5 ms·

Fair enough. We'll just print our way out of the problem. Except, that has obvious problems too. Consider the "Fractional" in Fractional Reserve Banking. If a

Fair enough. We'll just print our way out of the problem. Except, that has obvious problems too. Consider the "Fractional" in Fractional Reserve Banking. If a bank only needs to have 10% of deposits on reserve (and I believe it's quite a bit lower than that in most countries), and there was a run on a bank, governments would need to print 9x more money than the bank has on deposit. What does that do to the value of money? Depends on the size of the bank. But what if it happened to ALL the banks? What if we collectively lost confidence in our banks, and demanded our deposits back? If our solution is to print our way out of it, then congratulations you've dropped the value of all currency by 90%. It now takes $100 to buy what used to only cost $10. Look, I'm not arguing whether this is good or bad. There's a lot of benefits to fiat currencies and fractional reserve banking. But let's not pretend the risk doesn't exist, either.

Frondo 8y ago
But what set of circumstances would lead to this specific sequence of events? "Every bank customer wants to withdraw all of their money into cash on the same day." ??? I don't mean this as snark but that's a hypothetical that seems far less plausible than a lot of other world-ending scenarios, so I'm curious why you so much stock in its risk profile.
- nickelcitymario 8y ago
  The fact that it has happened before?
  - Frondo 8y ago
    When did a bank run on "all the banks" happen? Referring to what you said here: > But what if it happened to ALL the banks?
    - nickelcitymario 8y ago
      Unless I'm mistaken (and I've been mistaken a lot today): Japan 1927 Argentina 2001 Myanmar 2002 Is it frequent? No, but it's not entirely without precedent either.
snowwrestler 8y ago
It does nothing to the value of money because it doesn’t affect the amount of money, only its form. If I have $10,000 in a bank account and you have $10,000 in dollar bills, we have the same amount of money. Fiat currency is so useful because money and currency are not the same thing. It’s like the difference between water and buckets.
- nickelcitymario 8y ago
  I was about to write a really snarky response here, because it seems intuitive to me that if the government prints more currency that means it's increasing the supply of money, until I realized you might be right. So long as the issued currency is being used specifically the represent money that already exists on a ledger, it's perfectly fine. My bad? My one question though is... what's the mechanism for this to happen? My understanding is that when a government issues currency, they are in effect lending it out. They don't just print it out and say "This $1 is the same as the $1 in your account." The Central Bank of whatever country we're talking about has to lend that money out, either to the government itself or to the other banks. And if THAT's the case, then doesn't every $1 of currency issued increase the total supply of money by $1? What am I missing? (Not being argumentative, I'm honestly asking.)
  - 781 8y ago
    In 2008 the German government guaranteed ALL bank accounts, WITHOUT a limit. > As German leaders and bankers worked feverishly to rescue a lender considered too big to fail, the government announced Sunday that it would guarantee all private savings accounts in Germany - worth about €500 billion - in an effort to reinforce increasingly shaky confidence in the financial system. https://www.nytimes.com/2008/10/05/business/worldbusiness/05iht-hypo.4.16708030.html https://www.nytimes.com/2008/10/05/business/worldbusiness/05...
    - nickelcitymario 8y ago
      How does this address the question of whether printing more currency increases the supply of money?

Frondo 8y ago

But what set of circumstances would lead to this specific sequence of events? "Every bank customer wants to withdraw all of their money into cash on the same day." ??? I don't mean this as snark but that's a hypothetical that seems far less plausible than a lot of other world-ending scenarios, so I'm curious why you so much stock in its risk profile.

nickelcitymario 8y ago
The fact that it has happened before?
- Frondo 8y ago
  When did a bank run on "all the banks" happen? Referring to what you said here: > But what if it happened to ALL the banks?
  - nickelcitymario 8y ago
    Unless I'm mistaken (and I've been mistaken a lot today): Japan 1927 Argentina 2001 Myanmar 2002 Is it frequent? No, but it's not entirely without precedent either.

snowwrestler 8y ago

It does nothing to the value of money because it doesn’t affect the amount of money, only its form. If I have $10,000 in a bank account and you have $10,000 in dollar bills, we have the same amount of money. Fiat currency is so useful because money and currency are not the same thing. It’s like the difference between water and buckets.

nickelcitymario 8y ago
I was about to write a really snarky response here, because it seems intuitive to me that if the government prints more currency that means it's increasing the supply of money, until I realized you might be right. So long as the issued currency is being used specifically the represent money that already exists on a ledger, it's perfectly fine. My bad? My one question though is... what's the mechanism for this to happen? My understanding is that when a government issues currency, they are in effect lending it out. They don't just print it out and say "This $1 is the same as the $1 in your account." The Central Bank of whatever country we're talking about has to lend that money out, either to the government itself or to the other banks. And if THAT's the case, then doesn't every $1 of currency issued increase the total supply of money by $1? What am I missing? (Not being argumentative, I'm honestly asking.)
- 781 8y ago
  In 2008 the German government guaranteed ALL bank accounts, WITHOUT a limit. > As German leaders and bankers worked feverishly to rescue a lender considered too big to fail, the government announced Sunday that it would guarantee all private savings accounts in Germany - worth about €500 billion - in an effort to reinforce increasingly shaky confidence in the financial system. https://www.nytimes.com/2008/10/05/business/worldbusiness/05iht-hypo.4.16708030.html https://www.nytimes.com/2008/10/05/business/worldbusiness/05...
  - nickelcitymario 8y ago
    How does this address the question of whether printing more currency increases the supply of money?