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“as long as it’s cash flow continues” is doing a lot of optimistic heavy lifting. The whole premise of the circular financing worry is that Nvidia sits in the m

“as long as it’s cash flow continues” is doing a lot of optimistic heavy lifting. The whole premise of the circular financing worry is that Nvidia sits in the middle of all the guarantees made to companies like OpenAI. If any of those companies become insolvent, Nvidia is on the hook for it. Also Nvidia isn’t really creating money. The 500B number is third party capital that already exists (BX, Apollo, etc).

JumpCrisscross 6d ago
> “as long as it’s cash flow continues” is doing a lot of optimistic heavy lifting It's not. It's stating a condition. For traditional banks, a stock crash can independently trigger a failure. > whole premise of the circular financing worry is that Nvidia sits in the middle of all the guarantees made to companies like OpenAI. If any of those companies become insolvent, Nvidia is on the hook for it Sorry, I meant revenues. If Nvidia's revenues stay stable, these commitments aren't a problem. Even if the stock price crashes. > Nvidia isn’t really creating money It absolutely is. Similar to the way banks create money [1]. The commitments support credit that wouldn't exist without it. [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-...
- roenxi 6d ago
  > It absolutely is. Similar to the way banks create money [1]. The commitments support credit that wouldn't exist without it. Making a loan/offering credit isn't automatically money creation - the amount of money in the system before and after the loan might be the same. Haven't been following Nvidia all that closely, but it seems a little bit unlikely that they're a commercial bank. Financial chicanery they may be doing but offering deposit accounts would be new territory. The loan has to be made in a very particular way for it to be money creation (notably, in a way that creates new money), and it should be illegal for most people to do that otherwise we'd all be printing our own money instead of the printing being directed to wealthy asset owners first and foremost.
  - JumpCrisscross 6d ago
    > Making a loan/offering credit isn't automatically money creation The Fed can limitlessly increase monetary base (MB) to increase M1. Non-bank lenders create M4 which turns into M2 through the money markets which turns into M1 through the banks. More convoluted and more limited, by design. But the net effect is the same–more M1. More broadly: when you open a bar tab, you're literally creating money, even if it never hits M1. Credit is always money creation. When it's done at scale it's almost always creating M1.
    - roenxi 6d ago
      If we attempted to pay our taxes by creating this new money, do you think we would succeed? Because I suspect that when we get to the tax office we will discover that what you're calling money is not actually money in the practical sense. Or I suppose I should spend more time with an open bar tab come tax time. The monetary aggregates are things that are theoretically equivalent to creating money, but I'm going to challenge whether it is proper to compare M4 activity to the fed balance sheet. One of those entities is involved in actual money creation. One of them is hyper-privileged money creation that is more impactful and less comparable to other forms.
      - JumpCrisscross 6d ago
        > If we attempted to pay our taxes by creating this new money, do you think we would succeed? Yes. Nvidia issues a commitment to a firm that lets an SPV raise money. Some of that is just M1 being transferred from one account to another. A lot, however, will be created through loans (new M1), commercial paper (new M3) and the like. Some of that will be pledged as collateral. On the other side of the equation, when the SPV signs e.g. a construction contract, you'll have builders taking out bank loans and issuing commercial paper, et cetera. You can pay your taxes out of a checking account using money a bank created out of thin air that morning that the Fed won't even learn about until the evening. > monetary aggregates are things that are theoretically equivalent to creating money, but I'm going to challenge whether it is proper to compare M4 activity to the fed balance sheet You're absolutely correct in M4 being unequal to the monetary base and deposits at the Federal Reserve. But the moment you say the Fed balance sheet, you're conflating two things. The Fed has lent, in the past, against non-Treasury collateral (most famoulsy, mortgage bonds). And if we're talking about money in relation to the real economy, you can't spend reserves at the Fed. There is debate on what the most "real" money is, but pretty much everyone agrees that a deposit in a checking account is more relevant to the economy than unspendable reserves at the Fed.
