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Comment by lingben | Hacker News Reader

What this discussion lacks is a basic understanding of economics. It baffles me every time!

No one on HN would stand it for one second if a group of gardeners suddenly popped up and only with their knowledge and mastery of agriculture and botany decided to teach all the engineers and programmers a thing or two!

But by some miraculous logic, programmers and engineers are now pretending like they can replace wholesale the system that economics is built on and has mastered over hundreds of years of theory and practice.

ps money is not created by commercial banks but by the Fed through their ability to either buy or sell treasuries issued by the government but maybe that's splitting hairs

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"ps money is not created by commercial banks but by the Fed through their ability to either buy or sell treasuries issued by the government but maybe that's splitting hairs"

That's using an overly-restrictive definition of money (M0, or "monetary base") that doesn't mean very much in terms of how the economy works. Banks do not create new dollar bills, but they do create new "dollars on deposit at a bank" which I can spend very nearly like a dollar bill (sometimes quite a bit more conveniently) by writing you a check or setting up a wire transfer. This is what many people are paid in, and pay their rent and grocery bills in, and considering it "not money" is wrong. Economists include this in M1, which is a slightly broader measure of the money supply. There are still broader measures.

David Graeber from the Guardian writes that:

When banks make loans, they create money. This is because money is really just an IOU.

And that the paper:

...co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong.

The truth is out: money is just an IOU, and the banks are rolling in it http://www.theguardian.com/commentisfree/2014/mar/18/truth-m...

The Bank of England Paper: Money creation in the modern economy http://www.bankofengland.co.uk/publications/Documents/quarte...

Edit: added more text to second quote.

It depends on what your definition of money is. Banks do create money in the sense that bank deposits are money. He is correct in saying that loans create new bank deposits.

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