Cykros on Nostr: To illustrate the hair splitting, we can say that deposits come out of thin air, as ...
To illustrate the hair splitting, we can say that deposits come out of thin air, as banks extend them in excess of their cash. They often do this to buy treasury securities, which in some sense we can say are backing these deposits. When those deposits get demanded (spent), the banks will repo the treasuries, either to get reserves, or often, deposits at another bank, when those deposits in turn can cover the debt being settled (perhaps directly with the bank on the other side of the transaction). While treasuries may not be spent at the grocery store, there is very much a sense in which banks do use them as money, through discounting, to settle between each other. ESPECIALLY in the Eurodollar system, where most dollars in the world exist, and where reserves do not. Also of note is that things that aren't treasuries at times fulfill this role, such as various derivatives including forex and currency swaps, and famously in the early 2000's, securitized agency backed mortgage debt. Naturally, some of this collateral is better than others, and both credit and durstion risk are hazards banks engaging in the money markets need tl manage to maintain liquidity (and thus, stay alive).
QE is an emergency measure undertaken to fill in the hole when those risks are not adequately managed. The thing about emergency measures though is that alarm bells make people panic. They say, risk is high right now, be careful. So banks lend less, both to the real economy and to each other. Making matters worse, this gets done when interest rates are low -- and discounting is one of the primary methods banks use to manage credit and duration risk. So they lend less. The result is, there is less money, or, precisely, credit, floating around in the system. Making it harder for those with outstanding debt to make good on their liabilities, further impairing bank assets.
So what's my point. QE was sold to the nation as inflationary money printing; something that would jump start the economy. Both in the US, and where it was pioneered in Japan for 30 years unsuccessfully. That it may be technically called money printing is little solace given the impact it has on the broad money supply. Beyond that, those reserves aren't really money, so much as a debt themselves that the Fed extinguishes with interest earned on its operations, offset by what it terms 'deferred assets' on its balance sheet. The Treasury will print money to back them where necessary to be sure, so I do see your reason to say once the reserves are issued, it's as good as money printing, but given that we're in hair splitting territory, I'd just gold enough isn't good enough. Especially when there's a case to be made that the Treasury's issuance can be said to be their debt to every holder of those notes, which gets extinguished through the counteracting debt of taxation.
J.P. Morgan once said 'Gold is money; everything else is credit.' We may have been on the gold standard at the time, but we had those same paper dollar bills. They were credit then, and they're credit now. The difference now, though, is that we have Bitcoin, which also is not credit.
So again, I urge bitcoiners to give Jeff some grace. We all use sloppy language sometimes. By all means having these discussions to clarify are great; steel sharpens steel. But when disagreeing, be sure you're doing it from an angle that lets your own blade sharpen too.
QE is an emergency measure undertaken to fill in the hole when those risks are not adequately managed. The thing about emergency measures though is that alarm bells make people panic. They say, risk is high right now, be careful. So banks lend less, both to the real economy and to each other. Making matters worse, this gets done when interest rates are low -- and discounting is one of the primary methods banks use to manage credit and duration risk. So they lend less. The result is, there is less money, or, precisely, credit, floating around in the system. Making it harder for those with outstanding debt to make good on their liabilities, further impairing bank assets.
So what's my point. QE was sold to the nation as inflationary money printing; something that would jump start the economy. Both in the US, and where it was pioneered in Japan for 30 years unsuccessfully. That it may be technically called money printing is little solace given the impact it has on the broad money supply. Beyond that, those reserves aren't really money, so much as a debt themselves that the Fed extinguishes with interest earned on its operations, offset by what it terms 'deferred assets' on its balance sheet. The Treasury will print money to back them where necessary to be sure, so I do see your reason to say once the reserves are issued, it's as good as money printing, but given that we're in hair splitting territory, I'd just gold enough isn't good enough. Especially when there's a case to be made that the Treasury's issuance can be said to be their debt to every holder of those notes, which gets extinguished through the counteracting debt of taxation.
J.P. Morgan once said 'Gold is money; everything else is credit.' We may have been on the gold standard at the time, but we had those same paper dollar bills. They were credit then, and they're credit now. The difference now, though, is that we have Bitcoin, which also is not credit.
So again, I urge bitcoiners to give Jeff some grace. We all use sloppy language sometimes. By all means having these discussions to clarify are great; steel sharpens steel. But when disagreeing, be sure you're doing it from an angle that lets your own blade sharpen too.