Money creation in the modern economy - Quarterly Bulletin
Why Hacker News recommends it
HN people use it as an authoritative, plain-English source from a central bank that loans create deposits, rather than banks lending out saved money.
What it is
A short Bank of England video accompanying its 2014 Quarterly Bulletin article on money creation. It explains that most money is bank deposits and that commercial banks create new money by making loans, which simultaneously create matching deposits.
Recommended by 2 HN commenters across 2 different months, 2016 to 2021.
What Hacker News said
Recommends namelost · 2018-03 · on “Money creation in the modern economy (2014) [pdf]”
You can't miss the accompanying videos that they recorded down in the basement: 1) [LINK] (beginner) 2) [this video] (advanced)
Recommends rahimnathwani · 2021-09 · on “Money creation in the modern economy (2014) [pdf]”
Some of the content is in this short video: [this video] Money is created by both the central bank and retail banks. When the Bank of England buys an asset, it pays in newly-created pounds. These pounds are an obligation of the central bank, i.e. a debt owed by the bank. So these pounds are 'central bank money'. When a commercial or retail bank gives you a loan, you have two accounts at the bank that move in opposite directions: - current account is credited by $X (bank owes you money) - loan account is debited by $X (you owe the bank) So the net effect is zero (the sum of all your balances with the bank is still the same as before the loan was made). But now there's more money in your current ac
Cites notahacker · 2016-05 · on “Bank Underground, the blog written by Bank of England staff”
This is not exactly secret knowledge you have to be a guerilla to let out. I mean, the bank itself does that in formal bulletins released on its website [LINK] and even produces video for people that don't like reading economic papers [this video]
Cites icu · 2018-06 · on “Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020”
In basic terms, inflation is the loss of purchasing power due to an increase of the monetary supply faster than economic growth. In plain English, this is where more currency is chasing the same number of goods and services. This means your unit of currency buys less over time. What is 'wrong' with this is that inflation is a transfer of wealth—some people even go so far as calling it theft or a 'stealth tax.' This is because the purchasing power that you had in your unit of currency isn't 'lost', it is actually transferred to the institutions creating the money. If you had $1 worth of pennies in your pocket, and inflation was 1%, it is like an invisible hand reaching into your pocket and st
Cites nunb · 2019-05 · on “Banks Look Safer with Deposits”
Yes it's a multiplier scheme and if you squint just right, it's pretty much a ponzi too. But it isn't a pedantic way of restating "lend out". Discussion of the issue is often fraught with accusations of conspiracy theory. Austrian economists (widely regarded as kooky by the establishment) have a bunch of books related to these issues perhaps the best of which is Rothbard. _0 [LINK] _1 [LINK] _2 [LINK] _3 [this video]
Cites icu · 2019-07 · on “Currency (Restrictions on the Use of Cash) Bill 2019”
There are two topics here: a) the time value of money, and b) the fractional reserve system. There is also a 3rd topic, which is inflation, which is implied in your question. Topic 1: The time value of money is the bit about "a dollar today is worth more than a dollar tomorrow". The reason why this is the case, is because if I give you $1 dollar today, and you give me $1 dollar at the end of the year (metaphorically "tomorrow"), than I would have missed out on the interest I could have earned by lending it to the bank (in a savings account) or the Government (in a bond). I hope this makes it clear why there is a greater benefit to receiving money now, rather than an identical sum later. Topi
Cites jazzyjackson · 2021-09 · on “Dutch entrepreneurs avoiding negative interest by opening multiple bank accounts”
When a bank loans 10,000 dollars, the amount is credited to a checking account. It does not have to come from somewhere else. What use would a loan be if you kept it in your checking? Don't take my word for it, take it from the Bank of England's Quarterly Bulletin [0] "Banks create create additional broad money whenever they create a loan... it runs contrary to the view sometimes put forward that banks can only lend out deposits that they already have. In fact, Loans create deposits, not the other way around." [0] [this video]