6 ms·

>If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of

>If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them. >Revoke banks ability to invest deposits. They can't get to have the cake and eat it too. They could offer higher interest rates for non guaranteed accounts which bear risk, or zero risk for the already zero interest rates. You are missing something crucial here - treasury bonds are a loan to the government - this is all by design. Who will loan the government tens or hundreds of billions of dollars besides the banks? The [Fed/Treasury/FDIC] has no incentive to prevent banks from loaning customer deposits, because the Treasury needs banks to purchase government bonds

nopassrecover 4y ago
> because the Treasury needs banks to purchase government bonds Does it? Or is this just how the system is currently designed? 50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially.
- runeks 4y ago
  > Does it? Or is this just how the system is currently designed? It does in the sense that the US Government will default on its financial obligations if banks don’t use deposits to buy government bonds.
  - dllthomas 4y ago
    I'm very much not saying that the outcome wouldn't be disastrous, but IME default is clearly unconstitutional, and so if statute and circumstance conspire to make default the only option then violating some statute to prevent default is appropriate, potentially to the point of just printing what we need to meet our obligations.
- oarabbus_ 4y ago
  >Does it? Or is this just how the system is currently designed? Yes, to both questions. The US Debt is at $31 trillion, it only works as long as the system keeps feeding money into government bonds. The entire global financial system (not just the USA; the rest of the world is dependent on the USD and US banks) is reliant on this cycle of money. >50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially. It was realized the gold standard stifled growth too much, and was abandoned just about 50 years ago as well. You can have a safe system without growth (everything Tech was built off credit/debt and castles in the sky until decades after the companies were founded) or you can have the tech industry with a debt-credit based system.
  - BlueTemplar 4y ago
    Trying to keep up the growth half a century ago was the last thing that (at least the West) needed to do - and it was already aware of that at that point.
  - diffeomorphism 4y ago
    That does not address the second question at all? The bonds need to be bought by someone, but you gave no argument why this someone has to be banks and why banks need tax money for bailouts on top of that.
    - oarabbus_ 4y ago
      It was explained, maybe you didn't connect the reasoning. First, there are no entities that have the amount of capital needed to keep the bond market moving besides banks. This is a $50 trillion market that makes the stock market look like a lemonade stand. I would suggest you do some research on the bond markets, it will become immediately apparent why only central and private banks have the capital necessary to drive it. It's the nature of a credit/debt based system, which is currently in a booming credit cycle (although perhaps the end of the cycle) As to why do banks need tax money for bailouts? The banks don't need tax money, if you're willing to let banks fail - which would likely be healthy in the long run. But in the short term, Joe Middle Class can't get a car loan to get a car, Wealthy Sally can't get a business loan to start a company and employ 50 people, Minimum Wage Mike can't get a home loan after saving up money for 25 years. It's certainly a shame that banks basically face no consequences and the taxpayer has to pay for it. But people's perspective on bank bailouts changes quickly when they realize the "side effects" are their credit cards no longer exist and their loan rates tripled.
narrator 4y ago
People can learn how to use Treasurydirect.gov instead of using their bank as a lousy bond broker. Inflation protected bonds, that you can buy only $10k a year of are some of the highest yielding risk free investments that exist. Banks should just make money off fees and hold short duration Treasury bills only. Other institutions that have LPs should lend to businesses, students and home owners.
- tempestn 4y ago
  But then you don't have the convenience and liquidity of a bank account. The system works because the bank can invest the aggregate deposits of all depositors and still be ready to cash people out as needed (of course, barring a situation like this one, which is what the deposit insurance is for).
  - xthrown1 4y ago
    The majority of people don't need daily bank accounts. The only reason why we are using them is because to dollar notes have not kept up with inflation. A $500 bill from 1900 would be a $17,500 note today. Two of those notes provide more liquidity than the majority of bank accounts in the US.
    - BlueTemplar 4y ago
      Don't underestimate the risk of getting robbed of your savings.
      - xthrown1 4y ago
        My house has been broken into fewer times than the number of bankruns in the last week.
        mtrower 4y ago
        Perhaps in part owing to the fact that people don’t generally keep hefty sums of cash in hand? Anyway, how are you expecting to transact digitally with your paper notes?
xthrown1 4y ago
>Who will loan the government tens or hundreds of billions of dollars besides the banks? The [Fed/Treasury/FDIC] has no incentive to prevent banks from loaning customer deposits, because the Treasury needs banks to purchase government bonds War bonds were bought by people directly. I see no reason why we can't have the same today. God knows the US needs a WWII sized investment in repairing infrastructure.
- op00to 4y ago
  Can you think of any differences in the economy of the 1930s and 40s versus today?
  - deleted 4y ago
    [deleted]
- cmiles74 4y ago
  Who is going to buy them? Most US citizens have less than a month's worth of income in their savings account. I'd be surprised if they enough confidence in their own income to tie even half of that up in war bonds.
  - ticviking 4y ago
    Perhaps we'll be forced to accept that we cannot continue to have "endless growth" with a declining workforce. The cost of Labor is going to go up at all levels, and that will mean smaller profits and more inflation until things stabilize and enough of us are incentivized to do productive work.
  - jandrewrogers 4y ago
    Many (most?) Americans have no savings account. Not because they are poor but because a savings account is largely an obsolete anachronism. The common tactic of conflating "savings" with "having a savings account" is intentionally misleading. Per the US government, the median US household has $1000/month they could invest after all ordinary expenses.
afiori 4y ago
I feel like treasury bonds (of your own government) have different risk profiles than most other investments.
- runeks 4y ago
  They still have duration risk.
  - afiori 4y ago
    At the time of writing this comment I did not know that having funds stuck in long term bonds was a major factor in the collapse. I was biased to assume insolvency rather than illiquidity.
phpisthebest 4y ago
>>Who will loan the government tens or hundreds of billions of dollars besides the banks? Wait, I have a novel idea... HOW ABOUT THE FEDERAL GOVERNMENT STOPS BORROWING (and spending) SO MUCH DAMN MONEY!!!! I know, crazy idea that the government should (outside extreme conditions) have a balanced budget and not run deficits in perpetuity

