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How Money is created

Monetary & Quantitative Easing

So I just finished creating this diagram showing what Quantitative Easing and Monetary Easing is and more generally how new money is created and put into circulation, thus increasing the money supply.

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@icedquinn Well no, as you can see from the diagram the bankers need to sell the fed assets (usually government bonds) which they buy from the general public at free market prices in order to get freshly printed money. They dont get it for free.

@freemo sounds like an elaborate circle jerk of financial instruments.

maybe just print smaller denominations of dollars.

@icedquinn Ha well it is a bit of an elaborate play of balance sheets... but its not like anyone is getting free money out of the deal, and its all free market for the most part so everyone is on equal footing

@mur2501

I was actually explaining earlier how the inevitable and devastating consequence of barter is it prevents people from specializing in a skill or trade. Everyone is pressured to generalize their skills and only take up skills and trades that are needed by the vast majority of a society. This is the reverse of a money society where a highly specialized expert typically can make more money than someone who is generalized.

Its one of my three laws of money I posted earlier :)

@icedquinn

@freemo @mur2501 money abstracts barter but when the economy is a fail state you can always just bring back barters to restart it.

i posted about the necessity of this to get people off the central banking scam.

populists will never win until they can jettison the finance industry.
@freemo @mur2501
:blobcatphoto: oh but quinn
case example: nikola tesla. ONE (1) banking bitch blackballed him, and suddenly he has no access to funds anymore. even independents who try to fund him outside end up getting blackballed or threatened for it. purely because a banker didn't like him anymore.

another case example: insex. had to go overseas because government pressured finance in to cutting them off. they had done no crimes.

yet more exampel: torba. again no crimes, just ran a shitty twitter clone. but that makes banks mad, so he gets the yeet.

@freemo @icedquinn
If a specialized society can't make more money then it's not devastating

@mur2501 @freemo we will eventually have to figure out a new system than "who does not work does not eat," as we render human labor exponentially pointless.

@icedquinn

I dont think the common notion of "we are rendering all human labour worthless" is at all accurate personally.

Automation in one sense or another, much of which eliminated entier classes of jobs through history, has been around since the earliest humans started building things.

Decade after decade for thousands of years new ways of automating human tasks were invented and those jobs disappeared. But there were always more and new jobs to take its place. This is no different.

@mur2501

@freemo @mur2501

we enforce a system based on doing work (including menial labor) to assign value to a person.

we then destroyed much of the jobs people would have done through industrial revolutions (which also centralized wealth to capitalists who can afford the expenses.) this was handwaved by "oh but see they can just get better different jobs."

okay, this diffused from ex. a room full of people poking cloth with needles to a diaspora of different jobs delivering sandwiches and changing tires for sandwich delivery trucks etc.

then outsourcing destroyed the jobs that those "better" jobs were feeder jobs for.

then AI is, slowly, destroying both feeder jobs and potentially the base jobs as well. for example when you see "X jobs moving back to the US from China" the amount of jobs the CN lose is greater than the jobs US gains, meaning robotization cost 20-50% of total human labor potential.

job availability is on a hard decline. we need people the least we ever have, but we have more than we ever did.

this is a problem. one nobody wants to deal with, and just sort of hopes to kick down the road as much as they can.

@icedquinn

IMO youa re conflating issues. There are absolutely concerns that labour needs to face, some of that is inequality when it comes to opportunity to make money. there are also concerns with automation in the sense that the new and better jobs they get involves training and if people are poor they cant afford that, so there are issues around ensuring these people have access to training at all.

But my point is the idea that automation is eliminating jobs and making human labour obsolete is a fictitious one. Its created jobs that replace older jobs, its just that too has problems.

@mur2501

@freemo @mur2501 AI is absolutely destroying jobs. Not "displacing" them. This is a topic of open research right now.

@icedquinn

Yes it is a topic of open research, there is no consensus that it is destroying jobs and not simply changing or replacing them. Some people hold that opinion who have studied and researched the matter, others do not.

It is not by any measure a settled fact. Though some people (like yourself) do hold strong convictions that it is undeniably true.

@mur2501

@freemo @mur2501

explain to me what jobs are created when the driver of the UPS truck is replaced by a fully autonomous delivery drone.

