4 ms·

There's no electronic cash account they can put up? If not, why not, and why can't we enable something like that so people aren't forced to buy bonds in order t

by SilasX 7y ago

There's no electronic cash account they can put up? If not, why not, and why can't we enable something like that so people aren't forced to buy bonds in order to hold cash?

dharmab 7y ago
An account that large would require insurance, management and security/auditing. Stuff you don't need with bonds since the government provides those. I'm sure if government bonds were negative for a long enough time an alternative product would appear.
dmoy 7y ago
Deposit guarantee in Germany is only like 100k Euro. This is for institutions buying tens or hundreds of millions of Euro.
hsk823 7y ago
But the bonds themselves are issued by the same organization that's also issuing the cash to be circulated in the economy. Cash can lose value as well if it just sits, inflation being the key reason.
dageshi 7y ago
It would be counter productive to society. Put money in a bank, the bank lends it out, the money serves society buy financing a new business or perhaps consumption but either way it is doing something. Lend it to the government in the form of bonds and they'll spend it on something. If it just goes into the cash account you're describing, it does nothing but exist, in the event of recessions this would be severely dangerous to a countries financial system because it would be the safest place to store your money, safer even than bonds, so at the exact time when the economy needs cheap credit, interest rates would rise as money drains into these electronic cash accounts.
- SilasX 7y ago
  So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either?
  - chimeracoder 7y ago
    > So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either? Physical cash is also debt (backed by the full faith and credit of the US government, in the case of the US, or the relevant issuer in the case of other fiat currencies).
    - SilasX 7y ago
      Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion.
      - chimeracoder 7y ago
        > Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion. Except it is being invested. That's a major part of the role that the government plays when interacting with the macroeconomy.
        SilasX 7y ago
        Then let me try phrasing it a third way: So people should be forced to invest their money beyond the extent to which holding that money inherently counts as an investment, even if they don't think any of the ventures that they directly invest in are worthwhile? The fact that government "is debt backed by full faith and credit etc etc etc" does not answer the substance of the question I was actually asking, and which should have been clear from the context I was asking.
- Mvhsz 7y ago
  That makes sense but I have a follow up question. What forces this? For example, what's to stop a single entity from reaping the rewards of using cash while everyone else buys bonds to keep the economy moving. Is it a government regulation? an agreement between large institutions? or are the gains to each individual entity large enough that the negative yield is worth it?
  - boxy310 7y ago
    Cash or a bank demand account is not without their own inherent risks. A fire, robbery, or forced currency exchange could destroy the value of the physical commodity of cash, and the FDIC only insures individual account bank deposits up to a certain limit so a bank institution failure could cause losses to individual accounts.
    - Mvhsz 7y ago
      Ok you're arguing that there is no such thing as a liquid store of value that that offers a better return than a negative yield government bond? So let's say I'm a bank with a stack of 1B in high denomination central bank notes. I calculate the rate of return as zero minus the annual cost of securing those and the annual risk that they are stolen or destroyed. Inflation isn't a factor because the bond is in the same currency. Based on your explanation that rate of return will be lower than the -0.11% that I would get from a german 30 year bond today. And there's simply nothing I can exchange those central bank notes for that would do any better than the bond. Like OP I've never understood negative yield debt and I'm trying really hard to.