nopassrecover 4y ago

> because the Treasury needs banks to purchase government bonds Does it? Or is this just how the system is currently designed? 50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially.

runeks 4y ago
> Does it? Or is this just how the system is currently designed? It does in the sense that the US Government will default on its financial obligations if banks don’t use deposits to buy government bonds.
- dllthomas 4y ago
  I'm very much not saying that the outcome wouldn't be disastrous, but IME default is clearly unconstitutional, and so if statute and circumstance conspire to make default the only option then violating some statute to prevent default is appropriate, potentially to the point of just printing what we need to meet our obligations.
oarabbus_ 4y ago
>Does it? Or is this just how the system is currently designed? Yes, to both questions. The US Debt is at $31 trillion, it only works as long as the system keeps feeding money into government bonds. The entire global financial system (not just the USA; the rest of the world is dependent on the USD and US banks) is reliant on this cycle of money. >50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially. It was realized the gold standard stifled growth too much, and was abandoned just about 50 years ago as well. You can have a safe system without growth (everything Tech was built off credit/debt and castles in the sky until decades after the companies were founded) or you can have the tech industry with a debt-credit based system.
- BlueTemplar 4y ago
  Trying to keep up the growth half a century ago was the last thing that (at least the West) needed to do - and it was already aware of that at that point.
- diffeomorphism 4y ago
  That does not address the second question at all? The bonds need to be bought by someone, but you gave no argument why this someone has to be banks and why banks need tax money for bailouts on top of that.
  - oarabbus_ 4y ago
    It was explained, maybe you didn't connect the reasoning. First, there are no entities that have the amount of capital needed to keep the bond market moving besides banks. This is a $50 trillion market that makes the stock market look like a lemonade stand. I would suggest you do some research on the bond markets, it will become immediately apparent why only central and private banks have the capital necessary to drive it. It's the nature of a credit/debt based system, which is currently in a booming credit cycle (although perhaps the end of the cycle) As to why do banks need tax money for bailouts? The banks don't need tax money, if you're willing to let banks fail - which would likely be healthy in the long run. But in the short term, Joe Middle Class can't get a car loan to get a car, Wealthy Sally can't get a business loan to start a company and employ 50 people, Minimum Wage Mike can't get a home loan after saving up money for 25 years. It's certainly a shame that banks basically face no consequences and the taxpayer has to pay for it. But people's perspective on bank bailouts changes quickly when they realize the "side effects" are their credit cards no longer exist and their loan rates tripled.