@icedquinn

Sure

  • the team of 20 writing the AI software.
  • The team of 10 doing CI for them.
  • The server administrators that host the servers that push out updates.
  • The network administrators across the country that need to maintain the networks to suppose the added traffic to support those updates.
  • the car salesman who sell the car.
    *the mechanic who needs to maintain the systems of the the, ones that are very different than others so requires specialized skills at a higher pay.
  • The electrical engineer who needs to design the circuit board that will run the drones hardware, including future revisions
  • The mechanical and aeronautical engineer who needs to design the physical components of the drone.
  • The artist who designs the logo and painting of the shell of the drone
  • the drone operator or overseer (in the case of autonomous usually monitors many drones at once) who monitors the drones and ensures the fleet is operational.
  • The chemists who are designing new battery chemistries better suited to drones since range is an issue right now and we need better battery density to make them more useful.
  • The people working the mines harvesting the copper, the silicon and other raw materials for the drones
  • The oil rig workers who need to provide oil to the plastics industry to produce the plastic for the drone.
    *The people who produce the plastic used in making the drone
  • The team that tests the drones
  • Regulatory agents and inspectors who review the drones compliance to FCC regulations
  • RF engineers capable of designing the communication system for the drones
  • Licensed RF operators to ensure the facility remains in compliance with FCC radio regulations

This is just the tip of the iceberg, the list of jobs are in fact so long I could probably go on listing people for some time.

@mur2501

@icedquinn

No, programmers exist.. programmers hired to work on autonomous ups delivery drones do not, nor has anyone specialized in that since they didnt exist before now.

All of those jobs are new people that need to be hired to support the **extra** resources needd to build and maintain those drones. While some of **types** of jobs arent new.. it does generate need for new **employees** to do those jobs since there are none to support UPS drones prior to UPS drones being invented... You cant take programs from other active projects, so you need to hire new people for the new initiative and that ripples all the way through the worker base creating additional jobs at every level.

@mur2501

@freemo @mur2501

Google has one of the most advanced server and database systems on the planet, which spans the entire planet. They only have ~100k employees.

USPS' drives trucks around a single country and moves boxes. From their website:
> The Postal Service has collective bargaining agreements with seven different unions, representing nearly 500,000 employees.

that's a pretty massive difference of people to "displace" in to .. what appears to be entirely technical jobs with qualifications those people do not posess and cannot posess as we do not even have provisions for retraining.

but i don't think there is a point to me replying further.
@freemo
I personally do think this modern round of automation is very different. We now have technology to significantly reduce scarcity using automation. So the result as time passes will not be starving people with no jobs as the doomsayers say (because they have no foresight or imagination), but significantly reduced prices and therefore less need to work. Less jobs then is no longer a problem, because people can work significantly less and still sustain themselves.

I've been following these conversations btw and you've got a very interesting perspective.

@icedquinn @mur2501
@mistermonster @freemo @mur2501

> because they have no foresight or imagination

well we do, i first heard of UBI/NIT from r/singularity talking about it. transhumanists and singularity seekers kinda have been discussing this problem for decades ahead of everyone else and its basically all the same.

you either have a massacre event to bring the population down to what jobs are left, you have a support system (UBI/NIT), or a radical redefinition of economics (reputation economy, time banking.)

it is not even necessary to make a "super AI." while there are some bots that have superhuman performance in set tasks, even simple human level performance is sufficient. hell, maybe even just "almost human" performance. for reasons like they never sleep, form unions, go on strike, die in accidents, skim money off the top, etc.

every job will, eventually, be destroyed.

this has been asked in the H+ circles in general. "what is everyone going to do when there is nothing left to sell?" and sometimes people answer "sell robots" to which the reply is "the robot makers will just sell robots to one another?"
@icedquinn
Maybe I'm a bit dismissive. I searched and searched for anyone to tell me a UBI plan that actually works, that isn't just slavery of one class or all of them. The usual answer involves something along the lines of "money is a circle", completely ignoring wealth. I did find one person who laid out a plan for a working UBI of sorts, but it is essentially nationalization of a resource (and the only resource that really can and arguably is de facto already nationalized) and paying dividends to "owners" of that government. It was written by the founder of the Pirate Party in Sweden and you can read it here https://falkvinge.net/2017/03/01/a-simplified-taxless-state-a-proposal-part-1/

I think a problem with a lot of proposals are short sightedness, engineer's propensity to ignore natural laws and believe everything can be engineered (such as "eliminating free markets" and other talk of this sort), and with regard to automation, refusing to accept that lowered costs in fact do result in lower prices in a free market.

