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As opposed to banks in the US, which legally have a 0% reserve requirement. [1] [1] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.fe

As opposed to banks in the US, which legally have a 0% reserve requirement. [1] [1] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm

kn0where 5y ago
The big difference is the FDIC.
- toomuchtodo 5y ago
  Which, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve. EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.
  - dannyw 5y ago
    AKA: You, the American taxpayer.
    - deleted 5y ago
      [deleted]
    - howinteresting 5y ago
      Sounds good to me. Why do neo-goldbugs always try and present this as some sort of gotcha? As an American taxpayer I'm happy to buy into the social contract that it implies.
  - gruez 5y ago
    >Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts. Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency.
    - toomuchtodo 5y ago
      A currency is a socioeconomic compact between capital and labor, intermediated by subject matter experts (ie the central bank) and government. > Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency. The economy functioning is of greater benefit to the whole than the value to currency hoarders (remember, it's a currency, it's meant for exchange not for value storage and it is optimized for that role) maintaining its value. If you want to preserve wealth, own property/assets you expect people to trade their time or capital for into the future. People don't buy stonks or bonds for the ticker in their account, they buy the appreciation of the underlying or its cashflow. Most people buy real estate to live in (utility), for the appreciation of the property, or for the rental income cash flow (caveat is folks like the Chinese buying up international property to store their wealth outside of the reach of the CCP).
      - IG_Semmelweiss 5y ago
        >>>>> The economy functioning is of greater benefit to the whole than the value of currency hoarders maintaining its value. If you want to preserve wealth, own things you expect people to trade their time or capital for into the future. Retirees on a fixed income; immigrants, the poor, and people with no access to credit would like to have a word with you
        toomuchtodo 5y ago
        Have the word with me. That's what cost of living adjustments (social security or other systems) & prudently investing a lifetime of retirement savings (in a safe mix of investments to support both growth and safety) and improved underwriting and funding for those folks (respectively) is for. It's not an issue with the currency, that's not what currencies are for. If you're expecting the value of a currency to never change, you are asking a fish to climb a tree.
        IG_Semmelweiss 5y ago
        >>>>> That's what cost of living adjustments (social security or other systems) Isnt that also... Insolvent? >>>> prudently investing a lifetime of retirement savings Would you deem people that invested on bonds of the US govt, GM, that they invested prudently? >>>>If you're expecting the value of a currency to never change, you are asking a fish to climb a tree. Change implies movement in both directions. Yet what we are seeing is a clear, pronounced, increasing onedirectional slope
  - chroem- 5y ago
    > Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts. The practical implication of solving large scale bank failures with mass currency printing is hyperinflation. You would only get your money back in nominal terms, but its purchasing power would be greatly reduced. See also: Weimar Germany and Zimbabwe.
    - emn13 5y ago
      The fed has expanded money supply to react to shocks before, and there was no hyperinflation. Even if clearly at some point, given enough money-printing, inflation would result, there's no reason to assume it's some binary thing; either hyper-inflation ala zimbabwe or normal inflation. It's more likely you'd see gradual inflation, and that the amount of money printed influences how much inflation results - so assuming that any expansion of the money supply is reasonable, and not egregious. Frankly, if banks start failing to the extent that FDIC is not only necessary on a large scale but even possibly unsustainable, I kind of doubt that a bit of inflation is going to be the worst of our worries.
