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You're conflating the money multiplier and velocity. They aren't the same thing. The multiplier is about banks turning reserves into deposits via lending while

You're conflating the money multiplier and velocity. They aren't the same thing. The multiplier is about banks turning reserves into deposits via lending while "spending the same money more rapidly" is velocity. This doesn't apply to Nvidia extending trade credit and this description of bank money creation isn't even the accepted version today anyway. Regarding velocity: a receivable on Nvidia's books isn't in M1 or M2 and nobody accepts it as payment. The AI company will still settle its bills with vendors and pay its employees in bank deposits. The "$10 running round the circle a million times" story is just netting. Clearinghouses have done this for centuries with literally 0 effect on the money supply. If the OP's production company can't actually deliver $100 million of goods, someone has to write it down and no amount of velocity makes the company solvent. Net-60 payment terms are ordinary trade credit that any major B2B supplier extends. It's no different for Boeing, Caterpillar or [name a major manufacturer). If you're going to call this "money creation," you're saying that every net-30 or net-60 invoice is "money creation" too, which is ridiculous because it's patently false. None of this is to say that there aren't legitimate circularity concerns about Nvidia, particularly around its equity stakes coming back as GPU orders. There are. But even those are about revenue quality and counterparty concentration, not monetary aggregates. Trying to make this a monetary argument when it's not actually weakens the circularity argument.

cryptonector 20d ago
I'm a bit shocked that this comment got flagged and went dead -- it might or might not be correct in its claims, but flagging it seems ridiculous to me.
JumpCrisscross 20d ago
> doesn't apply to Nvidia extending trade credit Of course it does. It's M4. Which turns into M3 through the money markets. Which creates M1 through banks. Nvidia extending commitments creates M1 via a similar mechanism to the Fed buying Treasuries, thereby increasing deposits at the Federal Reserve (MB) which in turn prompts banks to increase M1. > and this description of bank money creation isn't even the accepted version today anyway What description? Most money in modern economics is created by banks. But nothing requires that to be the main mode. We're nowhere close to it, but a high-tariff economy would be expected to rely more on producers than consumers and thus their credit versus consumer deposits. > If the OP's production company can't actually deliver $100 million of goods, someone has to write it down and no amount of velocity makes the company solvent The $500 billion isn't net-sixty trade credit, it's long-term commitments for capital expenditure by third parties. > Trying to make this a monetary argument when it's not actually weakens the circularity argument No? They're separate issues. Credit creates money. That's real and separate from to whom one is extending credit, in Nvidia's case, to its customers so they can buy more from Nvidia.
- ElProlactin 20d ago
  > It's M4. Which turns into M3 through the money markets. Which creates M1 through banks. M3 hasn't been published in the US since 2006 and M4 has never been published publicly in the US. Aggregates don't turn into one another like they're moving on a conveyer belt. They're just classification buckets. If you have a dollar in a checking account, it's in M1, M2, M3 and M4 at the same time. A purchase commitment or a capacity guarantee on Nvidia's balance sheet is just a contract. It isn't in any aggregate, it isn't traded in a money market and nobody accepts it as payment. > ...via a similar mechanism to the Fed buying Treasuries, thereby increasing deposits at the Federal Reserve (MB) which in turn prompts banks to increase M1 Sorry but this is just wrong. Only the Fed creates reserves. Nvidia signing a contract doesn't do anything at the Fed. Banks create deposits when they lend and they're constrained by capital and loan demand, not a reserve ratio. Since 2008, reserves have gone up 10x and M1 hasn't. See "Money creation in the modern economy". The multiplier theory as an explanation of how money gets created has been dead for years. > The $500 billion isn't net-sixty trade credit I wasn't even talking about this. My comment addressed the OP's argument that Nvidia is holding customer debt as a bank-like asset. That debt is receivables and it's 53 days on average, not years. The $500 billion in the article is mostly bank and private credit cash being loaned to Nvidia's customers and Nvidia providing backstops and guarantees. So if money is being created here, it's the lenders who are creating it, not Nvidia. In this case, Nvidia isn't a bank, it's a credit enhancer. The legitimate concern is that Nvidia's guarantees are encouraging lenders to lend money to neoclouds on better terms than they otherwise would get (or should get if you want to make that argument). But that's not money creation and trying to pretend that it is only distracts from the real issues.
  - JumpCrisscross 20d ago
    > Aggregates don't turn into one another like they're moving on a conveyer belt Conveyor belt is wrong. The term you're looking for is transmission channels. MB is turned into M1 through lending. M3 is turned into M1 through collateralisation and demand stimulation, among other effects. > If you have a dollar in a checking account, it's in M1, M2, M3 and M4 at the same time. Yes. > A purchase commitment or a capacity guarantee on Nvidia's balance sheet is just a contract. It isn't in any aggregate Of course it is. Why do you think the SPVs want the commitment? They turn around and issue commercial paper and get bank loans and get bonds underwritten against those commitments. All of which turns into checking account deposits. Those SPVs also get a credit rating which lets them sign construction contracts which builders turn around and turn into deposits. > Banks create deposits when they lend and they're constrained by capital and loan demand, not a reserve ratio Banks are constrained by capital and liquidity requirements, on one hand, and loan demand, on the other hand. > if money is being created here, it's the lenders who are creating it, not Nvidia. In this case, Nvidia isn't a bank, it's a credit enhancer Yes. When the Fed buys Treasuries and increases a bank's reserves at the Fed, it's not actually doing anything in the real economy. The banks then have to turn around and increase lending. If, as you noted, loan demand is stagnant, they have to cut prices, i.e. rates. The Economist is comparing Nvidia "enhancing" credit conditions in a manner analogous to the way the Fed does. By creating a base that stimulates lending. > that's not money creation and trying to pretend that it is only distracts from the real issues It's absolutely money creation in the way a central banker or anyone in the money markets would talk about it.

