Kudos for taking the time to put it all together.
People who don't understand the very basics of finance and accounting shouldn't write about finance and accounting.
In the context of this post, does it matter? He’s not teaching bookkeeping here. He’s explaining the time value of money.
As such, it's a self indulgent piece of writing, not a helpful one.
Over the course of the borrowing period the borrower would accrue interest expense commensurate with the passage of time that would increase the borrowers total liabilities. The author misunderstands the fundamental accounting definitions of liabilities (and also assets). Liabilities (under US GAAP but same core idea under IFRS) are present obligations. At the initial time of borrowing the borrower does not have a present obligation to pay interest on the liability. Similarly, an asset is a present right, and at the time of initial borrowing the lender is not owed the interest.
It's not the worst thing I've read, the author has clearly spent time learning things in good faith. That said, there are lots of indicators the author is not an expert in accounting / finance.
The people who are in a position to influence the world are those who understand it, and if this article nudges people with a hacker mindset towards having more influence, then that's a good thing.
are those who can pay people who understand it*
Nonsense. To the extent some small group of people have an outsized influence it's politicians and the rich of the rich (who at this point are overwhelmingly tech guys).
Why not critique the entire work?
Anyway:
I borrow 100 from someone. I am now in debt and they are in credit - to balance, both are 100.
However, they require a return on investment - usury: 10 for 100 (or a 10% margin - call it what you like).
When I take out my loan, I am in debt for 110 and they are in credit for 100 with a promise of 10 later. So we have some accounts - my one account is 110 in debit (I borrowed 100 and promised to pay 10 on top) and they have two accounts - one for the principal (100) and another for the 10 interest. To me, in this case, the principal and interest are part of the same account but to the lender they are separated out because the interest is probably taxable as income.
However, it might be the case that I can set off my debt or the interest on my debt against some tax. In that case I will maintain two accounts - the principal and the interest.
All those interests will also end up in additional accounts related to probably banking.
I've probably pissed off a few accountants with my choice of terms but in the end I do understand how fiat money works.
What gets on my tits is assertions such as "People who don't understand ..." with no working.
Anyways, recognizing the interest over time would debit an expense account and credit some liability account... Could be the same account as the loan or could be an interest payable account, doesn't really matter in the context of the example.
Also you would not be "in debit"; the liability is on the credit side of your balance sheet.
I might be guilty of abusing an industry term or two 8)
One month in 25 years, my partners and I didn't pay ourselves. That's as close as we have got to having issues. We keep six months payroll, corp. tax and VAT in readies. The property mortgage is nearly paid off.
I'm no hacker and I treat finances as a means to an end - no more and no less.
And, in my initial comment i explicitly point out the error - the interest amount should not be there. People don't tend to show the working for zero * x = zero. This misunderstanding of a very fundamental piece makes any material on this topic by this author not worth reading. It might render everything they write not worth reading because they also don't know where their circle of competence stops.
I see the reasoning for accountants keeping future liabilities off of the balance sheet. I do this myself in multiple contexts.
Still, when making decisions about whether to take out or grant a loan (personal or business) I need to consider future "value" and cash flows. To someone running a business this is probably more important than the balance sheet. So I think the interest recording criticism is valid but relatively minor in the context of the whole article.
In avg, the normal way it creates the liability over time and i would argue that in a colloquial its absolutly fine and doesn't change the message at all.
Calling All Hackers - https://news.ycombinator.com/item?id=41306128 - Aug 2024 (253 comments)
Interesting perspective, I feel like I see this much more attributed to someone working on a meaningless problem for a paycheck at a large company. I guess it speaks to the difficulty in finding purpose in any endeavor in your twenties.
Nice conclusion on what to truly value.
Founders usually feel they're missing out on all or most of these. And some of them probably feel like they don't really have a choice - maybe their specialty/resume is one that's difficult to get hired but skilled enough to make money on their own.
However, plenty of jobs take all your time and still feel meaningless. Many (most? - median personal income in USA is $42,000) don't pay enough for people to really socialize much anyways or do most of the hobbies they might enjoy or travel at all. Generally, having the choice of "HOW should I 'waste' my twenties?" is a fairly privileged one.
Fun is you enjoy doing it. Playing video games and watching TV is fun.
Valuable is it makes money. Importantly, it's what other people are willing to pay you money for, not what you think is important or even good.
