Let me make the case for Jeremiah's micro-macro distinction. Because I think the episode itself doesn't fully explicate why it might matter.
Think back to the DC babysitting economy example from the start of the episode. If babysitting slips were a normal commodity we can apply microeconomics principles to predict what happens to to them in response to scarcity. We would expect them to increase in price until they reach a new, higher equilibrium price. This is what happened to eggs in response to bird flu related scarcity. But what you shouldn't expect is for nobody to ever sell any eggs in anticipation of a self-reinforcing egg price hike cycle. But exactly that happened to the babysit voucher system.
Why? Because the crucial distinction between eggs and these vouchers is substitutibiliy. Consumers can respond to a shortage of eggs by buying fewer eggs, and spending their resources elsewhere. But the babysit economy is closed. Your babysit vouchers can only be spend on babysitting. So when there is a mismatch between supply and demand, that mismatch can't be resolved and the market just fails to clear.
Capital markets more the babysitting market in than the egg market in the following sense: It represents the sum of all tradable assets. Consequently, capital is not substitutable with anything outside the capital market. The same way that babysit vouchers can be substituted with anything outside the babysitting market, but unlike eggs which *can* be substituted with commodities other than eggs. Because if it is tradable, it's already included in the capital market. So when there are shortages in capital, you risk the same vicious cycle as you do with babysitting, but that you don't with eggs.
The problem with the babysitting token economy was that the tokens could be destroyed by way of paying dues with them. That decreased the total number of non-divisible units in the economy which is what led to the crunch.
If the tokens couldn’t be used to pay dues then the same number of tokens would continue to circulate and the system would be fine. Or if the tokens could be fractioned then partial tokens would assume the relative value of an initial whole token as the total number of units decreased. For example if one token equals one hour of time, and half the tokens are removed permanently from circulation, then half a token is now objectively worth one hour of time instead of thirty minutes.
Hot take on autonomy at the federal reserve: either shit or get off the pot. If your an organization created by the government whose head is selected by the president and approved by congress you can answer to the president/congress and serve at their pleasure like every other appointed official.
If you are a private organization then let’s have a conversation about opening up what you do to competition instead of maintaining your monopoly.
Let’s also assume the fed kept inflation to 2% constantly and consistently. I started working at 14 in 2001. So far thats 60% inflation during my work life according to chatgpt. And it would be 170% if I retire at 65 according to chat gpt.
That part always gets left unsaid.
I’m going to hot take recessions to: that’s the real economy. A reset from false prosperity.
> If your an organization created by the government whose head is selected by the president and approved by congress ...
I think everyone can see that this fully applies to the Supreme Court (and federal courts in general). But it doesn't follow that the Supreme Court.
> can [implicitly must] answer to the president/congress and serve at their pleasure like every other appointed official.
Nobody believes SCOTUS must shit or get off the pot. Most people understand the virtues of having them be politically insulated. And because we can identify at least one institution for which such a situation is desirable, implies that it's not ridiculous that there may be others.
Either the president/congress as indicated by the relevant statute has the power to rescind whoever they appointed or they don’t and you better stand by that when the person jacks interest rates up to 100 % or says slavery is back on the menu and the relevant amendments/federal laws were passed unconstitutionally and therefore are void in the case of SCOTUS.
Personally I think the whole institution of government is a racket but if we’re going to be in the racketeering business let’s be in the racketeering business. The rules are the rules. For everyone. Regardless of the consequences. No one gets to be created by government decree and be a government employee without being subject to getting fired like any other employee. Come what may.
So by your standard than, Presidents should be able to fire judges at will also? Or can you articulate a distinction between John Roberts and Jerome Powell?
My standard is either you have the authority to fire someone or you don’t. If you do, yes that means at your will even if you suffer consequences such as people deciding to not vote for you go forward, if it’s no, then it doesn’t matter what they do they get to stay in the job until their time is up.
Jeremiah is a neoliberal technocrat, a central planner by less kind words, and spent most of his appearance displaying a confidently incorrect corpus of economic knowledge. Like all falsehoods it would take an order of magnitude more time to deconstruct what he put together but I will zero in on the opening anecdote about the babysitting cooperative. The problem was not a lack of coupons for babysitting services as they were removed from the system and subsequently hoarded. Any divisible quantity of money can serve all economic functions. The problem was that the price of babysitting services denominated in coupons was not allowed to fluctuate depending on individual preference.
