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Comment by danielrm26 | Hacker News Reader

It's fascinating to think about how overall economy might be affected by simply adding a row to a database. Did that money actually become real when that row was created? If the money was withdrawn and spent, wouldn't it be real then?

Makes you wonder about the regulation of money in general.

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No, hacking one bank doesn't really impact the wider money supply. The Federal Reserve serves as the bank's bank. It knows how much each bank has, and the individual banks are limited as to how much new money they can create in relation to their credit at the Fed.

But if you hacked the Fed itself, yes, you'd be creating new money.

True, BUT because banks operate on a fractional reserve system, it's quite likely that banks have available credit for lending (or creating, in the event of an error such as this) for such a small amount without exceeding their fractional reserve. In other words, banks only have to hold 10% [1] of the money in everyone's account. The rest is loaned or otherwise invested to generate returns.

So in a sense the money created IS real. At least, as real as any other money in a bank account.

[1]: http://en.wikipedia.org/wiki/Reserve_requirement#United_Stat...

True, in that sense you're essentially forcing the bank to make a loan they didn't intend to make (which does indeed expand the broad money supply).

If the bank had sufficient excess reserves, other banks would honor the new money. And today most banks do have big excess reserves (which is historically unusual).

No that is false. The money supply is endogenous. Its tied to the health of the economy and the amount of debt the private sector is willing to take on. Fractional reserve banking is a myth. Bankers do steal by using banks to create money for themselves. Research the S&L crisis and also the 08 crisis. They don't directly print money for themselves b/c regulators will catch them. They do it in an obfuscated way by creating fraudulent loans and charging 'legal' fees in the process.

I don't dispute that banks create money and greatly affect the money supply.

Under normal conditions, the banks stay pretty close to their reserve requirement, so a hacker suddenly creating a gigantic new loan at a bank is likely to push them over the limit and draw attention, either immediately or when somebody tries to move the money to another institution.

But at present, many banks do have big excess reserves, so getting away with it is more plausible. It essentially becomes a loan the bank didn't really intend to make.

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