Meaningful is it's spiritually enriching. These are things you would regret not doing on your deathbed. Spending time with your family or going to church are common examples of things that are meaningful to people (and potentially fun). This one is defined based on one's internal compass and varies significantly from person to person.
You can come up with activities that are pure fun, value, or meaning. Measuring activities against these three axes has been a valuable mental model for my time management and life design.
There's jobs that are fun and meaningful, but don't pay much. This is like charity work or passion tax industries such as game dev, music, or art.
There's also jobs that are fun and valuable, but are meaningless. Working at a trading firm/hedge fund is a common example (though some people may find that it's all three or only one). Another example is being a successful startup founder working on the wrong problem.
Finally, there are jobs that are valuable and meaningful, but maybe not all that fun. To me, this is what being a startup founder (working on the right problems) or how I imagine a professional athlete is like.
The grand slam would be having all three, but in my experience these are exceptionally rare. If it's fun and meaningful, everyone wants to do it, and supply and demand pushes the value down. Most of these cases are due to unusual personalities that let one find fun or meaning in activities others don't. This ties into the common startup advice of paying attention to "founder-problem fit" and "what are your unfair advantages".
I think there is yet some other thing which has a bit of both your Meaningful and Value. Stuff that you decide you should do not precisely (or maybe precisely and this comment is just not well enough considered) because it's meaningful to you but because you just feel it should be done.
Maybe because you just recognize that someone has to do it and you should at least take your turn if not make it your whole life. Maybe because you want to live in a world where it gets done, even if you live in a society that doesn't provide for it to get done. (no one will pay you or anyone else to do it)
Phrasing these things as meaningful makes it into something someone else can say is simply your choice. If it's important to you, you can do it. And let you shoulder the entire burden for something they absolutely benefit from and should be pitching in their fair share towards in some form or another, if not tax money then time or effort, something.
It is definitely meaningful for some people, the people that are so moved that they actually give their time & energy, but those are people for whom it's actually a large part of their life & identity. I'm not like that. I am not going to volunteer for whole shifts anywhere. I care about a strangers problems intellectually. I care in the sense that I want it dealt with humanely with dignity as if I had the problem myself. I don't care directly and personally, emotionally, unless they are somehow close to me. But I would happily pitch in my fair share if we all were, because it would be small.
It's partially value because we all get value from living in the better world thanks to the various thankless tasks some people perform.
Eh, maybe I'm arguing up the wrong tree and what you expressed already covers this.
I am thinking something like "This thing should get done not because I derive meaning from it.", but really maybe what you're talking about isn't even trying to deny that. The point would still be that I might choose to commit a certain amount of my life capital towards something, because of a certain amount of value and meaning that I, let's say recognize not derive or get, from it.
I'm leaving out fun. You can have fun cooking soup for the homeless. I can not imagine having fun cleaning someone who can't clean themselves and can't pay you to do it.
Thought experiment: you have three sets of 10 recent college grads. One set works as enterprise devs in a tier 2 city, one set works at BigTech and another set works for a startup, which group do you think will have the highest median income after 10 years?
I would much rather work for a “meaningless paycheck” (and RSUs in a public company), than bust my ass at a startup for below market wages and “equity” that is illiquid and will statistically be worthless.
Startups/entrepeneurs often don't even have that duality and live our single life entirely through work. I would identify with "wasting my twenties" in the sense that the life of the entrepeneur isn't really age specific, it would be quite similar to do business at 20 than to do it at 50. The only difference being experience. But there's not much use of my young body, or libido, strength, that is typical of youth experiences.
Is near universal to anyone in their twenties regardless of job type/sector. It's the start of most people's adult life, and without the lack of experience that age brings, it's natural to question if you're on the "right path" and/or be swayed by potential other opportunities you've not yet explored.
Hell, even with the experience of age, people still often ask themselves that very same question, and not just for their twenties either.
This depends a lot on jurisdiction.
Some jurisdictions give you a certain amount of dividend income tax free. Some jurisdictions tax your capital gains even when they aren't realised. Lots of other variants exist.
I doubt this is a common thing. Whereas the other case (dividends tax credit) is far more common. It impacts those of us in Canada. Our government disincentivizes buybacks and encourages dividends instead. Typically, if you're in a low income bracket, and have investments brewing for decades (with high amounts of unrealized gain) in an unregistered account, it is preferable to get dividends over buybacks.
If you buy regular stocks in a regular brokerage account, you do not incur taxes before selling (with profit).
Same for dividend-distributing ETFs.
Oh oh.