      - deleted 5y ago
        [deleted]
    - shadowgovt 5y ago
      It is the differences between the US and Weimar Germany / Zimbabwe that make it possible for the US to print its way out of most problems. Other national governments didn't stuff Z$ into their armored-up national mattresses to bolster against the collapse of their local currency, and there wasn't an IMF holding debts denoted in Reichsmarks to create a demand for them internationally.
      - emn13 5y ago
        The whole comparison is specious; there were far more factors at play than "printing money". Central banks print money all the time. It's not just in response to the 2008 crisis; the money supply in 2007 wasn't what it was in 1957 either, right? At the very least you'd need to quantify exactly how much money over what period of time might be a shock, and what kind other factors play a role. And then, yes, sure - let's not do things quantifiably similar to Zimbabwe or Weimar Germany. But I suspect there's a huge amount of room for most central banks to maneuver between status quo and hyperinflation; merely "some" printing of money isn't going to be a problem. Indeed there are regularly stories of smaller countries without the kind of reserve status the dollar enjoys that make problematic central bank policies - and even if that has consequences (e.g. Turkey now), that's still a far cry from Weimar Germany or Zimbabwe under Mugabe.
formercoder 5y ago
They still have tier 1 and tier 2 equity requirements. This isn’t really analogous.
- SilasX 5y ago
  Oh, and Tether is holding assets that wouldn’t meet those requirements? Sorry, wasn’t sure if you meant that as a difference.
  - jcranmer 5y ago
    No, Tether is not. The equity and capital buffer requirements are somewhat more complicated to explain simply, but the end result is that a bank needs at least ~8% of cash outright to meet those requirements. Tether has less than 1/10th the amount of cash it would be required to have were it a bank.
    - FabHK 5y ago
      Agreed. At most 1/30 of what would be required.
FabHK 5y ago
That is misleading. A more relevant number is the capital requirement, which is between 7% and 13% currently for US banks, if I'm not mistaken, corresponding to leverage of 8 to 14. Much more benign. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200810a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre...
- chroem- 5y ago
  Capital requirements are for something else. We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number.
  - arcticbull 5y ago
    It simply is not. Retail banking customers are able to withdraw 100% of their balances and have been for almost 100 years thanks for the existence of the FDIC. Nobody has lost a single dollar to a bank run since the FDIC was instituted after the Great Depression. Even in 2008 when WaMu went under. Not one dollar. All retail banks in the United States are backstopped by the FDIC and the FDIC is backstopped by the federal reserve. Saying otherwise is tinfoil hat thinking. Fractional reserve banking isn’t a conspiracy. Retail banks act on behalf of the federal reserve to actively manage the money supply, in part through fractional reserve lending. The issue for stable coins and stable coin operators, is that they’re not backstopped by an FDIC, aren’t subject to any capital requirements and aren’t subject to any risk management practices.
    - csomar 5y ago
      FDIC guarantees up to $250k and also kicks in after the bank goes under. I'm guessing it should take some time (a few years?) until the FDIC reimburses the people who lost money.
      - wbsss4412 5y ago
        Why would you think it should take a few years? The FDIC is deposit insurance that all of the banks pay into, should a single bank go under there’s always plenty of funds available.
jcranmer 5y ago
The reserve requirement is the amount of money that a bank is required to have sitting in its account at a Federal Reserve bank per total deposits. That requirement has dropped to 0% because we've developed other ways of mandating that banks have enough cash. These are things like the tier 1 capital requirements, that require the bank to hold a certain amount of capital (which does not include money that depositors put in the bank! Those are assets, not capital) for its total asset composition.

