👾 FULLSTACK
💸 Creation of Money
3 Min Read
Housekeeping
Let me begin by apologizing for being a bit absent as of late. They say bear markets are the best time to build, and build we shall. I love talking about Options, Math, Markets, History, and Russian authors. But I also like NFT’s, Memes, and internet culture in general. So Variant has bifurcated. Variant Research will continue doing what it has been doing all along, research, writing, consulting with various investors, and connecting capital to founders.
FULLSTACK
FULLSTACK on the other hand is a Newsletter and Podcast which will hopefully bring some levity to the solemnity of the bear market. We will also be making Vice-style videos around crypto, fintech, and investing. Our team has over a decade of experience making films for Nike, Adidas, Starbucks, Amazon etc. so we have the capabilities. We also have plans with some really cool partners in the space to bring you high-quality content and are very excited to do so. If you have a project and want to partner up DM us on Twitter, we would love to chat.
In the meantime check out our NEWSLETTER.
👉 For FULL stories check out our website and for Podcasts our YouTube.
Creation of Money
The only other thing I wanted to talk about today is how Central Banks create money, because I believe its still widely misunderstood. Of course I am not eloquent enough to describe the malfeasance, so I will leave that to John Kenneth Galbraith.
The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent. The deposits of the Bank of Amsterdam (1609-1791) were, according to the instruction of the owner, subject to transfer to others in settlement of accounts. The coin on deposit served no less as money by being in a bank and being subject to transfer by the stroke of primitive pen. Inevitably it was discovered…that another stroke of the pen would give a borrower from the bank, as distinct from a creditor for the original depositor, a loan from the original and idle deposit. It was not a detail that the bank would have the interest on the loan so made. The original depositor could be told that his deposit was subject to such use and perhaps be paid for it. The original deposit still stood to the credit of the original depositor. But there was now also a new deposit from the proceeds of the loan. Both deposits could be use to make payments, be use as money. Money had thus been created. The discover that banks could so create money came very early in the development of banking. There was that interest to be earned. Where such reward is waiting, men have a natural instinct for innovation.
Reserves in a bank now fulfil the function of gold according to Russel Napier. As long as banks meet their requirements and hold a sufficient amount of reserves they are free to create money to their hearts content.
During the Covid crash of 2021, destroying reserve requirements was one of many tools in the feds arsenal. Although banks had more than enough reserves to meet requirements at the time, it goes to show the power and speed at which the Fed (along with the central government) can move to manipulate our currency.
Thanks for listening to my Ted Talk.
_Variant