, i’m worried about the money shell game where private companies can drive inflation or deflation whichever serves their profit margins best. The 2008 global financial crisis was a result of this, so not a made up worry.
- deleted 1mo ago[deleted]
- JumpCrisscross 1mo ago
- conmod278 1mo agoI think at the top level between Govt and Industry and understanding has been reached that AI industry will be backstopped
- master_crab 1mo agoThey aren’t; the parent comment is incorrect. It’s safer to say Nvidia is encouraging the money that already exists to be deployed on AI buildouts. But everyone is now chasing the same opportunity (AI and its dependencies like hardware and power) that will drive prices higher in those sectors until supply responds (or demand disappears).
- sailfast 1mo agoIf they’re effectively guaranteeing $500B in loans that adds close to $500B to M1, basically, that banks were not otherwise providing or loaning - at least that was my calculation.
- JumpCrisscross 1mo ago> Only the fed can actually order more money to be "created" No. Most money in modern economies is created by private parties [1]. [1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- j16sdiz 1mo agoPrivate Banks. They are regulated as bank under fed.
- JumpCrisscross 1mo ago> Private Banks Currently. But nothing requires is. Banks can uniquely create M1. Nvidia is creating M4, which turns into M2 through the money markets, which turns into M1 at banks. It's more convoluted and limited than the Fed creating monetary base to increase M1. But the net effect is similar–more M1.
- neilwilson 1mo agoAll debt is money. Anybody can create money, the trick is getting other people to accept it. Nvidia is vendor financing its output. An ai company order $100m of GPUs. Nvidia delivers and holds onto that debt as an asset - like a bank loan. The production company uses AI to create better plant and purchases $100m of AI tokens to do so. The ai company hold that debt like a bank loan Nvidia requests $100m of production based on its $100m of orders. The production company holds that debt like a bank loan. You now have a monetary loop. Take a single $10 bank deposit and Nvidia pays the production company, who pays the ai company who pays Nvidia. Run that round the circle a few million times and everybody has been paid. Rinse and repeat.
- creativeSlumber 1mo agoIf the debt cancels out doesn't this mean that there was no debt ?
- msdz 1mo agoI’m guessing it doesn’t “cancel out” due to interest.
- JumpCrisscross 1mo ago> If the debt cancels out doesn't this mean that there was no debt ? No. For the same reason that oxygen being transported into and out of the body doesn't mean there was no oxygen.
- ElProlactin 1mo agoYou should educate yourself about accounting. First, under US GAAP rules (ASC 606), you cannot recognize revenue from a vendor-financed sale unless it meets certain criteria, the biggest one of which is: it has to be probable that the buyer will actually pay you. If a default is likely, revenue recognition is deferred until cash changes hands. Nvidia's massive revenue is therefore not from a bunch of dubious vendor-financed sales to counterparties who don't have the money to pay and need a fraudulent scheme to make the arrangement work. Furthermore, Nvidia, by its own disclosure, indicates that when it extends financing to customers, they pay, on average, within 2 months (53 days to be exact). So these are not years-long extensions of credit.
- boredatoms 1mo agoEvery form of lending that is specified via currency increases the supply. If I give you GPUs worth $1bn, but take 100m payments for 11 years, then during that time you can use your other mony to buy other things that arent GPUs If we stop after the 11 years and dont make new loans, the supply has shrunk back
- HPsquared 1mo agoAny time sometime makes a loan at a bank, that money is created. An accompanying debt is also created. It's like matter and antimatter. And when the debt is repaid, the matter and antimatter disappear again.
- InsideOutSanta 1mo ago> Only the fed can actually order more money to be "created". If you go to a bank and get a loan, that is literally money that did not exist before you got a loan. People think that you are borrowing money that somebody else put in the bank, but that's not true. Banks can lend out a lot more money than people put into them.
- haaz 1mo agoKey difference is that these loans, which do increase the money supply and create inflation, are on average productive and profitable and thus deflationary. Quantitative easing is just printing money and often goes towards repaying bad debts, which are unproductive and thus not deflationary, so the inflation (increase in money supply) does not outweigh the deflation (creating of goods)
- einpoklum 1mo agoRegardless of NVIDIA and LLM/AI, the claim that inflation is caused directly, or without-fail, by an increase in money supply - is not well founded. A significant money supply increase may very well have a tiny or possibly even negative price-increasing impact - depending on how money is supplied, to which elements and under what conditions.
