[licnep]

Actually, central banks in both the US and Europe have very little control over the money supply.

The money created by central banks only accounts for about 3% of the monetary base, the remaining 97% of money that circulates in the economy is created by private banks, lending money out of thin air. Therefore money supply is actually dictated by how confident private banks are to lend to the public. A central bank can try to incentivize lending by lowering interest rates, but in the end it's private banks who choose whether to lend or not (in Europe it didn't work so well..).

It's still a pretty fucked up system either way. I think more people should work on the issue of money supply, it's probably the single most important problem in any economy.

[jqm]

Banks (in the US) can't just lend out however much "fake" money they chose depending on how confident they are.

There is a reserve ratio that must be met. That is the percent of deposits that must be kept on hand and can't be lent out. This rate is dictated by the Federal Reserve (the central bank) in the US. Adjusting this rate allows more or less lending and thus influences inflation. So in short... central banks have a lot more control over the money supply than they themselves simply creating money out thin air.

[shawkinaw]

Do you have a link that explains this lending mechanism? I saw it referred to in a previous HN discussion a while back, and would like to know more about it, since it sounds ludicrous.

[toomuchtodo]

https://en.wikipedia.org/wiki/Fractional-reserve_banking

[licnep]

There is a group called Positive Money that has a youtube channel with some videos about it. I don't remember which ones are the best, but this is a playlist from them which gave an high level overview in simple terms: https://www.youtube.com/playlist?list=PLyl80QTKi0gPBcb32paMv...

They have more in-depth talks on their channel, if I find some better links I'll give them to you.

I can't say this theory is 100% correct, though it does explain things like the housing bubble, the failure of the ECB policy, and eurozone deflation despite the ultra low interest rates.

So far, out of everything I've read and watched, I think their model is the one that better explains the current system of money creation, but if you have any alternative links with I'm always open to reading different things on this topic.