The Fed is an unaccountable body of people centrally planning the money supply to benefit some at the cost of many. Fuck the Fed and the mainstream economic consensus that gives it an imprimatur of legitimacy. The Austrian school still exists, but because it can explain and predict the consequences of economic decisions from economic principles, rather than econometrics, it is seen as archaic or less than, owing to the long-standing physics-envy felt by mainstream economic disciplines.
The minimization of Austrian economic thought in the current era is a natural result of the ubiquity of the Fed. If the Fed is the largest employer of economists and provider of grants, and Austrian thinking goes against their dogma, of course they aren’t going to hire anyone with those opinions.
It is physics-envy and the managerial revolution taken to a logical endpoint. I think econometrics are important to explain the mechanics of what happened given the implementation of a policy and a hypothesis about what was expected. It is another thing entirely to suggest that econometrics be used to implement central planning of the money supply, trade policy, industrial policy, et cetera.
Leaving my opinions in check for the sake of civility and not having heard the follow up podcast. This topic was incredible and I loved the interview. That said, I will take issue with a few points.
1. Extremely dismissive. Sort of reeked of let the smart people run the show.
2. Even if the natural ores was wild and problematic, I would rather fight a bear than fight the bear trainer union. At least I’ve got a chance with the bear or can die homers my as a bear fighter.
3. Of all of his examples he left out the most important one. The one we are actually experiencing. Where the money is worth half as much and nobody got a raise.
“It does not matter what the value of the dollar is” UUuUuGgGhHh. This is unfortunately not that controversial, it’s a staple of modern monetary theory. I’m always flabbergasted at how myopic this view is. I’m looking forward to Gene dismantling this in the next installment! Haha
I had a hard time continuing to listen when Jeremiah said "I think it's called the federal funds rate.." 🫤
But out of respect to Andrew I continued..
I want to break down two things after listening to this episode: the velocity of money and how banks create money through debt.
Let’s start with velocity. When people start trading dollars for goods more quickly, that usually signals more economic activity. In extreme cases it means trust in the currency is breaking down. Picture what happens during hyperinflation. People realize the money is losing value, so they rush to exchange it for anything real, like food, supplies, anything usable. It becomes a game of musical chairs where the chairs are real goods and the last person holding money loses. That’s velocity. The faster money moves, the more demand hits a fixed supply of goods and prices explode. Eventually the currency becomes worthless. We’ve seen this in Weimar Germany, Venezuela, and Zimbabwe. Those are the clearest examples of velocity driving inflation. It can happen in milder forms too within our own business cycles, but those extremes help illustrate the logic. Think of it like hot potato. The currency is what you don’t want to be left holding.
Now to something Jeremiah brought up. He said he couldn’t figure out how to explain why banks creating debt increases the money supply. It’s actually pretty simple. When you borrow money from a bank, like for a house, they don’t pull that money from someone else’s deposit. They’re not reallocating funds. They create new dollars. The bank types numbers into a computer and those numbers appear in your account. That money didn’t exist before. It gets wired into escrow, and once the seller is paid, they now hold real, spendable dollars. That money enters circulation. That’s new money in the real economy. Technically when you repay that loan, that money is destroyed. It’s a slow motion version of quantitative tightening. The problem is, most people don’t just pay off debt and stop borrowing. They refinance, buy a bigger house, or they roll into another loan. So the debt doesn’t shrink. It expands and with it, the money supply. That’s how debt-based money creation works.
I hope these explanations helped anyone who is trying to figure out our monetary system.
Good explanations, thanks. Would you characterize the process of quantitative easing and quantitative tightening as negative or does it depend? It makes sense to me that process carries risk (and who is on the hook for that risk is very important), but expanding the economic pie seems like a very positive goal, so I'm trying reconcile the competing narratives.
Rephrased: are quantitative easing and quantitative tightening materially different at large scale vs small scale, public vs private, compulsory vs voluntary, etc?
Well yeah, I would think that QE and QT feel different depending on who’s doing it and how big the action is. If people have a choice in the matter, like when private lenders or individuals decide to save or spend, that’s voluntary. But most individuals aren’t thinking about the broader impact of those decisions. They’re not viewing it through the lens of monetary policy or systemic risk. That said, a lot of credit creation doesn’t go to individuals anyway. It goes to corporations, which means even private lending can have wider economic consequences. Still, when a central bank adds or removes trillions from the system, the effects are on a completely different scale. Everyone is impacted, whether they want to be or not. And it’s not just here in the U.S. The Fed’s actions affect the global economy. QE puts more money into the system, but it usually flows to those closest to the source first, like banks and investors. That’s the Cantillon Effect. Asset prices go up long before regular people see any benefit. QT removes money from circulation, which can help with inflation, but it also makes debt more expensive and harder to manage, especially for people who were encouraged to borrow when rates were low. On top of that, a lot of global debt is denominated in dollars, so when the Fed tightens, the impact ripples across borders. Just to be transparent, I don’t think intervention is the right answer. It distorts market signals, misprices risk, and creates feedback loops that make the system more fragile.
