Hacker News Reader

I learned about this concept in college macroeconomics. I asked this exact question and the TA said “yeah I guess repaying debt is like destroying money” as if they had never thought of that before. The idea of lending money increasing the money supply is definitionally true.

View on HN

> the TA said “yeah I guess repaying debt is like destroying money” as if they had never thought of that before

They shouldn't have been a TA. Modern money is destroyed in three ways: through taxation, defaults and the extinguishing of debts.

Taxation destroys money?

Yes, the government doesn’t have a checking account. When it spends money, that money is created and its balance sheet grows. When it receives taxes the balance sheet shrinks as the money is destroyed. If there’s a gap it gets filled by issuing bonds. Thats the national debt. These are conventions, not absolute rules, so governments can go rogue but it doesn’t end well

And when debt is wiped out through bankruptcy that inflation remains.

> when debt is wiped out through bankruptcy that inflation remains

Bankruptcy is deflationary. The same way credit creation makes money bankruptcy (and any other reduction of debt, including through repayment) destroys it. It's why financial crises were often followed by deflation in gold-based economies.

Reply on news.ycombinator.com