> It's about knowing where to buy estradiol valerate on the internet and how to compound injections
Oh no.
This is 5 paragraphs in, and I already red-flagged out of this, not just because of the time it would take to read this, but because I don't want to go crazy reading this stuff.
In case it isn't clear, it's not healthy to read indictments thinking how to avoid being caught by law enforcement and buying grey market hormones. Politics aside, at least get a prescription, it's not like they are not giving them out.
Hacking is a huge spectrum I know, but if we have to decide on some limits to what is open to be modified and understood by the lay(wo)man, and what is closed and left to professionals, wouldn't we agree that law and medicine would be such fields? (and possibly military?) Trying to hack medicine or law is as extremist as arguing that you don't have the rights to plant the seeds of fruit you buy. As far as rights go, sure people are given the rights to represent themselves pro-se and apparently to buy hormones online, but going beyond what's allowed, are you really willing to ruin your life just to stick it to the man or to exercise your right to do whatever?
I can't speak to his work on finance as a whole. Regarding deep time, his claims about pre-literate society from archeology are not widely supported, they use thin evidence to argue badly.
His anarcho-socialism isn't the concern. It's his lack of historicity, and inability to bring his peers with him on radical ideas which concerns me.
He's dead, he can't defend himself. So there's that.
As for Graeber being controversial: yes, though I vaguely recall "The Dawn of Everything" being (moreso) the trove of interesting historical anthropological hypotheses, rather than "Debt"?
Anyway, it's been a while, but my main point is that I wouldn't let Graeber's controversial-ness stop anyone from reading Debt. If anything, going in with that information makes you think harder about the topics he covers.
This is all spawned from insecurity that your prestigious degree or whatever can be replicated through independent learning
I am not so certain about this. In particular being exceptional in cybersecurity does not make you good at playing political games or having the traits that a lot of bosses want from employees (I will attempt to avoid starting a discussion whether I consider such traits to be good or bad).
This is XKCD #793 all over
Here's one that better suits the title:
"Pricing Money: A beginner's guide to money, bonds, futures and swaps" (866 points)
PS: Hackers websites don't have to look this ugly. We do take care of attention to detail that the page have to be rendered for mobile devices as well.
I personally also don't love it, but fortunately, hackers have the technology to reflow legacy fixed-width text files to any format of their choosing :)
You conflate 'r' (the discount rate) with 'Rf' (the risk-free interest rate). In reality, for high-risk assets like startups, 'r' is defined by the Weighted Average Cost of Capital (WACC) or CAPM: r = Rf + Beta(Rm - Rf).
Even in a ZIRP environment where Rf -> 0, the Beta (risk/volatility) for a startup is massive. A rational investor would still demand a high 'r', leading to a low valuation. The fact that VCs ignored this and funded "blatantly bad deals" cannot be explained by low interest rates alone. It is better explained by the information asymmetry a.k.a principal-agent problem.
We have a system where capital flows from passive LPs through multiple layers of rent-seeking intermediaries (VCs, LPs, Fund Managers) who are incentivized by management fees rather than carry. The market failure described isn't "financial nihilism" and "financial short-termism". It's a breakdown of feedback loops where intermediaries face no downside risk for misallocation. When there is no market coordination, no real competition, just unrestricted collusion, then things start to not make sense from the old school financial/business perspective. I do not think this is the failure of economic theory or the financial models itself, rather just that nobody knows or tells, that the prerequisite for these things is at least some degree of fair competition, market based economy, informed, rational actors and restricted collusion.
Suggesting that technical founders can fix this by simply "being decent" ignores the systemic reality. This economic structure rewards extraction over value creation, "decency" is an evolutionary disadvantage. The "real hackers" in this story are the financial and business intermediaries who successfully reverse-engineered the economy to extract rent without generating value, similarly to all those entrepreneurs, CEOs, corpo drones in the business sphere who do not provide any meaningful value to society (and shareholders as well.)
What do you consider as a "high quality founder"? I guess people will haver very different opinion what makes a founder "high quality".
- It's backed by nothing.
- It's not a fair medium of exchange because it physically cannot circulate very far from 'money printers' (not many hops) before it's taxed down to nothing. This means that it's unevenly scarce based on social proximity; unfair by design. Cantillon effects on steroids.