- chrisandchris 6d ago
  > Sorry, I meant revenues. If Nvidia's revenues stay stable, But aren‘t they currently sitting on like a margin of over 80%? So I assume their revenue will fall, because people are not going to like that in the long-term.
- KellyCriterion 5d ago
  My answer above: --- No,there is a difference: If NVDA gives a loan, its a swap on the active/left part of their balance sheet - thus, this does not have an effect on overall(!) money suppley. The balance stays the same, also the total amount of money in the whole system at that current point in time. If a bank gives a loan, then it is extending/enlengthing its balance sheet. (the money created,though,needs to be available on the central bank account to float to other banks when paying for something,therefore we have liquity rules in reg reporting in a bank etc.,meaning someone else needs to have increase thecentral banking liquidity at another part in the system, see things like: https://en.wikipedia.org/wiki/Maturity_transformation https://en.wikipedia.org/wiki/Maturity_transformation ) --- As working in the field, I know the BOE paper very well ;-)
spott 6d ago
Yea, but they would have to become insolvent in a way that makes compute lose value. The reason Nvidia is comfortable making these deals is because if OpenAI can’t use the compute, someone else can. Granted OpenAI going insolvent likely means a drop in the value of compute…
- JumpCrisscross 6d ago
  > they would have to become insolvent in a way that makes compute lose value They would have to go insolvent in a way that hits Nvidia revenue. Those are related by distinct factors, a difference that may matter in a crisis.
- kennywinker 6d ago
  Compute has already lost value for me. Six months ago I thought you needed a 1T+ model to be useful coding. Now I am able to get by just fine with a 27b model. I see two factors converging to cause a collapse of this house of cards: 1. People are realizing that what they need isn't more general intelligence, it's more specialization. A small but well tuned coding model, a small but well tuned customer service model, a small but well tuned document explorer. 2. Specialized hardware - TPUs and NPUs - especially coming out of china. The latest GLM model was trained and runs on Huawei hardware. Nvidia is only worth so much because they are the biggest and best provider of the kind of compute needed to run llms, but the export bans mean china has a lot of incentive to topple that monopoly. The amount of compute we need to do the things llms do is falling rapidly, the number of people who can provide that compute is rising.
  - pvab3 6d ago
    I've been thinking about that and that's why Nvidia's prices are surprising to me. Investors should know that better than me so there must be something I don't know
    - detourdog 6d ago
      It’s really hard to know when the large tech companies have so many shares owned by a single figure. They can use margin loans and options to create the appearance of demand.
cryptonector 6d ago
> heavy lifting Load bearing, heavy lifting... Your comment wasn't LLM-written, either. I think we're starting to see LLMisms infect human writing. I might try to start speaking like this and see if anyone notices. It could be a good gag.
- daveguy 6d ago
  Or you might find out how little people care about AI. Which would not bode well for bearing load.
- fatata123 6d ago
  [dead]
- xboxnolifes 6d ago
  Baader–Meinhof phenomenon. Heavy lifting was plenty common enough prior to LLMs.
Chance-Device 6d ago
> Also Nvidia isn’t really creating money That’s what loans are. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
- KellyCriterion 5d ago
  No,there is a difference: If NVDA gives a loan, its a swap on the active/left part of their balance sheet - thus, this does not have an effect on overall(!) money suppley. The balance stays the same, also the total amount of money in the whole system at that current point in time. If a bank gives a loan, then it is extending/enlengthing its balance sheet. (the money created,though,needs to be available on the central bank account to float to other banks when paying for something,therefore we have liquity rules in reg reporting in a bank etc.,meaning someone else needs to have increase thecentral banking liquidity at another part in the system, see things like: https://en.wikipedia.org/wiki/Maturity_transformation https://en.wikipedia.org/wiki/Maturity_transformation )