kn0where 5y ago

The big difference is the FDIC.

toomuchtodo 5y ago
Which, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve. EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.
- dannyw 5y ago
  AKA: You, the American taxpayer.
  - deleted 5y ago
    [deleted]
  - howinteresting 5y ago
    Sounds good to me. Why do neo-goldbugs always try and present this as some sort of gotcha? As an American taxpayer I'm happy to buy into the social contract that it implies.
- gruez 5y ago
  >Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts. Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency.
  - toomuchtodo 5y ago
    A currency is a socioeconomic compact between capital and labor, intermediated by subject matter experts (ie the central bank) and government. > Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency. The economy functioning is of greater benefit to the whole than the value to currency hoarders (remember, it's a currency, it's meant for exchange not for value storage and it is optimized for that role) maintaining its value. If you want to preserve wealth, own property/assets you expect people to trade their time or capital for into the future. People don't buy stonks or bonds for the ticker in their account, they buy the appreciation of the underlying or its cashflow. Most people buy real estate to live in (utility), for the appreciation of the property, or for the rental income cash flow (caveat is folks like the Chinese buying up international property to store their wealth outside of the reach of the CCP).
    - IG_Semmelweiss 5y ago
      >>>>> The economy functioning is of greater benefit to the whole than the value of currency hoarders maintaining its value. If you want to preserve wealth, own things you expect people to trade their time or capital for into the future. Retirees on a fixed income; immigrants, the poor, and people with no access to credit would like to have a word with you
      - toomuchtodo 5y ago
        Have the word with me. That's what cost of living adjustments (social security or other systems) & prudently investing a lifetime of retirement savings (in a safe mix of investments to support both growth and safety) and improved underwriting and funding for those folks (respectively) is for. It's not an issue with the currency, that's not what currencies are for. If you're expecting the value of a currency to never change, you are asking a fish to climb a tree.
        IG_Semmelweiss 5y ago
        >>>>> That's what cost of living adjustments (social security or other systems) Isnt that also... Insolvent? >>>> prudently investing a lifetime of retirement savings Would you deem people that invested on bonds of the US govt, GM, that they invested prudently? >>>>If you're expecting the value of a currency to never change, you are asking a fish to climb a tree. Change implies movement in both directions. Yet what we are seeing is a clear, pronounced, increasing onedirectional slope
- chroem- 5y ago
  > Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts. The practical implication of solving large scale bank failures with mass currency printing is hyperinflation. You would only get your money back in nominal terms, but its purchasing power would be greatly reduced. See also: Weimar Germany and Zimbabwe.
  - emn13 5y ago
    The fed has expanded money supply to react to shocks before, and there was no hyperinflation. Even if clearly at some point, given enough money-printing, inflation would result, there's no reason to assume it's some binary thing; either hyper-inflation ala zimbabwe or normal inflation. It's more likely you'd see gradual inflation, and that the amount of money printed influences how much inflation results - so assuming that any expansion of the money supply is reasonable, and not egregious. Frankly, if banks start failing to the extent that FDIC is not only necessary on a large scale but even possibly unsustainable, I kind of doubt that a bit of inflation is going to be the worst of our worries.
    - deleted 5y ago
      [deleted]
  - shadowgovt 5y ago
    It is the differences between the US and Weimar Germany / Zimbabwe that make it possible for the US to print its way out of most problems. Other national governments didn't stuff Z$ into their armored-up national mattresses to bolster against the collapse of their local currency, and there wasn't an IMF holding debts denoted in Reichsmarks to create a demand for them internationally.
    - emn13 5y ago
      The whole comparison is specious; there were far more factors at play than "printing money". Central banks print money all the time. It's not just in response to the 2008 crisis; the money supply in 2007 wasn't what it was in 1957 either, right? At the very least you'd need to quantify exactly how much money over what period of time might be a shock, and what kind other factors play a role. And then, yes, sure - let's not do things quantifiably similar to Zimbabwe or Weimar Germany. But I suspect there's a huge amount of room for most central banks to maneuver between status quo and hyperinflation; merely "some" printing of money isn't going to be a problem. Indeed there are regularly stories of smaller countries without the kind of reserve status the dollar enjoys that make problematic central bank policies - and even if that has consequences (e.g. Turkey now), that's still a far cry from Weimar Germany or Zimbabwe under Mugabe.

formercoder 5y ago

They still have tier 1 and tier 2 equity requirements. This isn’t really analogous.

SilasX 5y ago
Oh, and Tether is holding assets that wouldn’t meet those requirements? Sorry, wasn’t sure if you meant that as a difference.
- jcranmer 5y ago
  No, Tether is not. The equity and capital buffer requirements are somewhat more complicated to explain simply, but the end result is that a bank needs at least ~8% of cash outright to meet those requirements. Tether has less than 1/10th the amount of cash it would be required to have were it a bank.
  - FabHK 5y ago
    Agreed. At most 1/30 of what would be required.

FabHK 5y ago

That is misleading. A more relevant number is the capital requirement, which is between 7% and 13% currently for US banks, if I'm not mistaken, corresponding to leverage of 8 to 14. Much more benign. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200810a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre...

chroem- 5y ago
Capital requirements are for something else. We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number.
- arcticbull 5y ago
  It simply is not. Retail banking customers are able to withdraw 100% of their balances and have been for almost 100 years thanks for the existence of the FDIC. Nobody has lost a single dollar to a bank run since the FDIC was instituted after the Great Depression. Even in 2008 when WaMu went under. Not one dollar. All retail banks in the United States are backstopped by the FDIC and the FDIC is backstopped by the federal reserve. Saying otherwise is tinfoil hat thinking. Fractional reserve banking isn’t a conspiracy. Retail banks act on behalf of the federal reserve to actively manage the money supply, in part through fractional reserve lending. The issue for stable coins and stable coin operators, is that they’re not backstopped by an FDIC, aren’t subject to any capital requirements and aren’t subject to any risk management practices.
  - csomar 5y ago
    FDIC guarantees up to $250k and also kicks in after the bank goes under. I'm guessing it should take some time (a few years?) until the FDIC reimburses the people who lost money.
    - wbsss4412 5y ago
      Why would you think it should take a few years? The FDIC is deposit insurance that all of the banks pay into, should a single bank go under there’s always plenty of funds available.

jcranmer 5y ago

The reserve requirement is the amount of money that a bank is required to have sitting in its account at a Federal Reserve bank per total deposits. That requirement has dropped to 0% because we've developed other ways of mandating that banks have enough cash. These are things like the tier 1 capital requirements, that require the bank to hold a certain amount of capital (which does not include money that depositors put in the bank! Those are assets, not capital) for its total asset composition.