- sailfast 1mo agoIt’s a fair point. Definitely depends on the how. I was figuring that adding $500B to a hot part of the economy while the rest of the economy shrinks might nudge a bit toward inflationary tendency, but at this point it’s hard to say what tenets of economics actually hold since the entire concept of “rational actors” went into the dustbin :)
- jrmg 1mo agoIts stock could crash without causing–as long as its cash flows continue–a credit crisis through its investments and commitments Uh, that’s a pretty load-bearing as long as its cash flows continue. The two things are surely correlated.
- dehrmann 1mo ago> load-bearing I'm worried I'm going to start picking up claudisms, and then accused of being AI.
- zbentley 1mo agoRelated but in specific ways. Stock is often priced in anticipation of growth. If NVDA could meet its credit obligations while its real profit stayed flat, the two would diverge, at least for awhile. A large amount of NVDA’s current cash flow is likely purchase contracts with a fixed multi-year term, which further smooths out the impact of, say, a stock crash following a couple of quarters of terrible earnings. Now, whether many things NVDA has invested in with expectation of repayment or earnings would be able to repay or appreciate in a market environment where Nvidia’s stock was crashing? That’s another question entirely.
- arde 1mo agoIndeed. https://www.groundbrkr.com/p/the-second-derivative-why-no-one https://www.groundbrkr.com/p/the-second-derivative-why-no-on...
- JumpCrisscross 1mo ago> that’s a pretty load-bearing as long as its cash flows continue. The two things are surely correlated It's an important difference. In the GFC, the value of AAA-rated tranches fell. With the benefit of hindsight, we know they continued paying. They were directly leveraged, however, so mark-to-market losses caused firms to fail. Nvidia stock crashing shouldn't have a similar effect to these commitments. If someone else has massively levered their Nvidia position, they'll obviously blow up. But Nvidia could survive a good deal of equity-market tumult in a way a bank could not.
- paulpauper 1mo ago
- master_crab 1mo ago“as long as it’s cash flow continues” is doing a lot of optimistic heavy lifting. The whole premise of the circular financing worry is that Nvidia sits in the middle of all the guarantees made to companies like OpenAI. If any of those companies become insolvent, Nvidia is on the hook for it. Also Nvidia isn’t really creating money. The 500B number is third party capital that already exists (BX, Apollo, etc).
- JumpCrisscross 1mo ago> “as long as it’s cash flow continues” is doing a lot of optimistic heavy lifting It's not. It's stating a condition. For traditional banks, a stock crash can independently trigger a failure. > whole premise of the circular financing worry is that Nvidia sits in the middle of all the guarantees made to companies like OpenAI. If any of those companies become insolvent, Nvidia is on the hook for it Sorry, I meant revenues. If Nvidia's revenues stay stable, these commitments aren't a problem. Even if the stock price crashes. > Nvidia isn’t really creating money It absolutely is. Similar to the way banks create money [1]. The commitments support credit that wouldn't exist without it. [1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- roenxi 1mo ago> It absolutely is. Similar to the way banks create money [1]. The commitments support credit that wouldn't exist without it. Making a loan/offering credit isn't automatically money creation - the amount of money in the system before and after the loan might be the same. Haven't been following Nvidia all that closely, but it seems a little bit unlikely that they're a commercial bank. Financial chicanery they may be doing but offering deposit accounts would be new territory. The loan has to be made in a very particular way for it to be money creation (notably, in a way that creates new money), and it should be illegal for most people to do that otherwise we'd all be printing our own money instead of the printing being directed to wealthy asset owners first and foremost.
- 1mo ago
- hammock 1mo agoM2 is $21 trillion, which is what the fed signed up to backstop. How much did NVDA sign up to backstop?
- JumpCrisscross 1mo ago> which is what the fed signed up to backstop No, it's not. M2 includes things like traveler's cheques and money-market funds.
- hammock 1mo agoOk how much did the fed sign up to backstop then? Surely it’s more than physical currency
- JumpCrisscross 1mo ago> how much did the fed sign up to backstop then? Surely it’s more than physical currency The Fed doesn't backstop physical currency. That is issued by the Treasury (specifically, the Mint). The FDIC backstops bank deposits; the U.S. guarantees is obligations. The Fed doesn't properly "backstop" anything. It's the lender of last resort–if you have a Treasury or other good collateral, it will loan you money against it. It's a financial regulator. And it regulates interest rates (i.e. the price of money) to influence inflation and employment. The only backstops the Fed truly makes are to banks, by guaranteeing to always stand ready to lend against Treasuries and other good collateral.