- It doesn't even exist as a single cohesive concept; the US dollar in your bank account is not the same as the US dollar in your friend's bank account and it's not the same as the US dollar which European traders use to buy derivatives (e.g. Eurodollars)... There are literally thousands of different ledgers (banks, institutions, in different countries), each presenting its own interface supposedly showing their holdings of this mythical unit called 'The US dollar' which is actually thousands of different currencies, which happen to share the same name, scattered around the world and held together only by regulators whose only shared interest is to print more units for themselves than the next guy does. Slow and fallible human regulators represent the only layer of 'consensus' which exists for the entire fiat monetary system; they move at snails' pace in a world of high frequency trading.
Money is never backed by nothing, or it's worthless. It may not be backed by anything physical, but it's always backed by some form of trust. National currencies are backed by trust in the corresponding government and institutions.
It has value from the perspective of the oppressor I guess... I think this is where it derives its value.
https://www.textfiles.com/magazines/PHRACK/
Have "hackers" changed
If yes, how
Gold good, paper bad. But also, gold bad, because clipping.
If only there was a solution.
The modern world would collapse in about a week if banks were not allowed to loan out deposits.
The ability to satisfy needs now and pay for them in the future is why you can have a house, why governments can build infrastructure, etc. That’s the only reason that banks really exist. Keeping your deposit safe for you while providing convenient access via cards, checks and other rails is just a wonderful side effect.
After a few thousand years of civilization we don’t have anything better that could allow you to satisfy current needs with future income. Direct loans are just vendors acting as de facto banks, at much higher risk.
A bank product that doesn’t loan out your deposits is called a safe deposit box. There’s your solution.
The housing market has been greatly influenced by the ability to loan vast sums for housing, and without that we would have a very different housing market but we would still have one.
I think banks should lend but it's probably fair that we have controls on lending, and I think we should probably tighten them up especially around housing.
The problem is the governments can bail the banks out. After 2008, trust in paper IOUs (or their digital equivalent) should have plummeted, leading people to seek to store their wealth in other ways. But it didn't, because the governments stepped in and said, "nah, we need this to work, so we'll pay their salaries and bonuses with your taxes".
Bitcoin was intended to be a solution to this problem. There's nothing stopped people creating derivatives on top of Bitcoin and trading those. But nobody, no government nor anybody else, can just print more Bitcoin.
How can there be more money in circulation if we can’t create more?
Since wealth can increase (there’s more wealth today than 1000 years ago) why would you expect that money wouldn’t?
Or do you think there should always have been only $1 constant dollar for all time?
Why not, as long as they have the consent of the owner? And all banks have the consent of the depositors.
The interest math is wrong too. Banks pay interest on deposits, absorb defaults, cover operating costs, hold capital, and meet liquidity rules. Net margins are about 1–3%, not 50–500%.
Fractional reserve banking does not mean infinite money or risk free profit. It means deposits are not 100% cash backed (because they have loaned out a portion of your deposit).
This is a popular myth, not “doing the math”.
What you’re describing only works in an absurd edge case where people borrow money just to park it and pay interest without spending it. That’s not fractional reserve banking, that’s a broken thought experiment.
I'm with you in principle. But alas there's lots of regulation that muddies the economic waters. Eg reserves do limit lending in some places at some points in time.
> What you’re describing only works in an absurd edge case where people borrow money just to park it and pay interest without spending it. That’s not fractional reserve banking, that’s a broken thought experiment.
Yes, indeed. People usually get a loan to spend the money (ie invest it). Otherwise, why bother with the expensive loan?
When I deposit a dollar, the bank records a $1 deposit liability. If the bank makes a $1 loan, it creates a new $1 deposit for the borrower.
If that dollar is spent and redeposited, deposits increase even though the amount of base money has not. It looks like multiplication, but what’s really happening is that loans and deposits are expanding together on the balance sheet.
The bank is not creating wealth out of nothing. It now has matching assets (loans owed to it) and liabilities (deposits owed to customers), backed by capital that absorbs risk.
With reserve ratios effectively zero, lending is constrained by capital requirements and risk management, not by reserves. Banks cannot recirculate a single dollar endlessly without sufficient capital.
I know what you're thinking of here, but it doesn't mean anything like what you think it means.
So the US used to have a rule that every bank hand to have a certain percentage of its assets stored in its account at a Federal Reserve bank; it is this percentage which was gradually reduced to 0 by I think 2020. Note that only the funds in that account meet the requirement; a literal pile of cash contributes not a single cent.
