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2 differences: 1. You have to have USD to pay taxes, which most Americans have to do. 2. The feds will bail out depositors in banks that have screwed up badly.

arcticbull 5y ago
Also fractional reserve lending is both how new money is created and how it's backed. When you borrow money from the bank, they create a positive balance in your account and a negative balance in theirs. As you repay the loan, the new money disappears. The money in circulation is backed by the demand created for that dollar at issuance (in that the loan must be repaid).
- chromaton 5y ago
  Banks also take hard assets as collateral. They can send guys with guns to collect if need be.
  - deleted 5y ago
    [deleted]
- ItsMonkk 5y ago
  And yet, during the recession of 2008 the M2 went up by a 1000 billion dollars, despite the fact that there were millions of houses foreclosed on, their assets tanked, and millions of loans defaulted. Curious how that works. Tether is much worse than the Fed(or would be if equivalent scale), but the Fed is no sweetheart.
  - arcticbull 5y ago
    The money supply is protected by the Fed, yes - that's kind of the point. The supply is adjusted to maintain the 2% inflation target. Generally in big financial crises, velocity of money drops so the supply is increased to offset it - and avoid a deflationary spiral. It's pretty logical right? If the economy is imploding around you, your natural response is to save your money - out of fear - and not spend it. However, that has knock-on effects. If everyone starts saving, prices go down to tempt people to buy, which means less revenue for the business, which means salary cuts and layoffs, which means folks have less money to spend - and so on. To avoid this situation, the Fed increases the money supply. This happened in COVID too. The fed IMO deserves a ton of credit for saving the American economy from a massive depression - twice so far since 2008. By the way those bailouts earned a $15B profit for the government [1]. [1] https://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008 https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati...
    - ItsMonkk 5y ago
      I know you know about Moral Hazard. I know you know about small bubbles allowed to get bigger getting out of control. I'm sure you know the phrase "Privatized gains and Socialized losses." These all apply here. The mark of a successful Fed is in reducing not just the frequency of banking issues but also the amplitudes. Every time the Fed is forced to step in, the interest rate cuts get bigger, the debt they create gets bigger, the Congressional action larger. The mark of a successful Fed is in stepping in ahead of time before the bubble gets out of control. If a Fed needs to take drastic action, they've already failed. CO-VID, being the first non-financially caused recession in 50 years, is a special case, and for that I give them leniency.
      - arcticbull 5y ago
        I agree with all that broadly, but I would push back and say the Fed's responsibility wasn't to stop the subprime crisis. That was Congress' responsibility. It's not the fire fighters job to stop people building houses made of paper. That's the fire marshal, the city planning department, the inspectors, and so on.
      - cinquemb 5y ago
        They stepped into the repo market when secured overnight rates blew up to 10% in sept 2019, they get no leniency from me (should have blew up instead of engaging in moral hazard).
        ItsMonkk 5y ago
        That and getting into corporate debt were extremely harmful.
        cinquemb 5y ago
        Agreed (I was long tail risk on HY and IG corp bonds from dec 2018 which still payed out alot in feb/march 2020, was watching the slow motion train wreck with SOFR-UST yield spreads before sept 2019), that combined with all the other shenanigans last year with exchanges and their custodians (I used IB and robinhood), made me sell everything and move into defi and dex only. Now time to watch the slow leverage build up of stablecoins on chain with the decentralized non custodial derivatives protocols :D
liuliu 5y ago
Regarding 2, if crytocurrencies fire up all cylinders and get not only many traditional market makers, hedge funds, but also FOF involvement and with-hold tens of millions people's savings. They can potentially get buyout like traditional banks do.
- chromaton 5y ago
  Maybe someday.
cinquemb 5y ago
> 1. You have to have USD to pay taxes, which most Americans have to do. 61% of Americans paid no federal income taxes in 2020[0], up from 47%[1] in 2019 and the long term chart seems like the non paying number will get higher regardless of what people "have to have" and "have to do". > 2. The feds will bail out depositors in banks that have screwed up badly. Ignoring the moral hazards at play, this really only considers on shore dollar denominated deposits, not dollar denominated deposits held overseas and will only work if its only a few banks and not something systemic. So none of this really means anything to in the tail risk scenarios people are opining about because its all just SSDD at the margins, crypto or non crypto (because everything is connected and getting more so everyday). [0] https://taxfoundation.org/us-households-paying-no-income-tax/ https://taxfoundation.org/us-households-paying-no-income-tax... [1] https://www.forbes.com/sites/howardgleckman/2019/08/06/remember-the-47-percent-who-pay-no-income-taxes-they-are-not-who-you-think/?sh=4e03739a47d7 https://www.forbes.com/sites/howardgleckman/2019/08/06/remem...