      - YawningAngel 7y ago
        Arguably, the combined cost and risk of loss when you store a pile of cash in a secured cellar is greater than 11bp. There's also the fact that bonds can appreciate, so even if on the face of it you're taking an 11bp hit that might not be true in practice.
- chimeracoder 7y ago
  This is sort of correct, but it also doesn't address the point that this setup can't exist, logically, with fiat currency. There is no way to hold money that isn't ultimately lent to or borrowed from some other entity. You can store cash under your mattress, but even that's money that you've effectively lent to the government (the seigniorage of storing it under your mattress means that you've now given them the ability to print that same amount of money at zero extra cost). This is harder to wrap your head around, but once you understand the principle - money is always at work, no matter what form it's in - it's a lot easier to understand the flow of money on a macro or international scale.
  - dragonwriter 7y ago
    > This is sort of correct, but it also doesn't address the point that this setup can't exist, logically, with fiat currency. Yes, it can. It can't exist with the game playing that exists with most modern fiat currencies to create the illusion that they are something other than fiat of the issuing government, which creates a lot of artificial debt to create the illusion of a government constrained by the same fiscal concerns that apply to a country using commodity or foreign fiat currency rather than its own fiat. But this is a behavioral hack to reduce the likelihood of a particular undesirable course of monetary policy (unrestrained money printing), not fundamental to the nature of fiat currency.
- AdrianB1 7y ago
  Not counter productive to the society: as money have nothing behind and central banks can just print it, they can print or electronically grant any amount to anyone needing it. This would not affect the trust in the value of the money because there is no such value. What is $1 or 1 Euro backed by? An ounce of Moon dust?
  - avn2109 7y ago
    The fundamental demand for dollars and euros is caused by the fact that every April, you need to have a bunch of them. And if you don't, eventually men with guns will take you to jail.
    - AdrianB1 7y ago
      It is different here, you don't pay the taxes yourself, they are subtracted from your salary by the employer and paid on your behalf. it is not a service you receive, the state does not trust you will pay. When you leave half of the salary on the pay day and then pay another 20% taxes on anything you buy, not many people would pay something in April, even with the men with guns threat.
      - perl4ever 7y ago
        In the US, the government also withholds taxes from your paycheck, and in other circumstances.
      - Scoundreller 7y ago
        It’s a funny system where citizens aren’t trusted but corporations are.
kgwgk 7y ago
People can hold cash in bank accounts but they also yield negative interest rates (for balances above some threshold).
AdrianB1 7y ago
Actually cash is a form of that: a $100 bill is a bank note that you have $100 in the bank. In theory if you want to deposit $1 million, the bank should just give you a note for a $1 million deposit - that would be a $1 million bank note. But all this was true when the bank note was for the gold or silver that was deposited in the bank. Now every bank note is just a paper about an amount of nothingness :)
perl4ever 7y ago
Some people have asked, if US banks pay a minute amount of interest in savings, and the Fed pays like 2% or more on deposits by banks, why can't someone just start a bank that stores deposits at the Fed and passes through the interest? And the answer appears to be, because the Fed won't let them, because they are afraid it could undermine the regular banks.