- hammock 1mo ago“Federal reserve note” You are taking this too literally anyway. I know they don’t backstop jack squat but in practice there is a fed put. Have a conversation with me, don’t be a pedant. If you are saying they will lend last resort against treasuries you should know there are $40 trillion of those outstanding… How about what’s the amount from banks that the fed would willing lend as a last resort?
- deleted 1mo ago[deleted]
- SecretDreams 1mo ago> The good news: I have seen no evidence Nvidia has borrowed against its stock or otherwise linked its equity value to these commitments. Nvidia doesn't need it. It funds other companies. They do this thing that Nvidia doesn't do. It shows up on their balance sheets and Nvidia just gets to claim the valuation of the investment on its balance sheet. It can't go tits up!
- User23 1mo agoMonetarily Nvidia isn’t creating any money at all.
- downrightmike 1mo agoAll on the back of TSMC
- uncle_kostya 1mo agoIs anyone even trying to compete with TSMC? What is the barrier to entry?
- chadgpt3 1mo agoYou either poach a lot of TSMC employees or you work your way up from garage lithography with no profit at any intermediate step.
- downrightmike 1mo agoThat's why Japan and USA are building TSMC fabs locally
- yieldcrv 1mo ago$500bn commitments that dole out across 5-10 years and can be cancelled at any time versus Fed open market operations that occur in full instantly and are the primary mechanism for increasing the money supply k.
- chii 1mo ago> Monetarily, Nvidia is creating a lot of money in our economy. nvidia's money either comes from equity, or from debt. This means this money is "created" not from nothing, but from future commitments (ala, debt repayments, or promise of profits), which is not the same as what comes out of the Fed. The Fed printing has no backing behind it - it is definitely inflationary if they do it. Investment from nvidia (or any other company) "creating money" may be productive enough to completely offset their inflationary effects - after all, the company investing demands returns from their investments, and so will only invest in things they expect to return much higher than the cost of interest (or cost of capital). Therefore, you cannot compare Fed printing money to company investing money.
- JumpCrisscross 1mo ago> this money is "created" not from nothing, but from future commitments (ala, debt repayments, or promise of profits), which is not the same as what comes out of the Fed Most money is created by banks, not by the Fed. When banks create deposits they're booking it against a loan. Similarly, the Fed creates money by buying assets, principally Treasuries. There is an offsetting account. The only party that can truly just "mint" currency is the US Mint. > you cannot compare Fed printing money to company investing money Yes, you can. Nvidia creates M4 which drives M2 and thus M1. Banks create M1. The Fed creates monetary base. These are different components of the same money supply [1]. [1] https://en.wikipedia.org/wiki/Money_supply#United_States https://en.wikipedia.org/wiki/Money_supply#United_States
- KellyCriterion 1mo agoNo: NVDA itself(!) does not increase M4 - if they give a loan, its an assets swap on their balance sheet with no influence on money in total available (since the money on their account is gone!) The FED and banks can increase total money only.
- applicative 1mo agoWhen the Fed ‘creates money’ or as we say ‘prints money’ it is by buying Federal bonds from banks, no? Then the bank’s account is credited and it has more reserves. It is when total accounts at Federal reserve expand that base money has expanded. Similarly it contracts when the Fed sells bonds to banks. It is always tied to bonds from which returns are expected.
- mschuster91 1mo ago> Its stock could crash without causing–as long as its cash flows continue–a credit crisis through its investments and commitments. Oh hell no. NVIDIA is present in a ton of 401k and similar retirement/savings/gambling vehicles. It holds 12% of NASDAQ tracking funds and 8% of S&P 500 trackers. NVIDIA goes down, a lot of people will panic sell and crash the economy.
- KellyCriterion 1mo ago> Nvidia is creating a lot of money in our economy. Wrong: a) a company cannot create money in todays modern 2-level fiat systems, this can be done only by central banks b) what NVDA does is "generating requests for more money in the system", throughthe demand side (either taking loans themself or having lots of customers who are willing to take a bank loans to invest, or other participants who wants to buy whatever stuff on a loan) c) any money that is created on the "local bank system level" needs to be there on the existing central bank account when the money is leaving the local system, ie. transferred to another bank (like "paying NVDA bill for delivery of some chips")