The way banks are primarily limited nowadays is via capital adequacy ratio, which is essentially that you need to set aside a particular pile of capital that can be raided to guard against assets falling in value to 0. It's complicated because this pile of capital doesn't come from the money a customer deposits in their account (which needs to be held as an asset to offset the liability a depositor represents), but rather from income the bank makes in other ways. If a bank sells $1 million worth of shares, they get to issue ~$20 million more loans.
If a bank gets $1 million worth of new deposits, they get to issue... $0 more loans. Well, maybe less: if a bank gets $1 million worth of new bitcoin deposits, that probably reduces its capital ratio because bitcoin is such a risky asset.
Fractional reserve banking has economic limits, even when there are no legal limits.
Stablecoins feel the most practical way I suppose for narrow banking although there is this UK bank and this Danish bank as well which are the two examples of narrow banking.
Honestly I am sort of interested in gold pegged currencies right now because US Dollar (let's be honest) feels really shaky right now and even America's debt itself is fueled by it being de-facto currency and I am feeling like previously it helped but I feel like debating that even America itself would benefit from if less foreign nations held US treasury bonds.
There already are some gold pegged stablecoins and theoretically with things like revolut or some instant way to sell crypto without too much hassle/losses and transfering it easily, its rather possible to do such.
IIRC the fed said that narrow banking threatens the stability of the banking system since private credit expansion (and ultimately, the risks that come with that) is in their estimation desirable. Regulators want nothing but to crush the idea.
But why? I don't understand, I feel like certain exceptions like (credit cards?) or house loans can be built or some personal loans but we all see a disaster which will be billed by govt. thus impacting everybody
The govt itself can then buy ETF's once again / invest money from one way or other via pension funds or other funds (sovereign funds?) to the stock markets themselves or other avenues.
banks basically arbitrage the fact that they are FDIC insured and loans. Nothing wrong with it except the fact that most banks would keep most of the money with themselves and only give chump change to average person or even 0%. If that's the case, why isn't there a bank which can just provide 3% treasury funds or similar or (gold?) and then just help the average person.
I saw a lot of points I agreed upon the narrow banking website on and I'd love to discuss more about the harms of narrow banking compared to fractional and why regulators shot it down/just comparing the two of them.
There already are some gold pegged stablecoins
I think paxos and xaut have audits etc. from what I know/ I have heard.
Although having more audits is always a neat idea but I was just proposing that there are ways to invest in things like gold and have things like liquid gold perhaps via stablecoin or some other means too basically allowing you to instantly sell gold and gold is a pretty good hedge against stablecoin imo.
I actually once wrote about this idea of narrow banking discovering it accidentally where I wanted a bank which could invest in treasury bonds for inflation protected money or gold.
https://gist.github.com/SerJaimeLannister/c3db4eb84da96decfc...
How do you know how much gold the government is holding? Ask them!
How do you know the government isn't lying? Ask this question loudly enough and meet people with guns!
Something backed by a volatile asset isn't, by definition, a stablecoin, though.
Historically, the combination of fractional reserve banking and the classic gold standard was very successful. Just because your bank uses grams of gold as the unit of accounting (or something that's effectively equivalent to grams of gold), doesn't mean they need to have that much of gold in their vaults. Similar to how today a bank will give you dollar bills when you ask for them, but that doesn't mean they need to have their vaults stuffed full of dollar bills. They just need enough solid assets to sell for dollars, so they can give you dollars when you want to withdraw. (Having some gold or dollars on hand is just a convenience, so you don't have to wait for the bank to liquidate assets.)
About narrow banking: there's at least two different definitions of the idea. What your website describes might be called 100% reserve banking. The website is a bit silly: you can already get 100% reserve banking today, if you want it.
The website is also extremely misleading and dishonest about fractional reserve banking. You can eg just follow their own link to the Bank of Amsterdam and read up on it.
The second definition of 'narrow banking' can be seen at eg https://en.wikipedia.org/wiki/Narrow_banking
> Narrow banking is a proposed banking system that would restrict commercial banks to hold only safe and liquid assets, like government bonds, against customer deposits, while prohibiting traditional lending activities. Under this model, banks would function as custodians and payment processors, separate from the lending function performed by other financial intermediaries.
This is like a normal fractional reserve bank, but the only asset they invest in is government bonds. This can still go wrong, if you are not careful: Silicon Valley Bank invested mainly in government bonds, but had a maturity mismatch. Their long term government bonds lost in value (because market interest rates went up), so they went bankrupt. Alas, they still got bailed out.
You can approximate this kind of narrow bank for yourself, by just putting your money either in government bonds directly, or into a money market fund that only invests in government bonds.