You can automate every job and still have jobs for people. There will always be someone willing to pay a human for services, even if it is only novelty services or grey market economic activity. And as I pointed out earlier, when prices go down, costs go down, and if automation delivers on that the way it has the potential to (that is, if unions or other organizations don't force us to pay people to do things we don't need people to do) then the idea of every person working full time just to live will be as alien as everyone working 100 hours is to us now. You wouldn't need a full time job per person if everything was extremely cheap, working 10 or 20 hours a week might suffice if toothbrushes were 10 for a penny.
@freemo @mur2501

@freemo AFAICS, this is completely ignoring fractional reserve banking, and that the vast majority of actual currency being created is printed into existence by private banks loaning out dollars they don't have to their customers.

@raucao It does not and is not an attempt at illustrating the fractional reserve part of the system, so you are correct it does not illustrate the "money multiplier" effect

However it isnt entierly accurate to say that they are loaning out money they dont have. They have the money in their vault, the agreement you make with a bank when you deposit the money is that you are loaning them the money and they are free to do with it whatever they want, including loan it to others. So it is absolutely their money to loan, you gave it to them for that purpose.

The deal you made with the bank is basically that they are allowed to loan out your money for as long as you keep it deposited and in return they will pay you a percentage of interest on your money as a sort of profit sharing on the money they make off being able to loan your money. In addition to that they will offer you the service of protecting your money.

So while you arent wrong your wording seems a bit disingenuous to me.They have the money, they took the loan from you and in exchange use the money they loaned and loan it to others.

@freemo That's not how it works, sorry. In fractional reserve banking, the bank actually does not lend out deposited money (for the most part). It lends out money that wasn't ever deposited, beyond the reserve requirement, which is as low or lower than 5% in most countries at the moment.

What you describe is the romantic version of banking, which is being taught in school, and which we all wish would be the case. But it has no connection to today's actual banking and money creation reality.

@freemo The Wikipedia article on this is actually pretty decent: en.wikipedia.org/wiki/Fraction

And, even worse:

> In others (such as the United States), the central bank does not require reserves to be held at any time - that is, it does not impose reserve requirements.

@raucao Thsi is one of my areas of expertise, so I can say quite confidently yo uhave the finer details wrong but you do seem to have read up on this because you are using many of the words 90% correctly. So I do appreciate youve tried to put time into learning this stuff and not trying to knock that,.

That’s not how it works, sorry. In fractional reserve banking, the bank actually does not lend out deposited money (for the most part). It lends out money that wasn’t ever deposited, beyond the reserve requirement

This isnt true, when you “beyond the reserve limit” the technical term for that is “Excess reserve”. It is money they have, it is cash sitting in their account at first, that cash can be obtained either from the fed throught he resale of bonds or from deposits.

The excess reserves are money they actually have on their balance shit either being held from a depositor or their own cash obtained from the feds. They can then loan out that excess reserve at which point they dont have the cash themselves anymore on their personal bank balance sheet but you, as the depositor keep it on your balance sheet.

So its actually the other way around, the bank is loaning out money they have (they got it from you or the feds).. it is you who claims to have money you dont have… the balance on your checking sheet is 90% higher than the actual funds you have waiting in reserve int he bank (and you agreed to that being the case when you gave it to them).

@freemo Now you describe it a bit more correctly, but if you think about what you just said, it is not you who is certifying that you have that money, it is the bank. As you most likely do not have that money yet (according to pretty much all statistics about money supply), it is therefore the bank creating that money on paper when you borrow it from them.

@freemo Your explanation also does not take into account interest, by the way.

If you want to talk down to me, thinking your knowledge and point of view are superior, then I won't correct you anymore. But it is your chart that was misleading about how these things actually work when considering the most important "detail" that you simply left out.

@raucao thats sort of true.. for starters we have to be clear what "money" means.. money is not phsyical notes, if you are talking about physical notes then it has a different term "Monetary Base".. but up until the intention is that we are talking about total money supply, if i have misunderstood what you are saying in this regard please stop me now.

with that said, what the bank is really doing is keeping a reserve on hand that statistically should be enough to cover all expected with draws by all clients... while the money ont he balance sheets is quite a bit less than the total balance of all their clients, it is more than enough to handle any withdraws they make.