cryptonector 20d ago

I'm a bit shocked that this comment got flagged and went dead -- it might or might not be correct in its claims, but flagging it seems ridiculous to me.

JumpCrisscross 20d ago

> doesn't apply to Nvidia extending trade credit Of course it does. It's M4. Which turns into M3 through the money markets. Which creates M1 through banks. Nvidia extending commitments creates M1 via a similar mechanism to the Fed buying Treasuries, thereby increasing deposits at the Federal Reserve (MB) which in turn prompts banks to increase M1. > and this description of bank money creation isn't even the accepted version today anyway What description? Most money in modern economics is created by banks. But nothing requires that to be the main mode. We're nowhere close to it, but a high-tariff economy would be expected to rely more on producers than consumers and thus their credit versus consumer deposits. > If the OP's production company can't actually deliver $100 million of goods, someone has to write it down and no amount of velocity makes the company solvent The $500 billion isn't net-sixty trade credit, it's long-term commitments for capital expenditure by third parties. > Trying to make this a monetary argument when it's not actually weakens the circularity argument No? They're separate issues. Credit creates money. That's real and separate from to whom one is extending credit, in Nvidia's case, to its customers so they can buy more from Nvidia.

ElProlactin 20d ago
> It's M4. Which turns into M3 through the money markets. Which creates M1 through banks. M3 hasn't been published in the US since 2006 and M4 has never been published publicly in the US. Aggregates don't turn into one another like they're moving on a conveyer belt. They're just classification buckets. If you have a dollar in a checking account, it's in M1, M2, M3 and M4 at the same time. A purchase commitment or a capacity guarantee on Nvidia's balance sheet is just a contract. It isn't in any aggregate, it isn't traded in a money market and nobody accepts it as payment. > ...via a similar mechanism to the Fed buying Treasuries, thereby increasing deposits at the Federal Reserve (MB) which in turn prompts banks to increase M1 Sorry but this is just wrong. Only the Fed creates reserves. Nvidia signing a contract doesn't do anything at the Fed. Banks create deposits when they lend and they're constrained by capital and loan demand, not a reserve ratio. Since 2008, reserves have gone up 10x and M1 hasn't. See "Money creation in the modern economy". The multiplier theory as an explanation of how money gets created has been dead for years. > The $500 billion isn't net-sixty trade credit I wasn't even talking about this. My comment addressed the OP's argument that Nvidia is holding customer debt as a bank-like asset. That debt is receivables and it's 53 days on average, not years. The $500 billion in the article is mostly bank and private credit cash being loaned to Nvidia's customers and Nvidia providing backstops and guarantees. So if money is being created here, it's the lenders who are creating it, not Nvidia. In this case, Nvidia isn't a bank, it's a credit enhancer. The legitimate concern is that Nvidia's guarantees are encouraging lenders to lend money to neoclouds on better terms than they otherwise would get (or should get if you want to make that argument). But that's not money creation and trying to pretend that it is only distracts from the real issues.
- JumpCrisscross 20d ago
  > Aggregates don't turn into one another like they're moving on a conveyer belt Conveyor belt is wrong. The term you're looking for is transmission channels. MB is turned into M1 through lending. M3 is turned into M1 through collateralisation and demand stimulation, among other effects. > If you have a dollar in a checking account, it's in M1, M2, M3 and M4 at the same time. Yes. > A purchase commitment or a capacity guarantee on Nvidia's balance sheet is just a contract. It isn't in any aggregate Of course it is. Why do you think the SPVs want the commitment? They turn around and issue commercial paper and get bank loans and get bonds underwritten against those commitments. All of which turns into checking account deposits. Those SPVs also get a credit rating which lets them sign construction contracts which builders turn around and turn into deposits. > Banks create deposits when they lend and they're constrained by capital and loan demand, not a reserve ratio Banks are constrained by capital and liquidity requirements, on one hand, and loan demand, on the other hand. > if money is being created here, it's the lenders who are creating it, not Nvidia. In this case, Nvidia isn't a bank, it's a credit enhancer Yes. When the Fed buys Treasuries and increases a bank's reserves at the Fed, it's not actually doing anything in the real economy. The banks then have to turn around and increase lending. If, as you noted, loan demand is stagnant, they have to cut prices, i.e. rates. The Economist is comparing Nvidia "enhancing" credit conditions in a manner analogous to the way the Fed does. By creating a base that stimulates lending. > that's not money creation and trying to pretend that it is only distracts from the real issues It's absolutely money creation in the way a central banker or anyone in the money markets would talk about it.