1) Jeremiah kinda undersold how bad deflation is. If everyone can make real investment gains by doing nothing with money, you get a lot more doing nothing. I personally think savings are underrated (see 2) but you want savings to be invested, not sat on. Small inflation means you need to get money out and doing something for you instead of hoarding cash.
Missing by half a percent sometimes is another good reason to target 2% instead of 0%. The difference between 1.5% and 2.5% is small, whereas flipping from negative to positive inflation is a difference of kind, not degree.
2) Paradox of thrift is nonsense. Yes, it would be bad if no one bought anything ever, but they need to buy things. Savings aren't just sat on, or at least they won't be if inflation stays positive, so a little more or less savings on the margin isn't macroeconomically bad. A massive shift in favor of saving or spending would be bad in the way that all massive shocks are bad, but that has nothing to do with saving in particular.
3) He didn't really mention why the Austrian school collapsed so hard. 2008 was the crucible. Quantitive Easing was a massive, unprecedented expansion of the money supply, and Austrians predicted massive inflation to follow. That obviously didn't happen, and in fact these massive programs to set the interest rate to something like -3% basically kept inflation at 2% for the entire massive contraction and recovery. It was a modern miracle.
4) There is one economic "school" currently: modern monetary theory. It's nonsense and they're cranks just like all the other schools, but it is a "school" in the same sense as there were schools historically trying to change the mainstream consensus.
5) not a change, but I want to underscore how right he was about modern neoclassical economics taking the best of Austrian and Keynesian thinking. Both got some right and some wrong. Hayek got the boom/bust mechanics basically right about how artificially low interest rates encourage unsustainable booms, he just wasn't a math guy. All his mechanics come into play when you undershoot the Taylor rule, not the free market interest rate.
6) I don't think Jeremiah did a good job of explaining why the Fed Funds rate isn't like other price floors/ceilings. Most price controls take effect in the long run. In the long run, people will adjust to rent control in all sorts of ways. In the short run, there can be all sorts of bad decisions people make to get to a steady equilibrium. When you scale to macro you can get some really bad outcomes as people panic. The dot-com "bubble" had everyone panic selling tech companies because the internet wasn't quite as much of a money printer as they had thought. Obviously providing some liquidity to get through a moment of panic with minimal damage is overall positive. The fed setting an interest rate isn't trying to make apartments cheaper, it's trying to smooth out the ride to the same long-run equilibrium we were heading towards anyway.
I am not a fan of the amount of discretion that the Federal reserve has, but the lack of cogent alternatives is a big challenge to reform. So far cryptocurrency seems to behave pro-cyclically rather than being stable or counter-cyclical. Gold tends to be deflationary. I think free banking is interesting, but the best examples are historically remote - Scotland in the 18th and 19th century and the United States before the Civil War.
There’s a lot of evidentiary support for a different model of money creation than is traditionally taught or conceived. In general the undergrad story of money creation is fractional reserve banking which is that money once lended out eventually finds itself at another bank that lends out dollars.
Contrast this with the evidentiary support although no economics program I’m aware of teaches this. That dollars are created by banks themselves writing multiple dollars of loans on a single dollar of deposits. This observational fact has far reaching implications on the business cycle and how to manage interest rates. Most namely that capital adequacy regulations do not accomplish what they want. This idea went a little more mainstream with a recent Tucker Carlson advertisement.
Would recommend Richard Werner’s articles and books on this topic.
I think I read a comment on this thread earlier and wasn’t sure I understood it right but think your saying the same thing —- she said when a bank gives you a loan it types numbers into a computer & the money is created……..so if I’m understanding right the money given to a seller from a borrowerer provided by a bank has no tangible basis and is just numbers typed in a computer - which is why she said that new money is deleted when you pay back a loan bc it’s replacing the typed in numbers with tangible money…
Very interesting that in the you example of babysitting credits, the economist got the textbook answer correct, but failed to implement it properly. Right in theory, mismanaged in practice. But a great way to build confidence that technocrats can manage the much more complicated real economy.