by SilasX 7y ago

There's no electronic cash account they can put up? If not, why not, and why can't we enable something like that so people aren't forced to buy bonds in order to hold cash?

dharmab 7y ago

An account that large would require insurance, management and security/auditing. Stuff you don't need with bonds since the government provides those. I'm sure if government bonds were negative for a long enough time an alternative product would appear.

dmoy 7y ago

Deposit guarantee in Germany is only like 100k Euro. This is for institutions buying tens or hundreds of millions of Euro.

hsk823 7y ago

But the bonds themselves are issued by the same organization that's also issuing the cash to be circulated in the economy. Cash can lose value as well if it just sits, inflation being the key reason.

dageshi 7y ago

It would be counter productive to society. Put money in a bank, the bank lends it out, the money serves society buy financing a new business or perhaps consumption but either way it is doing something. Lend it to the government in the form of bonds and they'll spend it on something. If it just goes into the cash account you're describing, it does nothing but exist, in the event of recessions this would be severely dangerous to a countries financial system because it would be the safest place to store your money, safer even than bonds, so at the exact time when the economy needs cheap credit, interest rates would rise as money drains into these electronic cash accounts.

SilasX 7y ago
So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either?
- chimeracoder 7y ago
  > So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either? Physical cash is also debt (backed by the full faith and credit of the US government, in the case of the US, or the relevant issuer in the case of other fiat currencies).
  - SilasX 7y ago
    Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion.
    - chimeracoder 7y ago
      > Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion. Except it is being invested. That's a major part of the role that the government plays when interacting with the macroeconomy.
      - SilasX 7y ago
        Then let me try phrasing it a third way: So people should be forced to invest their money beyond the extent to which holding that money inherently counts as an investment, even if they don't think any of the ventures that they directly invest in are worthwhile? The fact that government "is debt backed by full faith and credit etc etc etc" does not answer the substance of the question I was actually asking, and which should have been clear from the context I was asking.
Mvhsz 7y ago
That makes sense but I have a follow up question. What forces this? For example, what's to stop a single entity from reaping the rewards of using cash while everyone else buys bonds to keep the economy moving. Is it a government regulation? an agreement between large institutions? or are the gains to each individual entity large enough that the negative yield is worth it?
- boxy310 7y ago
  Cash or a bank demand account is not without their own inherent risks. A fire, robbery, or forced currency exchange could destroy the value of the physical commodity of cash, and the FDIC only insures individual account bank deposits up to a certain limit so a bank institution failure could cause losses to individual accounts.
  - Mvhsz 7y ago
    Ok you're arguing that there is no such thing as a liquid store of value that that offers a better return than a negative yield government bond? So let's say I'm a bank with a stack of 1B in high denomination central bank notes. I calculate the rate of return as zero minus the annual cost of securing those and the annual risk that they are stolen or destroyed. Inflation isn't a factor because the bond is in the same currency. Based on your explanation that rate of return will be lower than the -0.11% that I would get from a german 30 year bond today. And there's simply nothing I can exchange those central bank notes for that would do any better than the bond. Like OP I've never understood negative yield debt and I'm trying really hard to.
    - YawningAngel 7y ago
      Arguably, the combined cost and risk of loss when you store a pile of cash in a secured cellar is greater than 11bp. There's also the fact that bonds can appreciate, so even if on the face of it you're taking an 11bp hit that might not be true in practice.
chimeracoder 7y ago
This is sort of correct, but it also doesn't address the point that this setup can't exist, logically, with fiat currency. There is no way to hold money that isn't ultimately lent to or borrowed from some other entity. You can store cash under your mattress, but even that's money that you've effectively lent to the government (the seigniorage of storing it under your mattress means that you've now given them the ability to print that same amount of money at zero extra cost). This is harder to wrap your head around, but once you understand the principle - money is always at work, no matter what form it's in - it's a lot easier to understand the flow of money on a macro or international scale.
- dragonwriter 7y ago
  > This is sort of correct, but it also doesn't address the point that this setup can't exist, logically, with fiat currency. Yes, it can. It can't exist with the game playing that exists with most modern fiat currencies to create the illusion that they are something other than fiat of the issuing government, which creates a lot of artificial debt to create the illusion of a government constrained by the same fiscal concerns that apply to a country using commodity or foreign fiat currency rather than its own fiat. But this is a behavioral hack to reduce the likelihood of a particular undesirable course of monetary policy (unrestrained money printing), not fundamental to the nature of fiat currency.
AdrianB1 7y ago
Not counter productive to the society: as money have nothing behind and central banks can just print it, they can print or electronically grant any amount to anyone needing it. This would not affect the trust in the value of the money because there is no such value. What is $1 or 1 Euro backed by? An ounce of Moon dust?
- avn2109 7y ago
  The fundamental demand for dollars and euros is caused by the fact that every April, you need to have a bunch of them. And if you don't, eventually men with guns will take you to jail.
  - AdrianB1 7y ago
    It is different here, you don't pay the taxes yourself, they are subtracted from your salary by the employer and paid on your behalf. it is not a service you receive, the state does not trust you will pay. When you leave half of the salary on the pay day and then pay another 20% taxes on anything you buy, not many people would pay something in April, even with the men with guns threat.
    - perl4ever 7y ago
      In the US, the government also withholds taxes from your paycheck, and in other circumstances.
    - Scoundreller 7y ago
      It’s a funny system where citizens aren’t trusted but corporations are.

kgwgk 7y ago

People can hold cash in bank accounts but they also yield negative interest rates (for balances above some threshold).

AdrianB1 7y ago

Actually cash is a form of that: a $100 bill is a bank note that you have $100 in the bank. In theory if you want to deposit $1 million, the bank should just give you a note for a $1 million deposit - that would be a $1 million bank note. But all this was true when the bank note was for the gold or silver that was deposited in the bank. Now every bank note is just a paper about an amount of nothingness :)

perl4ever 7y ago

Some people have asked, if US banks pay a minute amount of interest in savings, and the Fed pays like 2% or more on deposits by banks, why can't someone just start a bank that stores deposits at the Fed and passes through the interest? And the answer appears to be, because the Fed won't let them, because they are afraid it could undermine the regular banks.