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NV 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

NV 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 20d ago
0%. Zero percent is the actual reserve rule. https://www.stlouisfed.org/bank-supervision/reserve-administration https://www.stlouisfed.org/bank-supervision/reserve-administ...
- JumpCrisscross 20d ago
  Yup. 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 20d ago
That 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 20d ago
There 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...
- JumpCrisscross 20d ago
  > There is no such thing as fractional reserve banking Yes, there is. We just changed how we measure the fraction from a crude one like a reserve requirement (which takes zero account of asset quality or funding source) to finer and more-robust ones like capital and liquidity reqirements. Banks still have to hold reserves. And those required reserves constrain their lending and thus the amount of money they can create. The limits just aren't the old-school reserve requirement.
  - neilwilson 19d ago
    They don’t constrain the quantity of lending. They only change the price. Liability side controls don’t work.
    - JumpCrisscross 19d ago
      > They don’t constrain the quantity of lending. They only change the price Which country's capital and liquidity requirements are you thinking of? Because Basel III dictates ratios. These are hard limits on lending.
      - neilwilson 19d ago
        Loans create deposits, deposits are used to buy bank capital issued by banks. There’s no hard limits. They are ratios which are preprepared because a bank knows how big its sales pipeline is and that takes time to complete. Nothing is limited in quantity. Even the silly SLR they have in the US is a pricing limit, not a quantity - as we see every time somebody moans about how much the deficit has gone up.
        JumpCrisscross 19d ago
        > There’s no hard limits. They are ratios Ratios are limits! > Nothing is limited in quantity Of course it is. At a certain point, compliance will say you literally cannot issue loans of certain types because of capital or liquidity ratios. If compliance fails to do that, regulators come in and yell at everyone.

toenail 20d ago

0%. Zero percent is the actual reserve rule. https://www.stlouisfed.org/bank-supervision/reserve-administration https://www.stlouisfed.org/bank-supervision/reserve-administ...

JumpCrisscross 20d ago
Yup. 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 20d ago

That 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 20d ago

There 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...

JumpCrisscross 20d ago
> There is no such thing as fractional reserve banking Yes, there is. We just changed how we measure the fraction from a crude one like a reserve requirement (which takes zero account of asset quality or funding source) to finer and more-robust ones like capital and liquidity reqirements. Banks still have to hold reserves. And those required reserves constrain their lending and thus the amount of money they can create. The limits just aren't the old-school reserve requirement.
- neilwilson 19d ago
  They don’t constrain the quantity of lending. They only change the price. Liability side controls don’t work.
  - JumpCrisscross 19d ago
    > They don’t constrain the quantity of lending. They only change the price Which country's capital and liquidity requirements are you thinking of? Because Basel III dictates ratios. These are hard limits on lending.
    - neilwilson 19d ago
      Loans create deposits, deposits are used to buy bank capital issued by banks. There’s no hard limits. They are ratios which are preprepared because a bank knows how big its sales pipeline is and that takes time to complete. Nothing is limited in quantity. Even the silly SLR they have in the US is a pricing limit, not a quantity - as we see every time somebody moans about how much the deficit has gone up.
      - JumpCrisscross 19d ago
        > There’s no hard limits. They are ratios Ratios are limits! > Nothing is limited in quantity Of course it is. At a certain point, compliance will say you literally cannot issue loans of certain types because of capital or liquidity ratios. If compliance fails to do that, regulators come in and yell at everyone.