Hacker News Reader

Comment by NikolaNovak | Hacker News Reader

>>private banks, simply create the money they loan you themselves, as they wish.

I for one did not realize that. I thought that was what the single nation's central bank does. If strictly true, how does anything work, I. E. Why would they not just create money ad infinitum? I imagine there are crucial, critical details to that "simply".

View on HN

they have to buy banknotes from the central bank and there is a "reserve ratio" which determines the ratio of how many "banknotes" they own and what they can create.

More or less.

What people tend to forget is banks are just "middlemen" - they are a mechanism to facilitate trade and not much else.

Only tangentially related, but let's not fall into the fallacy of the middleman -- middlemen are only bad if they are legally or otherwise monopolistically required to be there. In other situations, they add value in the connecting of producers and consumers.

You mean like banks are? I don’t think I can call up the national reserve bank and get a loan to buy a house.

Central banks are not in the business of banking.

What value or service are they providing, and which "producers" and "consumers" are they connecting? In fact, they do have a monopoly wrt. their customers: they can credit themselves assets by creating a matching liability – inside the confines of regulatory limits – while ordinary people and businesses can't, and thus they have to pay the bank a fee to do that for them and give them the money.

1. There are no longer any reserve requirements in the US, UK, Canada, and other places. EU reserve requirements are 1%. Banks are instead constrained by capital requirements nowadays.

2. What value or service does this middleman provide? Why can't businesses and families and individuals get money by crediting themselves the money and creating a matching liability? This is what banks do.

1. Because they are all bankrupt/technically insolvent and trying to inflate and fight their way out of their debts to Russia, India and China.

2. Mostly pensions and pension funds - saving work now for payments later when you can't work - see 1.

2a. Additionally funding large projects which no one individual/institution can afford no matter how wealthy, such as building huge infrastructure projects like silk road and other national infrastructure. See 1.

Reply on news.ycombinator.com