What is special about the situation, and why the bank can pretend it has more money than it has by putting on your balance sheet when you dont have it, is because they personally guarantee the difference, and this is backed up by the feds who DO have as much money as they need to back that up.

So in the unlikely event that a bank experiences a much higher than expected number of withdraws they are still more than capable of giving you your money and they will simply take a loan out from the central bank to cover it temporarily,a nd the bank will take the interest penalty themselves as it was their mistake...

So in all reality it isnt really just infinite money out of nowhere, it is backed, and backed with collateral, so it is secured.

@freemo Someone's a bit high on central bank fairy tales I see. No further questions.

@raucao Next your going to tell me the central bank makes money off you ::rolls eyes:: never mind the fact they cant legally hold a profit by definition and any profit it makes must be forfit...

Gotta love the central bank conspiracy theorists.

@freemo That's nonsense. Almost as much as what you just described being anywhere close to realistic in practice.

@raucao haha Q.E.D. then.

The degree of anti-fed conspiracy is always proportional to the ignorance of the person it seems.

Not only is it federal law they cant keep profits, not only have they in the past had to give those profits back to the US treasury, but it doesnt even have owners in the typical sense. The people running the fed are selected each election by the elected president. Those in charge do not get payouts from profits as an owner would either, they get paid and the amount they are paid is not related to the amount of money the fed itself deals in.

Literally nothing about the fed is in line with the usual conspiracy nonsense you hear but it seems the less people know about the process the more prevalent that thinking is.

I really dont mind if you wish to hate the fed or anything else. But please try to understand the things you hate at a minimum, because otherwise you just waste everyone's time.

@freemo I never said anything about the Fed profiting off of this. You're putting up a conspiracy strawman here. Just because you believe in the wacky MMT-style "the system cannot fail, because the Fed never runs out of money" theories, that doesn't mean you understand the fundamentals of this better than people you apparently have to put in a conspiracy drawer to avoid your own cognitive dissonance.

@freemo I didn't even talk about the Fed. You really need to check your prejudice dude.

@raucao Central Bank is another term for the Fed... You told me it was "nonsense" that they arent allowed to hold profit... ergo, yes, you make a remark about the fed.

@freemo You said something about me saying they're profiting, then I told you that what these people say is nonsense.

@freemo I never proposed that direct profit is a motive for central banks at all. You started that nonsense, so I said it's nonsense.

@freemo I said "central bank fairy tales" to your wacky MMT theory, which has been disproven many times in history.

@raucao I said absolutely nothing in support of MMT and the views I proposed were not the least bit in line with MMT. Nice try though.

@freemo You literally argued banks can print infinite money, because the Fed never runs out.

@freemo You probably don't even realize how your own explanation is literally the foundation of MMT?

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@raucao Nope I never said anything of the sort. Again nice try, but trying to tell me what I said when I didnt say it isnt going to progress this conversation in the least.

@raucao you do realize that when you quote someone it has to actually be something the person said... I said nothing of the sort, dont put words into my mouth.

@freemo Please go read the conversation. You came at me with a complete nonsequitur about how I will probably say next that the Fed profits off of me. To which I directly replied that that's nonsense.

@raucao It seems perhaps I misunderstoof you then..

When you said "That is complete nonsense" I took that to mean you thought it was nonsense that the fed didnt profit.

Sounds like what you are saying is that it is nonsense you would think such a think and that you do, in fact, agree that the fed does not and can not make a profit.

If that is the case then I apologize for misreading what you said (though by that point you had already acted somewhat rudely, so you have some blame in that interactions yourself I'd say).

@freemo @General
It's fairly easy to see how both these practices lower the interest rate and inflate the stock market. So it's a practice which rewards the higher risk of the market while penalizing the more conservative (usually older) investor. Are risk takers worthy of that much better deal? Is there a limit where these practices inherently produce instability in the economy?

@dvdmoore

To which practice are you refering to? All money creation, QE, ME, discount rate adjustment, reserve rate adjusement? I touch on several methods that all increase money supply so you have to be more specific.

I am posting ina few minutes a much improved version of the chart, it may make it clearer.

@General

@freemo @General
Monetary easing massively increases demand for bonds by govt purchases, and thus raises their price which lowers their yield. Quantitative easing, according to your chart, massively increases government investment in the stock market, raising prices by increasing demand. Both monetary, and quantitative easing suppress the yield on bonds and reward investment in the more volatile stock market. So bonds languish as a viable investment whereas stocks rise.

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