7 ms·

In the macro economic sense, fiat money isn't 'used up' or 'locked away' when you buy something like crypto, it's transferred from your account to someone else'

In the macro economic sense, fiat money isn't 'used up' or 'locked away' when you buy something like crypto, it's transferred from your account to someone else's bank account. Worse, it goes through the process of fractional reserve banking and multiplies about ~10x after changing hands repeatedly.

RC_ITR 5y ago
The trickiest question in business that noone seems to get right: Q: How much money flows into "X" market? A: None, money flows THROUGH markets.
- medvezhenok 5y ago
  Yes, although you could argue that money that was transferred from a checking account to a brokerage account has « flowed into » a market, at least for the time it takes to settle any trades and for the counter party to withdraw theirs (since it will not be used for consumption)
  - RC_ITR 5y ago
    Lol you’re giving me an opportunity to be snarky and I will not turn it down. :) Yes, when an item goes through something, it is briefly inside of that thing. I agree.
- WA 5y ago
  Not sure about that. Money velocity went down a lot. If you pay Apple money, Apple – the company – keeps that money as cash reserves in some form or another. This might be reinvested and circulates a bit more, but is it really spend in the real economy so that average Joe benefits from this?
  - RC_ITR 5y ago
    Discussion is around the stock market. Yes, when you buy newly issued shares from Apple (rare), cash flows through the stock market into Apple's accounts, but again, no money went 'into' the stock market. If you're talking about Apple selling devices, then it's another concept entirely.
- klipt 5y ago
  Although if you have X in circulation as money, and Y in stock market valuation, you could say Y/(X+Y) of total value is in the stock market. If the market valuation goes up to Y+Z, you could say money has "entered" the stock market, pushing its share of value to (Y+Z)/(X+Y+Z) even though the money in circulation, X, could be unchanged.
markus_zhang 5y ago
Not necessarily if the money goes to just a few person though.
neilwilson 5y ago
There's no such thing as fractional reserve banking. It's an urban myth that has been debunked by QE for over a decade. Lord only knows why people still believe it. Banks create money on demand by discounting collateral. Government creates money on demand by discounting the power to tax. Fiat money disappears by the drain to taxation, to repaying loans and to 'rainy day funds'.
- baking 5y ago
  Queen Elizabeth?
  - derwiki 5y ago
    Quantitative Easing
  - neilwilson 5y ago
    That would be HMQ.
- RhodesianHunter 5y ago
  This is easily verified as nonsense. Fractional reserve banking absolutely exists. QE is so thinly related I can hardly imagine how you could contort it to have "disproved" something which is codified in law and taught in basic finance and economics courses.
  - neilwilson 5y ago
    Is it. The reserve ratio in the UK and Canada is zero. Which means we should have infinite money in the banking system according to your beliefs. Yet demonstrably we do not. You have the line of causality backward, as the Bank of England helpfully explains in detail here: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
    - bezalmighty 5y ago
wexler88 5y ago
First sentence absolutely correct, second sentence absolute garbage.
tim333 5y ago
But if someone with money to spend transfers it to a crypto scammers account rather than buying say a car, that avoids inflationary pressure on car prices.
KETpXDDzR 5y ago
That's correct. However, investing in Crypto using dollars will inflate the dollar. Thus, the arguments that the government will probably leave crypto alone, still holds.
Dylan16807 5y ago
Minus all the fees to the crypto miners, which end up wasting many hours of labor and causing pollution. That money will eventually be used again but it's worse than paying someone to dig and fill a hole.

RC_ITR 5y ago

The trickiest question in business that noone seems to get right: Q: How much money flows into "X" market? A: None, money flows THROUGH markets.

medvezhenok 5y ago
Yes, although you could argue that money that was transferred from a checking account to a brokerage account has « flowed into » a market, at least for the time it takes to settle any trades and for the counter party to withdraw theirs (since it will not be used for consumption)
- RC_ITR 5y ago
  Lol you’re giving me an opportunity to be snarky and I will not turn it down. :) Yes, when an item goes through something, it is briefly inside of that thing. I agree.
WA 5y ago
Not sure about that. Money velocity went down a lot. If you pay Apple money, Apple – the company – keeps that money as cash reserves in some form or another. This might be reinvested and circulates a bit more, but is it really spend in the real economy so that average Joe benefits from this?
- RC_ITR 5y ago
  Discussion is around the stock market. Yes, when you buy newly issued shares from Apple (rare), cash flows through the stock market into Apple's accounts, but again, no money went 'into' the stock market. If you're talking about Apple selling devices, then it's another concept entirely.
klipt 5y ago
Although if you have X in circulation as money, and Y in stock market valuation, you could say Y/(X+Y) of total value is in the stock market. If the market valuation goes up to Y+Z, you could say money has "entered" the stock market, pushing its share of value to (Y+Z)/(X+Y+Z) even though the money in circulation, X, could be unchanged.

markus_zhang 5y ago

Not necessarily if the money goes to just a few person though.

neilwilson 5y ago

There's no such thing as fractional reserve banking. It's an urban myth that has been debunked by QE for over a decade. Lord only knows why people still believe it. Banks create money on demand by discounting collateral. Government creates money on demand by discounting the power to tax. Fiat money disappears by the drain to taxation, to repaying loans and to 'rainy day funds'.

baking 5y ago
Queen Elizabeth?
- derwiki 5y ago
  Quantitative Easing
- neilwilson 5y ago
  That would be HMQ.
RhodesianHunter 5y ago
This is easily verified as nonsense. Fractional reserve banking absolutely exists. QE is so thinly related I can hardly imagine how you could contort it to have "disproved" something which is codified in law and taught in basic finance and economics courses.
- neilwilson 5y ago
  Is it. The reserve ratio in the UK and Canada is zero. Which means we should have infinite money in the banking system according to your beliefs. Yet demonstrably we do not. You have the line of causality backward, as the Bank of England helpfully explains in detail here: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - bezalmighty 5y ago

wexler88 5y ago

First sentence absolutely correct, second sentence absolute garbage.

tim333 5y ago

But if someone with money to spend transfers it to a crypto scammers account rather than buying say a car, that avoids inflationary pressure on car prices.

KETpXDDzR 5y ago

That's correct. However, investing in Crypto using dollars will inflate the dollar. Thus, the arguments that the government will probably leave crypto alone, still holds.

Dylan16807 5y ago

Minus all the fees to the crypto miners, which end up wasting many hours of labor and causing pollution. That money will eventually be used again but it's worse than paying someone to dig and fill a hole.