> [...] I feel like debating that even America itself would benefit from if less foreign nations held US treasury bonds.
In what sense would America benefit? On an inflation adjusted basis, foreigners often get a negative real interest payment, ie they lose money, for the privilege of lending to the US. That seems like an extremely good deal for America.
> There already are some gold pegged stablecoins and theoretically with things like revolut or some instant way to sell crypto without too much hassle/losses and transfering it easily, its rather possible to do such.
Wise offers to keep your money in a fund and they transparently sell your fund shares, when you are buying a coffee with your card. They transparently buy fund shares, when money comes into your account.
See https://wise.com/help/articles/3luodUQFD9YWzNc8PvIfVK/holdin... and https://wise.com/sg/interest/ and https://wise.com/help/articles/74dYRhMCItIf2IBJLTpFQs/how-do...
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Addendum narrow banking in the sense of only holding government bonds:
I think that should be legal for banks to do, and in fact it's a good argument in favour of eliminating deposit insurance. At least the (explicitly or implicitly) government backed deposit insurance that you have eg in the US. It creates a moral hazard where the incentives for monitoring risks are all but dulled.
People who still want the equivalent of deposit insurance should just put their money into a bank that only invests in short term government bonds: after all, a government backed deposit insurance can't really be safer than these short term government bonds anyway.
How does the taxation aspect of it work? Would I have to pay short term capital gains on each transaction that I then make?
They also provide daily interests which seem interesting and about on par with treasury rates so it technically sort of can act as the end result of narrow banking for what I wanted (instead of banks borrowing and spending and containing huge chunks of profit in between, it invests into a safe investment)
> In what sense would America benefit? On an inflation adjusted basis, foreigners often get a negative real interest payment, ie they lose money, for the privilege of lending to the US. That seems like an extremely good deal for America.
Ah it seems that you are right but also that there are some inflation protected treasury but you might be right and I thought about it and doesn't it also bring a new set of problems that America faces.
Basically US can get real goods by giving debts and the real value of what US pays actually lessens over time because of inflation so in a sense, US is able to offset some costs by debt itself but it still has a vicious loop where you start borrowing money just to pay your debt and this starts cutting into your infrastructure hurting the poor the most but also reducing the ability of care etc. effectively making things private if govt cant fund it for many (healthcare) which would impact the poor the most
And this is really tricky as the current model really favours overconsumption and that makes more goods be easily sold and this is why other countries are willing to do this in the first place.
From what I could observe, the biggest winners would be corporations as US pays corporations get funding or the stock market looks more lucrative etc. Low real rates inflate asset values and this would disproportionately benefit the rich
It also starts to overconsume from other countries and just make it financially unable to operate at the same level combined with globalization to compete globally at everything but the software (doubtful, we will see what happens in the near future) and at the financial level.
So basically from my understanding, it increases inequality, increases overconsumption, benefits the rich and hurts the poor.
Also, basically US loses all major exports for this financial hack of sorts. Doesn't it fundamentally weaken the reality of US?
Another aspect is that since it favours the stock market or overvaluates them, these help vc funds and these vc funds trickle down to startups who can only compete at the software level so they end up subsidizing all costs (mostly human software engineering) plus hardware costs and make them able to offset/run at losses.
Now VC funds end up enshittening most solutions in order to extract maximum profit down the line usually basically impacting the end consumer and thus hurting the reputation of VC companies (and sometimes for good measure)
Theoretically this also subsidizes open source in a very minute way. Software engineers get rich and are able to enjoy the craft and there are subsidies of free storage and server access from basically github aka microsoft and others to basically streamline the whole process as well since these cloud/others also extract some values of open source.
But open source ends up creating better alternatives to VC funded solutions if those solutions exist in the most human-friendly way where profits arent even thought of usually and are run via donations.
Combine this with the fact that in India and China,developers are cheaper and they are having a boom in their VC industry/startup culture as well and they are willing to undercut America because they are simply leaner and usually pick less VC funding overall as well imo
So in a way US's software success can only be relied upon on full monopolies support considering open source and cheaper alternatives and also moral focuses where EU companies would prefer to support EU as US wreckballs into political disaster.
Also in my opinion, most of US software success recently aside from the monopolies or maybe even including them is so reliant on including "AI" and AI fundamentally lacks any moat most of the times and they are actively losing/making 0 profit while spending billions in hopes of beating the competition.
