Comment by cyberpunk
14 hours ago
NV 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
0%. Zero percent is the actual reserve rule. https://www.stlouisfed.org/bank-supervision/reserve-administ...
Yup. 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.
That 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?
There 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/m...
> 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.
They don’t constrain the quantity of lending. They only change the price.
Liability side controls don’t work.
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