Let me make the case for Jeremiah's micro-macro distinction. Because I think the episode itself doesn't fully explicate why it might matter.
Think back to the DC babysitting economy example from the start of the episode. If babysitting slips were a normal commodity we can apply microeconomics principles to predict what happens to to them in response to scarcity. We would expect them to increase in price until they reach a new, higher equilibrium price. This is what happened to eggs in response to bird flu related scarcity. But what you shouldn't expect is for nobody to ever sell any eggs in anticipation of a self-reinforcing egg price hike cycle. But exactly that happened to the babysit voucher system.
Why? Because the crucial distinction between eggs and these vouchers is substitutibiliy. Consumers can respond to a shortage of eggs by buying fewer eggs, and spending their resources elsewhere. But the babysit economy is closed. Your babysit vouchers can only be spend on babysitting. So when there is a mismatch between supply and demand, that mismatch can't be resolved and the market just fails to clear.
Capital markets more the babysitting market in than the egg market in the following sense: It represents the sum of all tradable assets. Consequently, capital is not substitutable with anything outside the capital market. The same way that babysit vouchers can be substituted with anything outside the babysitting market, but unlike eggs which *can* be substituted with commodities other than eggs. Because if it is tradable, it's already included in the capital market. So when there are shortages in capital, you risk the same vicious cycle as you do with babysitting, but that you don't with eggs.
The problem with the babysitting token economy was that the tokens could be destroyed by way of paying dues with them. That decreased the total number of non-divisible units in the economy which is what led to the crunch.
If the tokens couldn’t be used to pay dues then the same number of tokens would continue to circulate and the system would be fine. Or if the tokens could be fractioned then partial tokens would assume the relative value of an initial whole token as the total number of units decreased. For example if one token equals one hour of time, and half the tokens are removed permanently from circulation, then half a token is now objectively worth one hour of time instead of thirty minutes.
Hot take on autonomy at the federal reserve: either shit or get off the pot. If your an organization created by the government whose head is selected by the president and approved by congress you can answer to the president/congress and serve at their pleasure like every other appointed official.
If you are a private organization then let’s have a conversation about opening up what you do to competition instead of maintaining your monopoly.
Let’s also assume the fed kept inflation to 2% constantly and consistently. I started working at 14 in 2001. So far thats 60% inflation during my work life according to chatgpt. And it would be 170% if I retire at 65 according to chat gpt.
That part always gets left unsaid.
I’m going to hot take recessions to: that’s the real economy. A reset from false prosperity.
> If your an organization created by the government whose head is selected by the president and approved by congress ...
I think everyone can see that this fully applies to the Supreme Court (and federal courts in general). But it doesn't follow that the Supreme Court.
> can [implicitly must] answer to the president/congress and serve at their pleasure like every other appointed official.
Nobody believes SCOTUS must shit or get off the pot. Most people understand the virtues of having them be politically insulated. And because we can identify at least one institution for which such a situation is desirable, implies that it's not ridiculous that there may be others.
Either the president/congress as indicated by the relevant statute has the power to rescind whoever they appointed or they don’t and you better stand by that when the person jacks interest rates up to 100 % or says slavery is back on the menu and the relevant amendments/federal laws were passed unconstitutionally and therefore are void in the case of SCOTUS.
Personally I think the whole institution of government is a racket but if we’re going to be in the racketeering business let’s be in the racketeering business. The rules are the rules. For everyone. Regardless of the consequences. No one gets to be created by government decree and be a government employee without being subject to getting fired like any other employee. Come what may.
So by your standard than, Presidents should be able to fire judges at will also? Or can you articulate a distinction between John Roberts and Jerome Powell?
My standard is either you have the authority to fire someone or you don’t. If you do, yes that means at your will even if you suffer consequences such as people deciding to not vote for you go forward, if it’s no, then it doesn’t matter what they do they get to stay in the job until their time is up.
Jeremiah is a neoliberal technocrat, a central planner by less kind words, and spent most of his appearance displaying a confidently incorrect corpus of economic knowledge. Like all falsehoods it would take an order of magnitude more time to deconstruct what he put together but I will zero in on the opening anecdote about the babysitting cooperative. The problem was not a lack of coupons for babysitting services as they were removed from the system and subsequently hoarded. Any divisible quantity of money can serve all economic functions. The problem was that the price of babysitting services denominated in coupons was not allowed to fluctuate depending on individual preference.
