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This simply doesn't work at all. First, the situation is not that dire to start with, most people and businesses can meet their obligations. We don't have any

This simply doesn't work at all. First, the situation is not that dire to start with, most people and businesses can meet their obligations. We don't have anything remotely close to a financial crisis. It makes no sense to effectively turn the entire economy into a command economy and effectively declare a default to save what appears to be a fairly small part of the economy that will have trouble. You can have targeted intervention and get most of the benefit without dragging the rest of the economy into this. Second, you can't just remove credit from the system. Credit is fundamental to nearly all transactions at scale - transactions in the real world aren't atomic, which means businesses are always dealing with receivables and payables, not to mention lines of credit that are designed to help businesses manage them. There are tons of offsetting contracts, whether in terms of derivatives or insurance, and no one is going to be able to figure out which side of each contract is covered and which isn't and how to price anything given the uncertainty. Do health insurance companies have to pay hospitals? Do car insurance companies have to pay? These are all payments. Nothing happens in an economy without a payment. Do you have to pay insurance premiums? The effective result of this would be all financial markets not functioning and nearly all real markets too, since they are tied to the financial markets for pricing, settlement and credit. It would be like the global financial crisis but a substantially worse version where every company becomes the Lehman Brothers. You'd have to basically nationalize everything across the entire world and run a command economy because the markets simply won't function at all even on a purely basic level.

ianleeclark 7y ago
> First, the situation is not that dire to start with, most people and businesses can meet their obligations. 76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused. > the markets simply won't function at all even on a purely basic level Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
- rwmurrayVT 7y ago
  That day is coming April 1st. The unemployment numbers will come out soon. April 1st will be bad, but May 1st will be terrible. There will be millions of Americans unable to pay for basic necessities. The money from the stimulus will go to rent-seeking and basic necessities. I am very thankful to still be working.
  - blaser-waffle 7y ago
    Ditto. HN is going to be highly irregular in that regard -- a lot of programmers and engineers (and similar desk worker types) who can work from home and still pick up full paychecks. The rest of the world ain't like that.
- candybar 7y ago
  > 76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused. And not all of these 76% of Americans are going to lose their jobs. Many people will, many others will have benefits, some others will be able to tighten their belts to make it work. And we can also just give everyone $$$ to ease the transition.. > Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail." My definition of not working here isn't about some people getting unfairly rich at the expense of others. Literally people won't be able to get basic stuff at all. Entire supply chains will collapse since they are based on credit. You can't buy and sell at scale - these all involve contracts and payments. Credit isn't just about lending money for interest.
- candybar 7y ago
  > Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail." Let's also not forget that what's being proposed here is a TBTF argument. The argument here is that letting a bunch of small businesses that don't have enough saved up to survive a few months of no revenue go under is going to be so bad for the economy that we have to literally suspend the enforcement of contracts more generally to save them. Of course, if this is actually the case, we could just bail out the affected businesses instead of saying goodbye to the system of contracts more generally. And I don't believe we in such a situation yet either. We can probably just let them fail. Most small businesses are very replaceable and failure rates are very high to begin with.
mileycyrusXOXO 7y ago
> most people and businesses can meet their obligations. No they can't, for some it is that dire. 1/5th of Americans are unemployed as of last week - how many of them were living paycheck to paycheck?
- candybar 7y ago
  20% is not "most" and no we don't have the figures yet. 20% of Americans being unemployed isn't a good reason to freeze the entire economy such that effectively 100% of Americans are unemployed.
wegs 7y ago
You don't remove credit. You delay payments by 60 days. And you don't have a command economy. Net 30 terms become Net 90 for a while. That's not a world-shattering explosion. Everyone who buys something has to pay -- they just have the option to pay a little bit later. Everyone who borrows something gets it free for a short while. And there are two pieces that really make this work: 1. Much of that is offset by the current ~0% interest from the fed. Ultimately, if the 60 day gap kills you, then you chains (ultimately landing with banks) can borrow money with effectively zero interest. 2) Relationships matter. I don't think businesses will do douchebaggy things: Most want to keep employees, customers, and partners.
- candybar 7y ago
  Credit is something entities are willing to extend because they expect to get paid. Once you break this expectation, no one's going to lend. People and businesses have to borrow, explicitly or implicitly on an ongoing basis. Credit makes the world go around. No one is going to lend if the government makes it possible not to pay and still keep the other side of the transactions. This completely breaks the economy. And policy decisions cannot be made instantly. The moment something like this is close to being implemented, this will freeze the credit system entirely. And there goes the economy. We got a global financial crisis last time due to a small number of actors becoming less creditworthy and it being unclear whether they could pay their obligations. That slight change in expectations threatened to freeze the entire economy. To do this on purpose for every entity such that no one is creditworthy? That's insanity.
  - wegs 7y ago
    Don't dramatize. You do get paid. You (potentially) get paid a few months later, and in the meantime, the Fed provides loans at effectively 0% interest. Who would you rather have: a pile of debtors in your portfolio who have a 50/50 shot of going under in the next few weeks (where a lot of Americans and small businesses are today)? Or a pile of debtors who will pay you with 95% odds in 3 months, and in the meantime, a no-interest loan from the government to provide short-term liquidity until they do pay you?

