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Comment by automatic6131 | Hacker News Reader

>whereby the first recipients of newly created money (banks and financial institutions)

This is commonly misunderstood. Central banks create interbank money that cannot be spent outside the financial system. The banks themselves create the new money by issuing loans. However, they issue these loans to the already rich, thereby exacerbating existing inequality.

There's a crucial distinction here to make, you are naming the correct effect, and it has the correct effect, but it happens somewhere different, so your proposed solutions would be adverse.

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> There's a crucial distinction here to make, you are naming the correct effect, and it has the correct effect, but it happens somewhere different, so your proposed solutions would be adverse.

Can you spell out the adverse effects you see in the proposal to credit money directly to people's accounts? It seems like the money people spend would go to paying directly for consumables and to paying off loans and the money they don't spend would stay in the banking system, helping to meet capital requirements and supporting the banks' loans to the rich (and others.) It seems like the above situation might create inflation in consumables but it wouldn't create asset price inflation. And since the money is going directly to those most affected by inflation in consumables, there's a different but reasonable balance achieved. So, I can see that you see something I don't see. Can you give some examples?

Bank loans (the money creation) largely flow to those with good credit - i.e. the upper and middle classes. They can use the extra credit to buy more assets like houses, or even take personal loans to 'yolo' into crypto to $TSLA.

The exceptional, pandemic-related stimulus money may have done something similar, but now I'm speculating. Of course, giving more money to people when consumables are inflating due to scarcity from a supply shock will only make the inflation worse, won't it? No matter whether you give money to wealthy people or everyone.

> They can use the extra credit to buy more assets like houses, or even take personal loans to 'yolo' into crypto to $TSLA.

I'd agree that this is the case and argue that it is what has been happening since the aftermath of the ~2008 GFC. I'd further argue that this is one of the chief drivers of inequality as it drives up the price of housing for everyone without driving up everyone's ability to pay for housing by the same degree. To my eye, that is an adverse consequence. That it also drives up stock prices is mainly of interest to the relative few in the economy who own stocks. That an increasing share of flat-ish income is spent on housing rather than on, e.g., food, is an adverse effect of the strategy.

You're moving the goalposts to raise supply shock scarcity rather than something inherent to money for everyone rather than money for the already monied. I do agree that supply shocks are probably a factor these days. That said, there's only so much a given population is able to consume and making sure that they all have an equal chance at it seems more pertinent to maintaining stability than increasing the price of assets, where there is no inherent limit.

I'd really like to understand this process. Is there a real world example of government employee adjusts a particular figure on a particular bit of software. That then somehow sends money to a particular bank?

1. Interest on reserves increases the rate of growth of commercial bank reserve balances held at the Fed: https://fred.stlouisfed.org/series/IORB

2. How Do Primary Dealers Make Money? Primary dealers buy bonds directly from the government and then resell them to clients and investors at a slight mark-up. This small difference in price is how primary dealers earn a profit. https://www.investopedia.com/terms/p/primarydealer.asp

Thanks

Bank of England details the process of money creation: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

Recommend picking up a copy of Central Banking 101[1] for a gentle introduction; the basic mechanics of fractional reserve banking are explained in Chapter 2.

[1] https://www.amazon.com/Central-Banking-101-Joseph-Wang/dp/09...

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