The Fed is an unaccountable body of people centrally planning the money supply to benefit some at the cost of many. Fuck the Fed and the mainstream economic consensus that gives it an imprimatur of legitimacy. The Austrian school still exists, but because it can explain and predict the consequences of economic decisions from economic principles, rather than econometrics, it is seen as archaic or less than, owing to the long-standing physics-envy felt by mainstream economic disciplines.
The minimization of Austrian economic thought in the current era is a natural result of the ubiquity of the Fed. If the Fed is the largest employer of economists and provider of grants, and Austrian thinking goes against their dogma, of course they aren’t going to hire anyone with those opinions.
It is physics-envy and the managerial revolution taken to a logical endpoint. I think econometrics are important to explain the mechanics of what happened given the implementation of a policy and a hypothesis about what was expected. It is another thing entirely to suggest that econometrics be used to implement central planning of the money supply, trade policy, industrial policy, et cetera.
Leaving my opinions in check for the sake of civility and not having heard the follow up podcast. This topic was incredible and I loved the interview. That said, I will take issue with a few points.
1. Extremely dismissive. Sort of reeked of let the smart people run the show.
2. Even if the natural ores was wild and problematic, I would rather fight a bear than fight the bear trainer union. At least I’ve got a chance with the bear or can die homers my as a bear fighter.
3. Of all of his examples he left out the most important one. The one we are actually experiencing. Where the money is worth half as much and nobody got a raise.
“It does not matter what the value of the dollar is” UUuUuGgGhHh. This is unfortunately not that controversial, it’s a staple of modern monetary theory. I’m always flabbergasted at how myopic this view is. I’m looking forward to Gene dismantling this in the next installment! Haha
I had a hard time continuing to listen when Jeremiah said "I think it's called the federal funds rate.." 🫤
But out of respect to Andrew I continued..
I want to break down two things after listening to this episode: the velocity of money and how banks create money through debt.
Let’s start with velocity. When people start trading dollars for goods more quickly, that usually signals more economic activity. In extreme cases it means trust in the currency is breaking down. Picture what happens during hyperinflation. People realize the money is losing value, so they rush to exchange it for anything real, like food, supplies, anything usable. It becomes a game of musical chairs where the chairs are real goods and the last person holding money loses. That’s velocity. The faster money moves, the more demand hits a fixed supply of goods and prices explode. Eventually the currency becomes worthless. We’ve seen this in Weimar Germany, Venezuela, and Zimbabwe. Those are the clearest examples of velocity driving inflation. It can happen in milder forms too within our own business cycles, but those extremes help illustrate the logic. Think of it like hot potato. The currency is what you don’t want to be left holding.
Now to something Jeremiah brought up. He said he couldn’t figure out how to explain why banks creating debt increases the money supply. It’s actually pretty simple. When you borrow money from a bank, like for a house, they don’t pull that money from someone else’s deposit. They’re not reallocating funds. They create new dollars. The bank types numbers into a computer and those numbers appear in your account. That money didn’t exist before. It gets wired into escrow, and once the seller is paid, they now hold real, spendable dollars. That money enters circulation. That’s new money in the real economy. Technically when you repay that loan, that money is destroyed. It’s a slow motion version of quantitative tightening. The problem is, most people don’t just pay off debt and stop borrowing. They refinance, buy a bigger house, or they roll into another loan. So the debt doesn’t shrink. It expands and with it, the money supply. That’s how debt-based money creation works.
I hope these explanations helped anyone who is trying to figure out our monetary system.
Good explanations, thanks. Would you characterize the process of quantitative easing and quantitative tightening as negative or does it depend? It makes sense to me that process carries risk (and who is on the hook for that risk is very important), but expanding the economic pie seems like a very positive goal, so I'm trying reconcile the competing narratives.
Rephrased: are quantitative easing and quantitative tightening materially different at large scale vs small scale, public vs private, compulsory vs voluntary, etc?
Well yeah, I would think that QE and QT feel different depending on who’s doing it and how big the action is. If people have a choice in the matter, like when private lenders or individuals decide to save or spend, that’s voluntary. But most individuals aren’t thinking about the broader impact of those decisions. They’re not viewing it through the lens of monetary policy or systemic risk. That said, a lot of credit creation doesn’t go to individuals anyway. It goes to corporations, which means even private lending can have wider economic consequences. Still, when a central bank adds or removes trillions from the system, the effects are on a completely different scale. Everyone is impacted, whether they want to be or not. And it’s not just here in the U.S. The Fed’s actions affect the global economy. QE puts more money into the system, but it usually flows to those closest to the source first, like banks and investors. That’s the Cantillon Effect. Asset prices go up long before regular people see any benefit. QT removes money from circulation, which can help with inflation, but it also makes debt more expensive and harder to manage, especially for people who were encouraged to borrow when rates were low. On top of that, a lot of global debt is denominated in dollars, so when the Fed tightens, the impact ripples across borders. Just to be transparent, I don’t think intervention is the right answer. It distorts market signals, misprices risk, and creates feedback loops that make the system more fragile.
