Comment by perl4ever | Hacker News Reader

Comment by perl4ever | Hacker News Reader

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>as long as the assets are denominated in money (your 401k balance is in dollars)

This seems to me like saying that if the size of an inch shrinks, things measured in inches will too. I mean, for the sake of argument, maybe they will shrink and maybe they won't, but the choice of inches vs. cm can't affect that; it's extrinsic. This sounds very much like something I've read for decades, that it matters greatly if oil is denominated in dollars, and it's made no sense to me in all that time.

>Everybody who doesn't get new money the Federal Reserve prints under normal circumstances is almost all of the population

People complain about stagnating real wages, but I'm unaware of exponentially declining real wages, let alone the same happening to investments, as you mention, like 401(k)s. I don't see how the details matter; if there was significant wealth transfer from almost everybody, then it would be obvious.

I think you are saying that somehow, in emotional terms, the banks are a vampiric drain on the economy. But how are they doing that? If they somehow make money vanish, then doesn't that mean it isn't circulating and causing buying power and inflation? In which case how can it matter? If all the excess money is being hoarded by a tiny number of people who are not spending it, isn't that protecting us from the ravages of inflation? If I have a trillion dollar coin, regardless of where I got it, it's nothing, unless someone takes it seriously when I say "please make me 10 aircraft carriers".

The idea that financial institutions possess all wealth is so weird I'm not sure I can believe anyone believes it. You can look up how much they are worth, would you say that the published figures are misleading, or do you think that regular public financial companies and banks are vastly outweighed by other entities?

> This seems to me like saying that if the size of an inch shrinks, things measured in inches will too.

No. Read my example of the ten people again, carefully. I don't think you have grasped it yet.

> People complain about stagnating real wages, but I'm unaware of exponentially declining real wages

I have said no such thing. I have no idea where you are getting this from. I have said nothing whatever about wages.

> if there was significant wealth transfer from almost everybody, then it would be obvious

It is obvious. See further comments below about McMansions, etc.

> I think you are saying that somehow, in emotional terms, the banks are a vampiric drain on the economy.

No. I am saying that the government is favoring financial institutions over everyone else by printing money and giving it to them. That does not mean financial institutions in themselves are not necessary. It just means they are being favored by the government, and this has negative effects and should be stopped. See my post in response to qnt upthread about misallocation of resources.

> If they somehow make money vanish

I have said no such thing. Where are you getting this from?

> If all the excess money is being hoarded by a tiny number of people

I have said no such thing. You are reading a lot of things into my post that are not there.

The financial institutions are not hoarding the money the Fed prints and gives to them. They are using it to make mortgage and commercial real estate loans, because that is what they are allowed to use it for under current policies. Which in turn means more economic incentive for people to produce things that can be bought with those loans: McMansions and commercial real estate, well beyond the amount that would actually be bought in a free market with no government interference. And, as a result, we have, as I said, McMansions galore and empty commercial real estate all over, while other things that people need or want more are unnecessarily scarce, because the economic demand that would have motivated people to produce them has been taken away and transferred to financial institutions.

> The idea that financial institutions possess all wealth

I have said no such thing. I have only said that when the Fed prints money and gives it to financial institutions, that is economically equivalent to transferring some wealth to them from everyone else. I have never said it transfers all wealth to them. I have not even said it transfers most wealth to them.

> The financial institutions are not hoarding the money the Fed prints and gives to them. They are using it to make mortgage and commercial real estate loans, because that is what they are allowed to use it for under current policies.

Again I think there’s a misunderstanding of monetary operations that lead to these conclusions. Banks absolutely do just sit on these reserves [1]. Banks do not lend reserves, nor do they need reserves or deposits in order to make new loans. Bank lending is constrained by the demand from creditworthy borrowers, and regulatory requirements. This [2] is a useful primer on modern lending mechanics

[1]: https://fred.stlouisfed.org/series/TOTRESNS

[2]: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

> Banks absolutely do just sit on these reserves

They have been to a much larger extent since the 2008 crash, yes. But not before that, as the graph you reference shows. What I am saying is by no means limited to the time after 2008.

> Banks do not lend reserves

There is a minimum reserve requirement, but for virtually all banks it is minimal--3% last I checked.

> nor do they need reserves or deposits in order to make new loans

They absolutely do depend on central bank policy, precisely as your second reference says: "The amount of money created in the economy ultimately depends on the monetary policy of the central bank."

What your reference is describing is not in any way inconsistent with what I said. It is simply describing the details of how the process works. Yes, the official line is that the banks create money by making loans. But how much money they are allowed to create this way is determined by central bank policy.

Also, the very fact that banks can create money this way, whereas you and I can't, is government favoritism of the banking system. In a sane economy, banks creating money out of thin air by making loans would be illegal, since it would be considered as what it is: counterfeiting money. But in our insane economy, this practice (fractional reserve banking with maturity transformation) is considered completely normal: notice how your second reference treats the idea that banks would only lend out money that is given to them as deposits as a quaint old-fashioned misconception, instead of obvious common sense.

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