JumpCrisscross 6d ago

> “as long as it’s cash flow continues” is doing a lot of optimistic heavy lifting It's not. It's stating a condition. For traditional banks, a stock crash can independently trigger a failure. > whole premise of the circular financing worry is that Nvidia sits in the middle of all the guarantees made to companies like OpenAI. If any of those companies become insolvent, Nvidia is on the hook for it Sorry, I meant revenues. If Nvidia's revenues stay stable, these commitments aren't a problem. Even if the stock price crashes. > Nvidia isn’t really creating money It absolutely is. Similar to the way banks create money [1]. The commitments support credit that wouldn't exist without it. [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-...

roenxi 6d ago
> It absolutely is. Similar to the way banks create money [1]. The commitments support credit that wouldn't exist without it. Making a loan/offering credit isn't automatically money creation - the amount of money in the system before and after the loan might be the same. Haven't been following Nvidia all that closely, but it seems a little bit unlikely that they're a commercial bank. Financial chicanery they may be doing but offering deposit accounts would be new territory. The loan has to be made in a very particular way for it to be money creation (notably, in a way that creates new money), and it should be illegal for most people to do that otherwise we'd all be printing our own money instead of the printing being directed to wealthy asset owners first and foremost.
- JumpCrisscross 6d ago
  > Making a loan/offering credit isn't automatically money creation The Fed can limitlessly increase monetary base (MB) to increase M1. Non-bank lenders create M4 which turns into M2 through the money markets which turns into M1 through the banks. More convoluted and more limited, by design. But the net effect is the same–more M1. More broadly: when you open a bar tab, you're literally creating money, even if it never hits M1. Credit is always money creation. When it's done at scale it's almost always creating M1.
  - roenxi 6d ago
    If we attempted to pay our taxes by creating this new money, do you think we would succeed? Because I suspect that when we get to the tax office we will discover that what you're calling money is not actually money in the practical sense. Or I suppose I should spend more time with an open bar tab come tax time. The monetary aggregates are things that are theoretically equivalent to creating money, but I'm going to challenge whether it is proper to compare M4 activity to the fed balance sheet. One of those entities is involved in actual money creation. One of them is hyper-privileged money creation that is more impactful and less comparable to other forms.
    - JumpCrisscross 6d ago
      > If we attempted to pay our taxes by creating this new money, do you think we would succeed? Yes. Nvidia issues a commitment to a firm that lets an SPV raise money. Some of that is just M1 being transferred from one account to another. A lot, however, will be created through loans (new M1), commercial paper (new M3) and the like. Some of that will be pledged as collateral. On the other side of the equation, when the SPV signs e.g. a construction contract, you'll have builders taking out bank loans and issuing commercial paper, et cetera. You can pay your taxes out of a checking account using money a bank created out of thin air that morning that the Fed won't even learn about until the evening. > monetary aggregates are things that are theoretically equivalent to creating money, but I'm going to challenge whether it is proper to compare M4 activity to the fed balance sheet You're absolutely correct in M4 being unequal to the monetary base and deposits at the Federal Reserve. But the moment you say the Fed balance sheet, you're conflating two things. The Fed has lent, in the past, against non-Treasury collateral (most famoulsy, mortgage bonds). And if we're talking about money in relation to the real economy, you can't spend reserves at the Fed. There is debate on what the most "real" money is, but pretty much everyone agrees that a deposit in a checking account is more relevant to the economy than unspendable reserves at the Fed.
chrisandchris 6d ago
> Sorry, I meant revenues. If Nvidia's revenues stay stable, But aren‘t they currently sitting on like a margin of over 80%? So I assume their revenue will fall, because people are not going to like that in the long-term.
KellyCriterion 5d ago
My answer above: --- No,there is a difference: If NVDA gives a loan, its a swap on the active/left part of their balance sheet - thus, this does not have an effect on overall(!) money suppley. The balance stays the same, also the total amount of money in the whole system at that current point in time. If a bank gives a loan, then it is extending/enlengthing its balance sheet. (the money created,though,needs to be available on the central bank account to float to other banks when paying for something,therefore we have liquity rules in reg reporting in a bank etc.,meaning someone else needs to have increase thecentral banking liquidity at another part in the system, see things like: https://en.wikipedia.org/wiki/Maturity_transformation https://en.wikipedia.org/wiki/Maturity_transformation ) --- As working in the field, I know the BOE paper very well ;-)

spott 6d ago

Yea, but they would have to become insolvent in a way that makes compute lose value. The reason Nvidia is comfortable making these deals is because if OpenAI can’t use the compute, someone else can. Granted OpenAI going insolvent likely means a drop in the value of compute…

JumpCrisscross 6d ago
> they would have to become insolvent in a way that makes compute lose value They would have to go insolvent in a way that hits Nvidia revenue. Those are related by distinct factors, a difference that may matter in a crisis.
kennywinker 6d ago
Compute has already lost value for me. Six months ago I thought you needed a 1T+ model to be useful coding. Now I am able to get by just fine with a 27b model. I see two factors converging to cause a collapse of this house of cards: 1. People are realizing that what they need isn't more general intelligence, it's more specialization. A small but well tuned coding model, a small but well tuned customer service model, a small but well tuned document explorer. 2. Specialized hardware - TPUs and NPUs - especially coming out of china. The latest GLM model was trained and runs on Huawei hardware. Nvidia is only worth so much because they are the biggest and best provider of the kind of compute needed to run llms, but the export bans mean china has a lot of incentive to topple that monopoly. The amount of compute we need to do the things llms do is falling rapidly, the number of people who can provide that compute is rising.
- pvab3 6d ago
  I've been thinking about that and that's why Nvidia's prices are surprising to me. Investors should know that better than me so there must be something I don't know
  - detourdog 6d ago
    It’s really hard to know when the large tech companies have so many shares owned by a single figure. They can use margin loans and options to create the appearance of demand.

cryptonector 6d ago

> heavy lifting Load bearing, heavy lifting... Your comment wasn't LLM-written, either. I think we're starting to see LLMisms infect human writing. I might try to start speaking like this and see if anyone notices. It could be a good gag.

daveguy 6d ago
Or you might find out how little people care about AI. Which would not bode well for bearing load.
fatata123 6d ago
[dead]
xboxnolifes 6d ago
Baader–Meinhof phenomenon. Heavy lifting was plenty common enough prior to LLMs.

Chance-Device 6d ago

> Also Nvidia isn’t really creating money That’s what loans are. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation

KellyCriterion 5d ago
No,there is a difference: If NVDA gives a loan, its a swap on the active/left part of their balance sheet - thus, this does not have an effect on overall(!) money suppley. The balance stays the same, also the total amount of money in the whole system at that current point in time. If a bank gives a loan, then it is extending/enlengthing its balance sheet. (the money created,though,needs to be available on the central bank account to float to other banks when paying for something,therefore we have liquity rules in reg reporting in a bank etc.,meaning someone else needs to have increase thecentral banking liquidity at another part in the system, see things like: https://en.wikipedia.org/wiki/Maturity_transformation https://en.wikipedia.org/wiki/Maturity_transformation )