1) Jeremiah kinda undersold how bad deflation is. If everyone can make real investment gains by doing nothing with money, you get a lot more doing nothing. I personally think savings are underrated (see 2) but you want savings to be invested, not sat on. Small inflation means you need to get money out and doing something for you instead of hoarding cash.
Missing by half a percent sometimes is another good reason to target 2% instead of 0%. The difference between 1.5% and 2.5% is small, whereas flipping from negative to positive inflation is a difference of kind, not degree.
2) Paradox of thrift is nonsense. Yes, it would be bad if no one bought anything ever, but they need to buy things. Savings aren't just sat on, or at least they won't be if inflation stays positive, so a little more or less savings on the margin isn't macroeconomically bad. A massive shift in favor of saving or spending would be bad in the way that all massive shocks are bad, but that has nothing to do with saving in particular.
3) He didn't really mention why the Austrian school collapsed so hard. 2008 was the crucible. Quantitive Easing was a massive, unprecedented expansion of the money supply, and Austrians predicted massive inflation to follow. That obviously didn't happen, and in fact these massive programs to set the interest rate to something like -3% basically kept inflation at 2% for the entire massive contraction and recovery. It was a modern miracle.
4) There is one economic "school" currently: modern monetary theory. It's nonsense and they're cranks just like all the other schools, but it is a "school" in the same sense as there were schools historically trying to change the mainstream consensus.
5) not a change, but I want to underscore how right he was about modern neoclassical economics taking the best of Austrian and Keynesian thinking. Both got some right and some wrong. Hayek got the boom/bust mechanics basically right about how artificially low interest rates encourage unsustainable booms, he just wasn't a math guy. All his mechanics come into play when you undershoot the Taylor rule, not the free market interest rate.
6) I don't think Jeremiah did a good job of explaining why the Fed Funds rate isn't like other price floors/ceilings. Most price controls take effect in the long run. In the long run, people will adjust to rent control in all sorts of ways. In the short run, there can be all sorts of bad decisions people make to get to a steady equilibrium. When you scale to macro you can get some really bad outcomes as people panic. The dot-com "bubble" had everyone panic selling tech companies because the internet wasn't quite as much of a money printer as they had thought. Obviously providing some liquidity to get through a moment of panic with minimal damage is overall positive. The fed setting an interest rate isn't trying to make apartments cheaper, it's trying to smooth out the ride to the same long-run equilibrium we were heading towards anyway.
I am not a fan of the amount of discretion that the Federal reserve has, but the lack of cogent alternatives is a big challenge to reform. So far cryptocurrency seems to behave pro-cyclically rather than being stable or counter-cyclical. Gold tends to be deflationary. I think free banking is interesting, but the best examples are historically remote - Scotland in the 18th and 19th century and the United States before the Civil War.
There’s a lot of evidentiary support for a different model of money creation than is traditionally taught or conceived. In general the undergrad story of money creation is fractional reserve banking which is that money once lended out eventually finds itself at another bank that lends out dollars.
Contrast this with the evidentiary support although no economics program I’m aware of teaches this. That dollars are created by banks themselves writing multiple dollars of loans on a single dollar of deposits. This observational fact has far reaching implications on the business cycle and how to manage interest rates. Most namely that capital adequacy regulations do not accomplish what they want. This idea went a little more mainstream with a recent Tucker Carlson advertisement.
Would recommend Richard Werner’s articles and books on this topic.
I think I read a comment on this thread earlier and wasn’t sure I understood it right but think your saying the same thing —- she said when a bank gives you a loan it types numbers into a computer & the money is created……..so if I’m understanding right the money given to a seller from a borrowerer provided by a bank has no tangible basis and is just numbers typed in a computer - which is why she said that new money is deleted when you pay back a loan bc it’s replacing the typed in numbers with tangible money…
Very interesting that in the you example of babysitting credits, the economist got the textbook answer correct, but failed to implement it properly. Right in theory, mismanaged in practice. But a great way to build confidence that technocrats can manage the much more complicated real economy.