arcticbull 5y ago

Also fractional reserve lending is both how new money is created and how it's backed. When you borrow money from the bank, they create a positive balance in your account and a negative balance in theirs. As you repay the loan, the new money disappears. The money in circulation is backed by the demand created for that dollar at issuance (in that the loan must be repaid).

chromaton 5y ago
Banks also take hard assets as collateral. They can send guys with guns to collect if need be.
- deleted 5y ago
  [deleted]
ItsMonkk 5y ago
And yet, during the recession of 2008 the M2 went up by a 1000 billion dollars, despite the fact that there were millions of houses foreclosed on, their assets tanked, and millions of loans defaulted. Curious how that works. Tether is much worse than the Fed(or would be if equivalent scale), but the Fed is no sweetheart.
- arcticbull 5y ago
  The money supply is protected by the Fed, yes - that's kind of the point. The supply is adjusted to maintain the 2% inflation target. Generally in big financial crises, velocity of money drops so the supply is increased to offset it - and avoid a deflationary spiral. It's pretty logical right? If the economy is imploding around you, your natural response is to save your money - out of fear - and not spend it. However, that has knock-on effects. If everyone starts saving, prices go down to tempt people to buy, which means less revenue for the business, which means salary cuts and layoffs, which means folks have less money to spend - and so on. To avoid this situation, the Fed increases the money supply. This happened in COVID too. The fed IMO deserves a ton of credit for saving the American economy from a massive depression - twice so far since 2008. By the way those bailouts earned a $15B profit for the government [1]. [1] https://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008 https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati...
  - ItsMonkk 5y ago
    I know you know about Moral Hazard. I know you know about small bubbles allowed to get bigger getting out of control. I'm sure you know the phrase "Privatized gains and Socialized losses." These all apply here. The mark of a successful Fed is in reducing not just the frequency of banking issues but also the amplitudes. Every time the Fed is forced to step in, the interest rate cuts get bigger, the debt they create gets bigger, the Congressional action larger. The mark of a successful Fed is in stepping in ahead of time before the bubble gets out of control. If a Fed needs to take drastic action, they've already failed. CO-VID, being the first non-financially caused recession in 50 years, is a special case, and for that I give them leniency.
    - arcticbull 5y ago
      I agree with all that broadly, but I would push back and say the Fed's responsibility wasn't to stop the subprime crisis. That was Congress' responsibility. It's not the fire fighters job to stop people building houses made of paper. That's the fire marshal, the city planning department, the inspectors, and so on.
    - cinquemb 5y ago
      They stepped into the repo market when secured overnight rates blew up to 10% in sept 2019, they get no leniency from me (should have blew up instead of engaging in moral hazard).
      - ItsMonkk 5y ago
        That and getting into corporate debt were extremely harmful.
        cinquemb 5y ago
        Agreed (I was long tail risk on HY and IG corp bonds from dec 2018 which still payed out alot in feb/march 2020, was watching the slow motion train wreck with SOFR-UST yield spreads before sept 2019), that combined with all the other shenanigans last year with exchanges and their custodians (I used IB and robinhood), made me sell everything and move into defi and dex only. Now time to watch the slow leverage build up of stablecoins on chain with the decentralized non custodial derivatives protocols :D

liuliu 5y ago

Regarding 2, if crytocurrencies fire up all cylinders and get not only many traditional market makers, hedge funds, but also FOF involvement and with-hold tens of millions people's savings. They can potentially get buyout like traditional banks do.

chromaton 5y ago
Maybe someday.

cinquemb 5y ago

> 1. You have to have USD to pay taxes, which most Americans have to do. 61% of Americans paid no federal income taxes in 2020[0], up from 47%[1] in 2019 and the long term chart seems like the non paying number will get higher regardless of what people "have to have" and "have to do". > 2. The feds will bail out depositors in banks that have screwed up badly. Ignoring the moral hazards at play, this really only considers on shore dollar denominated deposits, not dollar denominated deposits held overseas and will only work if its only a few banks and not something systemic. So none of this really means anything to in the tail risk scenarios people are opining about because its all just SSDD at the margins, crypto or non crypto (because everything is connected and getting more so everyday). [0] https://taxfoundation.org/us-households-paying-no-income-tax/ https://taxfoundation.org/us-households-paying-no-income-tax... [1] https://www.forbes.com/sites/howardgleckman/2019/08/06/remember-the-47-percent-who-pay-no-income-taxes-they-are-not-who-you-think/?sh=4e03739a47d7 https://www.forbes.com/sites/howardgleckman/2019/08/06/remem...