ianleeclark 7y ago

> First, the situation is not that dire to start with, most people and businesses can meet their obligations. 76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused. > the markets simply won't function at all even on a purely basic level Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."

rwmurrayVT 7y ago
That day is coming April 1st. The unemployment numbers will come out soon. April 1st will be bad, but May 1st will be terrible. There will be millions of Americans unable to pay for basic necessities. The money from the stimulus will go to rent-seeking and basic necessities. I am very thankful to still be working.
- blaser-waffle 7y ago
  Ditto. HN is going to be highly irregular in that regard -- a lot of programmers and engineers (and similar desk worker types) who can work from home and still pick up full paychecks. The rest of the world ain't like that.
candybar 7y ago
> 76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused. And not all of these 76% of Americans are going to lose their jobs. Many people will, many others will have benefits, some others will be able to tighten their belts to make it work. And we can also just give everyone $$$ to ease the transition.. > Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail." My definition of not working here isn't about some people getting unfairly rich at the expense of others. Literally people won't be able to get basic stuff at all. Entire supply chains will collapse since they are based on credit. You can't buy and sell at scale - these all involve contracts and payments. Credit isn't just about lending money for interest.
candybar 7y ago
> Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail." Let's also not forget that what's being proposed here is a TBTF argument. The argument here is that letting a bunch of small businesses that don't have enough saved up to survive a few months of no revenue go under is going to be so bad for the economy that we have to literally suspend the enforcement of contracts more generally to save them. Of course, if this is actually the case, we could just bail out the affected businesses instead of saying goodbye to the system of contracts more generally. And I don't believe we in such a situation yet either. We can probably just let them fail. Most small businesses are very replaceable and failure rates are very high to begin with.

mileycyrusXOXO 7y ago

> most people and businesses can meet their obligations. No they can't, for some it is that dire. 1/5th of Americans are unemployed as of last week - how many of them were living paycheck to paycheck?

candybar 7y ago
20% is not "most" and no we don't have the figures yet. 20% of Americans being unemployed isn't a good reason to freeze the entire economy such that effectively 100% of Americans are unemployed.

wegs 7y ago

You don't remove credit. You delay payments by 60 days. And you don't have a command economy. Net 30 terms become Net 90 for a while. That's not a world-shattering explosion. Everyone who buys something has to pay -- they just have the option to pay a little bit later. Everyone who borrows something gets it free for a short while. And there are two pieces that really make this work: 1. Much of that is offset by the current ~0% interest from the fed. Ultimately, if the 60 day gap kills you, then you chains (ultimately landing with banks) can borrow money with effectively zero interest. 2) Relationships matter. I don't think businesses will do douchebaggy things: Most want to keep employees, customers, and partners.

candybar 7y ago
Credit is something entities are willing to extend because they expect to get paid. Once you break this expectation, no one's going to lend. People and businesses have to borrow, explicitly or implicitly on an ongoing basis. Credit makes the world go around. No one is going to lend if the government makes it possible not to pay and still keep the other side of the transactions. This completely breaks the economy. And policy decisions cannot be made instantly. The moment something like this is close to being implemented, this will freeze the credit system entirely. And there goes the economy. We got a global financial crisis last time due to a small number of actors becoming less creditworthy and it being unclear whether they could pay their obligations. That slight change in expectations threatened to freeze the entire economy. To do this on purpose for every entity such that no one is creditworthy? That's insanity.
- wegs 7y ago
  Don't dramatize. You do get paid. You (potentially) get paid a few months later, and in the meantime, the Fed provides loans at effectively 0% interest. Who would you rather have: a pile of debtors in your portfolio who have a 50/50 shot of going under in the next few weeks (where a lot of Americans and small businesses are today)? Or a pile of debtors who will pay you with 95% odds in 3 months, and in the meantime, a no-interest loan from the government to provide short-term liquidity until they do pay you?