> The term you're looking for is transmission channels. MB is turned into M1 through lending. M3 is turned into M1 through collateralisation and demand stimulation, among other effects.
"Transmission channels" are how policy (rates, credit, etc.) affects the economy, not how aggregates convert into each other.
MB doesn't get "turned into" M1 by lending. Banks don't lend reserves to non-banks. The reserves stay inside the banking system. Lending creates M1 and reserves are provided to match.
I see the point you're trying to make about M3. Instruments like commercial paper can serve as collateral for bank loans that create deposits, but that still isn't conversion. It's new deposit creation with a broad money instrument as collateral.
> Of course it is. Why do you think the SPVs want the commitment? They turn around and issue commercial paper and get bank loans and get bonds underwritten against those commitments. All of which turns into checking account deposits. Those SPVs also get a credit rating which lets them sign construction contracts which builders turn around and turn into deposits.
The commitment isn't in any aggregate. It's collateral or credit support for instruments that are (the SPV's commercial paper and the resulting bank deposits).
That's what I mean by Nvidia being a credit enhancer. You've now agreed the money is created by the lenders and Nvidia is the enhancer. That's what I said two comments ago, so what's left is semantics.
> Yes. When the Fed buys Treasuries and increases a bank's reserves at the Fed, it's not actually doing anything in the real economy. The banks then have to turn around and increase lending. If, as you noted, loan demand is stagnant, they have to cut prices, i.e. rates.
> The Economist is comparing Nvidia "enhancing" credit conditions in a manner analogous to the way the Fed does. By creating a base that stimulates lending.
The Fed changes the risk-free rate for the whole economy. Nvidia is compressing the credit spread for a specific set of borrowers by absorbing their tail risk.
That makes Nvidia less like a central bank than a guarantor. The better analogues are Fannie and Freddie, or a monoline insurer. A guarantor's business looks free until the tail risks it took on turn out to be correlated which is what happened to the monolines in 2007.
That's precisely the scenario the Economist piece is actually worried about (the guarantees coming due at the same time Nvidia's own sales weaken).
> It's absolutely money creation in the way a central banker or anyone in the money markets would talk about it.
Central bankers would describe this as easing financial conditions or enabling credit creation, not money creation.
This was a fun thread to lurk on but it's kinda fascinating that there is so much debate about something that should be seemingly well known and documented. It's like having a couple of software engineers debate what e.g. a Java static initializer does :-)
"Transmission channels" are how policy (rates, credit, etc.) affects the economy, not how aggregates convert into each other.
MB doesn't get "turned into" M1 by lending. Banks don't lend reserves to non-banks. The reserves stay inside the banking system. Lending creates M1 and reserves are provided to match.
I see the point you're trying to make about M3. Instruments like commercial paper can serve as collateral for bank loans that create deposits, but that still isn't conversion. It's new deposit creation with a broad money instrument as collateral.
> Of course it is. Why do you think the SPVs want the commitment? They turn around and issue commercial paper and get bank loans and get bonds underwritten against those commitments. All of which turns into checking account deposits. Those SPVs also get a credit rating which lets them sign construction contracts which builders turn around and turn into deposits.
The commitment isn't in any aggregate. It's collateral or credit support for instruments that are (the SPV's commercial paper and the resulting bank deposits).
That's what I mean by Nvidia being a credit enhancer. You've now agreed the money is created by the lenders and Nvidia is the enhancer. That's what I said two comments ago, so what's left is semantics.
> Yes. When the Fed buys Treasuries and increases a bank's reserves at the Fed, it's not actually doing anything in the real economy. The banks then have to turn around and increase lending. If, as you noted, loan demand is stagnant, they have to cut prices, i.e. rates.
> The Economist is comparing Nvidia "enhancing" credit conditions in a manner analogous to the way the Fed does. By creating a base that stimulates lending.
The Fed changes the risk-free rate for the whole economy. Nvidia is compressing the credit spread for a specific set of borrowers by absorbing their tail risk.
That makes Nvidia less like a central bank than a guarantor. The better analogues are Fannie and Freddie, or a monoline insurer. A guarantor's business looks free until the tail risks it took on turn out to be correlated which is what happened to the monolines in 2007.
That's precisely the scenario the Economist piece is actually worried about (the guarantees coming due at the same time Nvidia's own sales weaken).
> It's absolutely money creation in the way a central banker or anyone in the money markets would talk about it.
Central bankers would describe this as easing financial conditions or enabling credit creation, not money creation.