narrator 4y ago

People can learn how to use Treasurydirect.gov instead of using their bank as a lousy bond broker. Inflation protected bonds, that you can buy only $10k a year of are some of the highest yielding risk free investments that exist. Banks should just make money off fees and hold short duration Treasury bills only. Other institutions that have LPs should lend to businesses, students and home owners.

tempestn 4y ago
But then you don't have the convenience and liquidity of a bank account. The system works because the bank can invest the aggregate deposits of all depositors and still be ready to cash people out as needed (of course, barring a situation like this one, which is what the deposit insurance is for).
- xthrown1 4y ago
  The majority of people don't need daily bank accounts. The only reason why we are using them is because to dollar notes have not kept up with inflation. A $500 bill from 1900 would be a $17,500 note today. Two of those notes provide more liquidity than the majority of bank accounts in the US.
  - BlueTemplar 4y ago
    Don't underestimate the risk of getting robbed of your savings.
    - xthrown1 4y ago
      My house has been broken into fewer times than the number of bankruns in the last week.
      - mtrower 4y ago
        Perhaps in part owing to the fact that people don’t generally keep hefty sums of cash in hand? Anyway, how are you expecting to transact digitally with your paper notes?

xthrown1 4y ago

>Who will loan the government tens or hundreds of billions of dollars besides the banks? The [Fed/Treasury/FDIC] has no incentive to prevent banks from loaning customer deposits, because the Treasury needs banks to purchase government bonds War bonds were bought by people directly. I see no reason why we can't have the same today. God knows the US needs a WWII sized investment in repairing infrastructure.

op00to 4y ago
Can you think of any differences in the economy of the 1930s and 40s versus today?
- deleted 4y ago
  [deleted]
cmiles74 4y ago
Who is going to buy them? Most US citizens have less than a month's worth of income in their savings account. I'd be surprised if they enough confidence in their own income to tie even half of that up in war bonds.
- ticviking 4y ago
  Perhaps we'll be forced to accept that we cannot continue to have "endless growth" with a declining workforce. The cost of Labor is going to go up at all levels, and that will mean smaller profits and more inflation until things stabilize and enough of us are incentivized to do productive work.
- jandrewrogers 4y ago
  Many (most?) Americans have no savings account. Not because they are poor but because a savings account is largely an obsolete anachronism. The common tactic of conflating "savings" with "having a savings account" is intentionally misleading. Per the US government, the median US household has $1000/month they could invest after all ordinary expenses.

afiori 4y ago

I feel like treasury bonds (of your own government) have different risk profiles than most other investments.

runeks 4y ago
They still have duration risk.
- afiori 4y ago
  At the time of writing this comment I did not know that having funds stuck in long term bonds was a major factor in the collapse. I was biased to assume insolvency rather than illiquidity.

phpisthebest 4y ago

>>Who will loan the government tens or hundreds of billions of dollars besides the banks? Wait, I have a novel idea... HOW ABOUT THE FEDERAL GOVERNMENT STOPS BORROWING (and spending) SO MUCH DAMN MONEY!!!! I know, crazy idea that the government should (outside extreme conditions) have a balanced budget and not run deficits in perpetuity