Comment by mynegation | Hacker News Reader

Comment by mynegation | Hacker News Reader

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OK, I'll bite. Imagine your mom gives you cookies and everyone in your school is willing to exchange cookies for other nice things. Lately your mom was giving you so many cookies that you accumulated lots of them. Your friends now come to you to borrow cookies more willingly than to your mom, despite her historically being more respectable cookie provider, just because she might not have too many left now.

At the same time you friend Tom opened a lemonade stand. He sells cookies with lemonade and this combo sells especially well. He wants to borrow cookies from you, promising he will sell a lot of stuff an then will buy and return more cookies than he borrowed to you (interest).

You see that lemonade stand does very well and you want to do it yourself. But unfortunately your mom forbids you to do so. So you do next best thing: you give Tom all of your cookies, and then some more that you - in turn - borrowed from mom and other friends, hoping that Tom will turn them around and return even more cookies to you.

Brilliant! That just made me realize that borrowing creates surplus which in turn creates larger and deeper networks. That works really well for everyone if supply and demand are stable and no one gets very greedy. But if not, then things can go bad for everyone.

For example if Tom's stall does not work well, then the "cookie crumbles". Your mom, of course, being your mom will still give you cookies, no matter you did not make wise decisions earlier and you will still hold on to your incumbent position as a cookie distributor even though you don't deserve it anymore.

This goes on for a while, till people don't want your mom's cookies anymore because, all their moms have also started distributing cookies generously.

Then a new kid comes to your neighbourhood with an exciting new flavor of cookies and suddenly it seems cool to be having those cookies. Your mom, obviously does not like it and tries to out-law or regulate those cookies. But then, the train has already left the station.

"Your mom, obviously does not like it and tries to out-law or regulate those cookies. But then, the train has already left the station."

That couldn't happen while your are living at your mom's house.

Just remember that your mom doesn't accept any other kind of cookies for paying taxes. OK.. maybe we stretched the metaphor a little too much there.

new flavor? did you just hint at Bitcoin

I love your explanation.

Just for the record. At the end of the day, your mother is the only able to do cookies and she is not limited in the ingredients. Your friends should remember that she could not be willing to do more but that doesn't mean that she can't.

Can you recommend an economics book or two?

Really depends on what you want to know. If you are totally new to the concept of money system, YouTube videos like this one [1] (it has three parts) have the best return on your time. Politically loaded but gets basics right.

If you want very condensed crash course in investing, economics, corporate finance etc., I can recommend CFA exam preparation materials. You do not need to take exam to get them, there are plenty of used books available for sale, and you can get them on the cheap as you are not worried about them being up-to-date

[1] https://www.youtube.com/watch?v=I_x626joik0 https://www.youtube.com/watch?v=l_IgcmsqnVM https://www.youtube.com/watch?v=rxZhtGeRa-M

thanks! sounds nefarious.

Likely not intentionally so, but it is effectively a game of hot potato with debt. Someone, somewhere has to be constantly taking on more debt to ensure the whole system keeps going.

Why? Why is eg constant debt not sustainable?

Money spent on debt servicing is money not spent on goods and services.

Why? What happens it? It gets buried in a hole?

The money you spend servicing debt is the money somebody else earns on their savings. And many people (retirees are an extreme example) happily spend such money on restaurant dinners and new cars.

If only it was so.

http://www.bankofengland.co.uk/publications/Documents/quarte...

Could you simply respond to the point? I already understand how modern central banks work so a reference to a 14 page intoduction doesn't help.

According to your claim, debt interest just disappears while i know for a fact that it does not since i've used such money myself (earned on my savings) in the past to buy stuff.

Earnings on savings are independent of debt repayments.

If you look at page 3 of the document, it talks about how repayments are basically an accounting alteration of the debtors deposit account.

Meaning that said account is reduced by the mount paid, but does not show up with a matching increase on any other account ledger (the banks own or any other).

Debt and savings are wholly uncoupled, no matter what mainstream economics likes to think.

The central banks pay out profits earned to their respective governments.

It depends on the amount of debt. Complex things like this cannot be condensed into black or white simplistic answers.

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