When you take money out of circulation, you reduce inflation.

Here's a "real world example:"

There's a house near me that's selling for $7,777,777 (get it? Lucky sevens?)

The cost of the house is obviously arbitrary, and it's listing has a bunch of references to bitcoin. The owners of the home are obviously trying to "leverage" crypto mania to find a buyer.

Now that a bunch of crypto "wealth" has been destroyed by falling prices, the owner of that house will need to re-assess whether $7,777,777 is a realistic price.

More than likely, it's not. And by lowering the price of the home they're selling, they're contributing to a reduction in real world inflation rates.

Also, yes, I know that inflation stats use a proxy for the cost of housing.

Just like when you step out of the ocean in wet trunks you reduce ocean levels.

Well, most people pee when in the ocean.

I would never, how dare you

Except in both the real world scenario and your example, no money has been taken out of circulation.

If the entire stock market went to zero tomorrow, exactly the same number of dollars would be circulating.

Well it would still have a devastating effect. Most businesses would insta-close tomorrow. And remain closed for months while shit is sorted. Meanwhile panic ensues - world population drops 5b in 1 month.

Not true. You would need to know the cost to build the house and/or the price paid for the house prior to this selling event. Once its been sold again, we can assess whether there has been a net reduction or addition to the supply of money/credit/debt.

Money is not just dollars. I consider my bank account money, even though I know its backed by some fraction of its value in actual dollars. People take out loans that are backed by stocks, for example. If the stock market went to zero, they would default on the loan, and money would be destroyed.

Your bank account is the solidest non-money because FDIC insured up to $100,000. If it weren't, then it would be an IOU from a bank, worth whatever that trust is worth.

In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.

No money would be destroyed in either scenario, unless what you did with the loan was put it in a suitcase and burn it.

The only things that remove money from circulation are: bank accounts that only accrete (usually temporary, and thus not actual removal), taxes, and physical destruction.

> FDIC insured up to $100,000.

It's now $250,000.

https://www.fdic.gov/resources/deposit-insurance/brochures/i....

> If the stock market went to zero, they would default on the loan, and money would be destroyed.

> In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.

Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.

There is certainly a "root" of money that seems not to be created via loans anywhere, namely those issued directly by the central bank (the Federal Reserve in US's case). And no, they are loans nevertheless - since these money is backed by the government's ability to collect taxes, any money printed is effectively created via loans to the government, and the government has infinite ability to borrow money. When the government is unable to collect taxes anymore, nobody needs these money either and the government effectively goes bankrupt since its loan is no longer backed. As a result, dollar loses its value. That's how our current fiat money system works.

>Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.

So your contention is that Bank of America prints the $1m dollars that it loans to me? Color me skeptical. I imagine they'd have better rates if they had a money printer. Or maybe they wouldn't bother loaning money at all.

What is real money anyway? Money is an idea and the money supply contains far more than physical currency. If someone believes they have crypto wealth, they will spend accordingly and the velocity of what we measure as the economy increases. If that crypto wealth disappears, that person is going to cut back on their real spending. The economy is human.

It's easy to take a philosophical stance on this, but this represents many peoples' life savings. There are countless lives that have been irreparably harmed by crypto scams, which has a net negative effect on our society.

I think the idea here is that pumping the economy full of helium will eventually be catastrophic. If this crypto crash is allowed to actually play out instead of getting bailed out it could prevent something far more damaging later on than even a million people losing their deposits.

How is that different from people who have been affected by regular scams?

> How does this actually benefit anyone?

Maybe it will alleviate the semiconductor shortage.

> How does this actually benefit anyone?

There’s real benefit when we consider the amount of man-hours spent the past years on trying to reinvent finance, with little success so far.

These (smart) people can use their time and skills towards more productive stuff.

> These (smart) people can use their time and skills towards more productive stuff.

But if society really believes that their smartness could have been used better, why aren't they paid for doing "more productive stuff" than crypto? These people did crypto because it paid the most. Therefore, at the time, it must mean that it is most productive to do crypto.

I guess society is not optimized for max productivity. As a group, society makes many resource allocation mistakes and (hopefully) corrects them later on.

Fe. society might have been better off investing in nuclear energy in the past 30 years, yet it did not and it s starting to look as a mistake.

Circumstances play a role too. My opinion is that if it had not been for the pandemic and the economic anomalies that happened way fewer people would have paid attention to crypto.

> How does this actually benefit anyone? It's not wealth redistribution.

Sure it is. It redistributes money from the marks to the crooks.

Some say if you can't afford to lose it all, you can't afford to invest in the first place.