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Maybe a dumb question but how is NVIDIA increasing the total supply of money? Only the fed can actually order more money to be "created". Private companies can
by manlymuppet 5d ago
Maybe a dumb question but how is NVIDIA increasing the total supply of money? Only the fed can actually order more money to be "created". Private companies can only work within the existing supply, that is, their reserves, no?
- cyberpunk 5d agoNV gives out a $100 to Party A, who puts it in their bank. Bank takes $90 of that deposit (assuming 10% fractional reserve rule, no idea what the actual number is), and loans it out to party B, who pays it into either the same or another bank. Same rules apply -- except now it's down to $81 being loaned out, and so on and so forth, until that 100$ generated $1000 in total bank deposits. edit: of course, it's never actually directly like this, a lot of other factors are involved, maybe the money is spent, maybe no one wants to borrow it, etc etc -- so it's more complicated but that's I think what they mean
- toenail 5d ago0%. Zero percent is the actual reserve rule. https://www.stlouisfed.org/bank-supervision/reserve-administration https://www.stlouisfed.org/bank-supervision/reserve-administ...
- JumpCrisscross 5d agoYup. Reserve requirements are functionally obsolete and never worked particularly well in the first place. Capital and liquidity requirements are far more robust and fine tuned.
- manlymuppet 5d agoThat was my intuition at first too, but the original comment specified that they weren't borrowing all this money they're spending. The article also says how this is part of NVIDIA's strategy to enable demand, not create it, so supposedly these investments into their customers are actually going straight to paying for things. Even if this money eventually gets loaned out eventually by one of NVIDIA's customers putting it into a bank, it isn't NVIDIA inflating the money supply, it's the borrowers, no? Or is this an ineffective way to look at things?
- neilwilson 5d agoThere is no such thing as fractional reserve banking. The multiplier is a myth. Quite why this persists when the Bank of England debunked it in 2014 [0] is anybody’s guess. Just another of those concepts that is neat, plausible and wrong. [0]: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
- JumpCrisscross 5d ago> There is no such thing as fractional reserve banking Yes, there is. We just changed how we measure the fraction from a crude one like a reserve requirement (which takes zero account of asset quality or funding source) to finer and more-robust ones like capital and liquidity reqirements. Banks still have to hold reserves. And those required reserves constrain their lending and thus the amount of money they can create. The limits just aren't the old-school reserve requirement.
- neilwilson 4d agoThey don’t constrain the quantity of lending. They only change the price. Liability side controls don’t work.
- JumpCrisscross 4d ago> They don’t constrain the quantity of lending. They only change the price Which country's capital and liquidity requirements are you thinking of? Because Basel III dictates ratios. These are hard limits on lending.
- neilwilson 4d agoLoans create deposits, deposits are used to buy bank capital issued by banks. There’s no hard limits. They are ratios which are preprepared because a bank knows how big its sales pipeline is and that takes time to complete. Nothing is limited in quantity. Even the silly SLR they have in the US is a pricing limit, not a quantity - as we see every time somebody moans about how much the deficit has gone up.
- idontwantthis 5d agoPrivate banks increase money supply by lending. If 10 people deposit $1000 in a bank, it can loan $9000 to an 11th person. Now the economy has $19000 total.
- esikich 5d agoThe $9000 has to be paid back, and then some. I sure hope you aren't an accountant.
- estearum 5d agoEventually Which is, you know, the entire risk that people are worried about.
- theoreticalmal 5d agoI learned about this concept in college macroeconomics. I asked this exact question and the TA said “yeah I guess repaying debt is like destroying money” as if they had never thought of that before. The idea of lending money increasing the money supply is definitionally true.
- hdgvhicv 5d agoAnd when debt is wiped out through bankruptcy that inflation remains.
- JumpCrisscross 5d ago> when debt is wiped out through bankruptcy that inflation remains Bankruptcy is deflationary. The same way credit creation makes money bankruptcy (and any other reduction of debt, including through repayment) destroys it. It's why financial crises were often followed by deflation in gold-based economies.
- JumpCrisscross 5d ago> the TA said “yeah I guess repaying debt is like destroying money” as if they had never thought of that before They shouldn't have been a TA. Modern money is destroyed in three ways: through taxation, defaults and the extinguishing of debts.