US's export of financial products basically loops this cycle back to probably an over-reliance on AI itself.
So US economy is so damn reliant on AI which is fundamentally unstable partially due to it "earning profit in the middle" or taking this lucrative deal.
Y'know what I feel the issue with this is? that in other countries there is a cap of the amount of destruction/reliance. Usually most countries suffer from the other side of spectrum but America has removed this cap because of it and this weird blend of hyper capitalism just converted into late stage capitalism.
So (when) the AI financial bubble explodes, How would America even rebuild itself?
I don't think there is a free lunch. Not even in this case, what ended up happening was that America took short term profits in long term structural losses and this hyper capitalism lured companies as well to outsource or build factories in china and other countries actively increasing the extent of the loss and there just wasnt any cap.
Something which is lucrative but not sustainable and now its starting to bite back.
A lot of issues I felt that were in America are now starting to feel intentional.
I mean one of my questions is that how can America even be optimistic at this state considering that everyone I talk to admits that AI is an bubble, so yea AI companies still make profits but long term everyone sees an impending doom. It's like a time bomb and I already feel at unease and I observe the same feeling of unease as well from other people.
Another point was that America helped foreigners into the American dream (by exporting a story) or perhaps the silicon valley dream (a lot of S&P companies are built by people who came to america) as it losses even that.
In a way America just incentivized a new form of grifting called financial innovation in this AI bubble era in my opinion by this decision. I am genuinely not sure what America can do at this stage.
I am sorry to say but the future seems bleak. I hope I am wrong but I wish the average american the best of luck and hope in a better future for the whole world combined but being honest, the future doesn't feel good for America.
That's why Christian and Muslim (to a lesser extent since they exploited loopholes) nations relied on Jewish financiers. It does not make sense for the exchange of good and services among one another to be held back because someone deciding to sit on a pile of tokens.
You are making it a bit too easy on yourself: these days we can create an arbitrary number of 'tokens', ie fiat money. The amount we create is limited by the amount of inflation we want to tolerate. If someone just sits on their tokens, they don't contribute to inflation, so we can print more. (But take them out of circulation, if the hoarders decide to spend.)
Just to be clear: I agree with what you are arguing for! But your argument is a bit too simple to work in modern times: legalising interest payments is still a good idea, even when we can create an arbitrary number of tokens. But the reasoning is a bit more complicated.
Banks start with some capital, borrow in the form of deposits, and lend in the form of bonds, mortgages etc.
The regulatory capital ratio determines how much capital they must hold to support the assets.
That's one of the factors. But even in jurisdictions without regulations on capital ratio, banks tend to hold capital cushions.
The Scottish 'free banking' era in the 18th and 19th century is instructive here. (Canada had a similar arrangement.) In Scotland during that time banks regularly had about 2/3 deposits and 1/3 capital to finance their balance sheet, despite no fixed regulatory obligations on capital ratios.
Interestingly they barely held any reserves at all, perhaps 2% or less of assets.
These banks were extraordinarily solid and stable. And the arrangement contributed to Scotland's rapid catching up to England during their Industrial Revolutions.
Loans are assets
And people wonder why finite natural resources skyrocket in value.
Conversely, when you deposit cash to a bank, you are actually creating a liability on the bank's balance sheet - as you might want your money back one day!
Without fractional reserve rules the banks could lend their money infinitely. I like Richard Wagner's theories/research on the subject, as in he actually asked for a loan and went through the books of the bank to verify where the money came from, it came from nowhere, they just credited their account and that's it.
What's that supposed to mean?
> I like Richard Wagner's theories/research on the subject, as in he actually asked for a loan and went through the books of the bank to verify where the money came from, it came from nowhere, they just credited their account and that's it.
That's a bit silly. Yes, when you get a loan and just let the money sit in your account, the bank can create the loan/deposit pair out of thin air (modulo legal requirements).
The constraint for the bank comes when you start spending that money. Most people take loans to spend the money, eg a company might invest in some new machinery or you might buy a house. The Mr Wagner in your story stopped his investigation too early.
No, you don't get it. Imagine if there was a single bank and no cash withdrawals. The bank can't run out of liquidity, ever. If you buy something from a company, the money lands in the bank account of the company, which is managed by the same bank. This means as long as there is no cross bank transfer, there is no limit to how much money can be created.
Now you might argue that this is a bit unrealistic, but at least in principle you could artificially engineer a situation like that even in the current system by having large corporations agree to use the same bank for money created by a specific loan.
