3 ms·

> 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 p

> 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 21d 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.
- ElProlactin 21d ago
  > 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. "Transmission channels" are how policy (rates, credit, etc.) affects the economy, not how aggregates convert into each other. MB doesn't get "turned into" M1 by lending. Banks don't lend reserves to non-banks. The reserves stay inside the banking system. Lending creates M1 and reserves are provided to match. I see the point you're trying to make about M3. Instruments like commercial paper can serve as collateral for bank loans that create deposits, but that still isn't conversion. It's new deposit creation with a broad money instrument as collateral. > 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. The commitment isn't in any aggregate. It's collateral or credit support for instruments that are (the SPV's commercial paper and the resulting bank deposits). That's what I mean by Nvidia being a credit enhancer. You've now agreed the money is created by the lenders and Nvidia is the enhancer. That's what I said two comments ago, so what's left is semantics. > 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. The Fed changes the risk-free rate for the whole economy. Nvidia is compressing the credit spread for a specific set of borrowers by absorbing their tail risk. That makes Nvidia less like a central bank than a guarantor. The better analogues are Fannie and Freddie, or a monoline insurer. A guarantor's business looks free until the tail risks it took on turn out to be correlated which is what happened to the monolines in 2007. That's precisely the scenario the Economist piece is actually worried about (the guarantees coming due at the same time Nvidia's own sales weaken). > It's absolutely money creation in the way a central banker or anyone in the money markets would talk about it. Central bankers would describe this as easing financial conditions or enabling credit creation, not money creation.

JumpCrisscross 21d 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.

ElProlactin 21d ago
> 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. "Transmission channels" are how policy (rates, credit, etc.) affects the economy, not how aggregates convert into each other. MB doesn't get "turned into" M1 by lending. Banks don't lend reserves to non-banks. The reserves stay inside the banking system. Lending creates M1 and reserves are provided to match. I see the point you're trying to make about M3. Instruments like commercial paper can serve as collateral for bank loans that create deposits, but that still isn't conversion. It's new deposit creation with a broad money instrument as collateral. > 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. The commitment isn't in any aggregate. It's collateral or credit support for instruments that are (the SPV's commercial paper and the resulting bank deposits). That's what I mean by Nvidia being a credit enhancer. You've now agreed the money is created by the lenders and Nvidia is the enhancer. That's what I said two comments ago, so what's left is semantics. > 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. The Fed changes the risk-free rate for the whole economy. Nvidia is compressing the credit spread for a specific set of borrowers by absorbing their tail risk. That makes Nvidia less like a central bank than a guarantor. The better analogues are Fannie and Freddie, or a monoline insurer. A guarantor's business looks free until the tail risks it took on turn out to be correlated which is what happened to the monolines in 2007. That's precisely the scenario the Economist piece is actually worried about (the guarantees coming due at the same time Nvidia's own sales weaken). > It's absolutely money creation in the way a central banker or anyone in the money markets would talk about it. Central bankers would describe this as easing financial conditions or enabling credit creation, not money creation.