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My problem is with how new money is distributed. It's given to banks to lend at interest rates higher than they borrow it from the fed. I'd love to borrow mone
by api 8y ago
My problem is with how new money is distributed. It's given to banks to lend at interest rates higher than they borrow it from the fed.
I'd love to borrow money at nearly 0% interest and then turn around and lend it at 5% or even 15% interest. That'd be awesome.
How people can not see this as an elitist plutocratic system is beyond me. Of course the systems it replaced were also elitist and plutocratic and so far cryptocurrency appears to be turning out that way as well, so this remains an unsolved problem.
- nradov 8y agoYou're free to start your own bank (or credit union). All you need to do is fill out the paperwork and find some investors to put in the initial capital. Then you can offer loans at 1% interest or whatever. See how well that works.
- api 8y agoIt would work out very badly. I lack the background or connections to obtain a bailout, and my bank would be too small to be "too big to fail."
- nradov 8y agoYou missed the point. I don't support bank bailouts. But if you manage your bank effectively then you won't need a bailout. You complained about high interest rates for loans. But the main reason that so many banks needed bailouts in the first place is that the interest rates they charged were too low and so they couldn't absorb all the defaults.
- api 8y agoI wasn't complaining about loan interest but about how new money is allocated. It's allocated top down in a way that benefits a politically and economically connected aristocracy.
- pishpash 8y agoThat's not how it works. The 5% or 15% is the cost of risk over the risk free rate that they are getting it at. If there is sufficient interbank competition this is a market determined rate. A central bank injects the money via the banking system because they cannot give it to arbitrary winners and losers, they are not in a position to price granular risk, and that is the normal function of a working banking system.
- pdonis 8y ago> A central bank injects the money via the banking system because they cannot give it to arbitrary winners and losers No, a central bank injects the money via the banking system as a hidden subsidy to banks and other financial institutions. If a central bank really wanted to make printing money neutral (i.e., not picking any winners or losers), it would use newly printed money to increase every single person's dollar holdings by the same percentage.
- api 8y agoAFIAK that kind of "money from helicopters" approach is something I've heard discussed by progressive economists, but until quite recently it was not technically feasible to do this fairly. It would still be pretty hard to implement.
- pishpash 8y agoThe money from helicopters approach is better done on the fiscal side. Except the guy in the US who wanted to do it was cock-blocked by his opponents for 6 years and in the EU they are handcuffed by various laws. Still, by comparison of US vs. EU, even dumping the money into the banking system vs. austerity was the better way to go. The EU wasted 2-3 years.
- pdonis 8y ago> It would still be pretty hard to implement. That's true. But it doesn't change the fact that any other way of printing money is playing favorites--some will be winners and others will be losers.