But here is where it gets weirder. Imagine if there are two banks now. Surely now the idea presented above breaks down the moment there is a cross bank transfer, right? Except it's not that simple. There is merely a limit to how much of the created money can leave the bank in one direction. If the cross bank transfers are balanced so that for every transfer from bank one to bank two, there is a transfer from bank two to bank one, then you are back in unlimited money territory.
This means there is no static limit to the amount of money that can be created. The limit is dynamic and depends on the interactions between banks. Specifically, it depends on the liquidity/solvency of a given bank. This means this limit is purely practical and more akin to friction, rather than a fundamental restriction in the math of banking/accounting. It's like how computers aren't turing machines because they have finite amounts of memory. There is no limit to how much memory a computer can have as long as you can manage to build a computer with that much memory.
The misconception is that if a bank has a capital X, the law gives them power to create loans up to 10X.
What I'm saying is that without the law, the bank could create loans without a constraint, so say 20X, 100X 1000X.
The fractional reserve policy is actually a limit, not the source of lending in excess of capital.
Loans are money creation, and this creation is organic, it doesn't need a charter from the government.
Another misconception is that this money creation is monetary emission or that it somehow causes inflation. It doesn't, because it is gross money creation, not net money creation.
Now let's biblical exegesis to define what is legitimate interest and usury.
The "good" (or "bad"?) thing about these holy scriptures is that they can be interpreted quite freely to fit a personal or institutional agenda.
The problem with that is they deny the existence of the time value of money, which is essentially a mathematical fact.
It's why Islamic banks come up with various workarounds to be able to charge the equivalent of interest.
You can't loan more than you have
all models are wrong but some are still useful. This model isn’t useful at all since the fraction was legislated to be 0 years ago.
However legal limits aren't the only ones that apply. Canadian banks still keep more than zero reserves around.
The more useful limitation in economic terms and in legal terms is on the amount of capital banks need to hold. A capital cushion is what makes your deposits stable, not reserves.
If you have a big enough capital cushion, you can always go and liquidate some assets to get the reserves needed to satisfy withdrawal requests. Having some reserves on hand is just very convenient, so the customer doesn't have to wait.
Fractional reserve is a model only for textbooks, it is not an accurate model of how the banking system works in most western economies with a central bank and sovereign currency today.
>> The more useful limitation in economic terms and in legal terms is on the amount of capital banks need to hold
Well this is usually the biggest of several limitations which impact whether a loan would be profitable to make for a bank or not so i don't entirely disagree but this is a legislative control, there's no "economic terms" here because in general no school of economics understands this or has anything to say about this control which you correctly point out exists and is central to loan decision making. People can argue about the degree of centrality because it's not the only factor so let me put it this way: it's central in a way which any notion of "fractional reserve" is simply not.
This guy gets it, okay devs, read this article
https://chatgpt.com/share/695e125f-1254-800a-8661-d7a046f4c2...
In practice, that prompt gets chatgpt role-playing as industry professionals: who knows if it's near or far from the real deal.
Also, reading long texts is good for comprehension. You don't learn with reading summaries, you learn with repetition and even further if write your own summaries.
There's a lot of stuff to talk about with how money works! Like, when I use my Visa card issued by a New Zealand branch of an Australian bank to buy something in Europe, there are zillions of moving parts there.
The fact that money doesn't actually move internationally but yet appears to, and the fact that currency exchange can be done despite that. And that 60% of everything is backed by US dollars (rapidly dropping now). How bank transfers work with and without a common central bank; the different mechanisms countries set up to streamline them.
And, the fact that it's not really centrally controlled, and anyone (like Satoshi Nakamoto) can make a currency and there's not really anything a government can do to prevent currencies it doesn't like, and despite that we do mostly have one government-issued currency per country.
Except. The main point of chemical trails, money or other implementations of the messaging bus of a complex adaptive system is THE COMMUNITY it creates. Think the Sapir-Whorf hypothesis, but instead of language determines what you think, expand that to "your messaging bus language determines how your community functions". Yeah there is lots of stuff about money, but how it determines the form and function of the community (as in CAS) is the important part.
The other primary thing to think about money - once you get that it is a messaging bus - is the idea of making money from money. When you understand the function of the system you can then understand that making money from money is not a good idea. This is not a new idea. The concept of throwing the money lenders out of the temple has been around for a long time.
If you understand money, then you will be able to answer this question:
why is making money from money a bad (dysfunctional) idea?