- arcanemachiner 5d agoBanks create money when issuing a loan. This is how fractional reserve banking works. They lend money they don't have (most of). This is institutionalized fraud, and it's been standard operating procedure for centuries.
- conmod278 5d agoBut the fraction to be kept in reserve has been zero for 4-5 years.
- neilwilson 5d agoAlmost like the concept is complete bunkum. It’s been zero in the UK for hundreds of years.
- kennywinker 5d agothat.. doesn't make it better
- jurgenburgen 5d agoIt was replaced by other mechanisms. It’s not literally zero any kind of reserves.
- kennywinker 4d agoI’m not worried about the lack of reserve, i’m worried about the money shell game where private companies can drive inflation or deflation whichever serves their profit margins best. The 2008 global financial crisis was a result of this, so not a made up worry.
- deleted 4d ago[deleted]
- JumpCrisscross 4d ago
- conmod278 5d agoI think at the top level between Govt and Industry and understanding has been reached that AI industry will be backstopped
- master_crab 5d agoThey aren’t; the parent comment is incorrect. It’s safer to say Nvidia is encouraging the money that already exists to be deployed on AI buildouts. But everyone is now chasing the same opportunity (AI and its dependencies like hardware and power) that will drive prices higher in those sectors until supply responds (or demand disappears).
- sailfast 5d agoIf they’re effectively guaranteeing $500B in loans that adds close to $500B to M1, basically, that banks were not otherwise providing or loaning - at least that was my calculation.
- JumpCrisscross 5d ago> Only the fed can actually order more money to be "created" No. Most money in modern economies is created by private parties [1]. [1] 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-...
- j16sdiz 4d agoPrivate Banks. They are regulated as bank under fed.
- JumpCrisscross 4d ago> Private Banks Currently. But nothing requires is. Banks can uniquely create M1. Nvidia is creating M4, which turns into M2 through the money markets, which turns into M1 at banks. It's more convoluted and limited than the Fed creating monetary base to increase M1. But the net effect is similar–more M1.
- neilwilson 5d agoAll debt is money. Anybody can create money, the trick is getting other people to accept it. Nvidia is vendor financing its output. An ai company order $100m of GPUs. Nvidia delivers and holds onto that debt as an asset - like a bank loan. The production company uses AI to create better plant and purchases $100m of AI tokens to do so. The ai company hold that debt like a bank loan Nvidia requests $100m of production based on its $100m of orders. The production company holds that debt like a bank loan. You now have a monetary loop. Take a single $10 bank deposit and Nvidia pays the production company, who pays the ai company who pays Nvidia. Run that round the circle a few million times and everybody has been paid. Rinse and repeat.
- creativeSlumber 5d agoIf the debt cancels out doesn't this mean that there was no debt ?
- msdz 5d agoI’m guessing it doesn’t “cancel out” due to interest.
- JumpCrisscross 4d ago> If the debt cancels out doesn't this mean that there was no debt ? No. For the same reason that oxygen being transported into and out of the body doesn't mean there was no oxygen.
- ElProlactin 4d agoYou should educate yourself about accounting. First, under US GAAP rules (ASC 606), you cannot recognize revenue from a vendor-financed sale unless it meets certain criteria, the biggest one of which is: it has to be probable that the buyer will actually pay you. If a default is likely, revenue recognition is deferred until cash changes hands. Nvidia's massive revenue is therefore not from a bunch of dubious vendor-financed sales to counterparties who don't have the money to pay and need a fraudulent scheme to make the arrangement work. Furthermore, Nvidia, by its own disclosure, indicates that when it extends financing to customers, they pay, on average, within 2 months (53 days to be exact). So these are not years-long extensions of credit.
- boredatoms 5d agoEvery form of lending that is specified via currency increases the supply. If I give you GPUs worth $1bn, but take 100m payments for 11 years, then during that time you can use your other mony to buy other things that arent GPUs If we stop after the 11 years and dont make new loans, the supply has shrunk back
- HPsquared 4d agoAny time sometime makes a loan at a bank, that money is created. An accompanying debt is also created. It's like matter and antimatter. And when the debt is repaid, the matter and antimatter disappear again.
- InsideOutSanta 4d ago> Only the fed can actually order more money to be "created". If you go to a bank and get a loan, that is literally money that did not exist before you got a loan. People think that you are borrowing money that somebody else put in the bank, but that's not true. Banks can lend out a lot more money than people put into them.