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> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer. I guess, in some

> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer. I guess, in some ways, but that's exactly what led to SVB's collapse. It's only safer in a declining or flat interest rate environment or when you use short duration treasuries. Otherwise, this exact strategy leaves you vulnerable to a bank run. See above. This investment strategy requires active risk management, and that means the same kind of regulation you're bristling at. > I believe that fractional reserve banking based on fiat currency is inherently risky. However the state does not make it easy for me to avoid this. However it is possible for even the moderately wealthy person to take safe action to reduce such risk. It's not really, fractional reserve is where money comes from. Money is created when debt is issued and it is destroyed as the debts are repaid. This is how interest rates control the money supply. As interest rates go up, repayments remain constant and originations drop, so the supply goes down. The M2 supply has shrunk about a trillion dollars over the last 8 months, and this is why. It's weird to me how few people this seems intuitive for, and I only learned about it over the last few years. The risk is basically zero for anyone under the FDIC limit, which is, substantially everyone. The average American can't rustle up $500 for an emergency expense, never mind $250K in un-invested cash. If you have more than $250-500K but less than $5.5M you can use a sweep account. If you have more than that, you can pay for private insurance. Remember, nobody has lost a penny of FDIC insured funds in over 100 years, so why exactly do you think it's risky again? > However it is possible for even the moderately wealthy person to take safe action to reduce such risk. What do you mean exactly.

fourier54 3y ago
>Money is created when debt is issued and it is destroyed as the debts are repaid I understand money is created with issued debt, since the interests do not exist yet. I don't understand why do you say money is destroyed when interest are repaid? If the bank now holds that money, why do you say it is destroyed?
- arcticbull 3y ago
  When you borrow money at a fractional reserve bank, they don't give you other people's money. They create on one side new money, and they give it to you. The create on the other side, a negative balance. As you pay back your loan, it increments the negative balance and evaporates. The concept of fractional reserve lending just means that banks are allowed to issue new money to make loans. But the concept isn't really accurate anymore anyways, banks aren't limited in how much money they can create based on a percentage of their asset portfolio but instead based on complex loan qualification rules.
  - inconceivable 3y ago
    i think the thing that people have a really tough time with is the fact that they create money out of thin air. that's really what happens. they hand you made-up cash and create a negative bank account for you to pay back. the opposite happens when you buy a government security or a corporate bond, except you had to get that cash from someone else, not create it on your own. it gets really weird when you borrow money to buy more money.
    - arcticbull 3y ago
      It's not made out of thin air, it's backed by your obligation to repay the debt that created it and the faith in the legal system to enforce said debt obligations. Corporate debt is basically exactly what you described... and I assume by 'government security' you mean debt, in which case I have more bad news for you. It's all based on faith in the legal system to enforce debt obligations.
      - inconceivable 3y ago
        in other words, out of thin air.
        arcticbull 3y ago
        Absolutely not. Increased borrowing meeting the lending standards is a proxy for economic activity and the system is designed to expand money supply into increasing demand for money. The fact that the issuance itself doesn't consume countries worth of power is a feature, and it doesn't mean that it's backed 'by nothing' - it's backed by the economy and the legal system, and created in response to demand. Zoom out a little bit. The system itself is actually quite elegant and has functioned very well over decades and a wide variety of market conditions. Remember despite new money being created now in loan issuance the aggregate supply is shrinking so it's silly to look solely at issuances and say they're 'out of thin air' when the system is actually reducing the supply. Look at the whole thing, not one slice.
- than3 3y ago
  > Money is created when debt is issued and it is destroyed as the debts are repaid. fourier, fundamentally the quoted statement is wrong except in a very narrow niche. Its a overgeneralization that ignores core principles. There's no real way to clarify this in the span of a single post, there's a lot of fundamental material you need to be aware of. I'd instead refer you to a very solid book by David Graeber called Debt, The first 5,000 years; and then The Wealth of Nations & The Wealth and Poverty of Nations, for a more broad economic understanding (when things actually worked). Following those two, Bridgewater's Report (Ray Dalio) Big Debt Crises will give you sufficient background to understand what they are talking about and realize its just a narrow niche that ignores the forest for the trees. There are people that believe you can borrow from the future indefinitely with debt, and the price never comes due; Modern Monetary Theory is one such dogmatic approach and it ignores important distinctions about who decides what in trade, and also unfortunately many places reuse language in a completely different unrelated context which itself is misleading and corruptive. Start with the question, "What is money, what is it used for, and what requirements does it have to have, to be money".
  - JumpCrisscross 3y ago
    > fundamentally the quoted statement is wrong except in a very narrow niche That niche being money and banking [1]. The comment you dismiss is correct: “Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” [1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
monero-xmr 3y ago
The risk is zero for individuals with less than $250k but even small businesses operating on slim profit margins will routinely have more than that. Think restaurants. A bankruptcy, or any reason where they can’t access their funds for even a month, is devastating. To argue that enabling a deposit taking bank that forwards all deposits to short term treasuries should be illegal, is absurd beyond comprehension. Yet that is the situation we live in.
- arcticbull 3y ago
  You didn't say short-term treasuries, you said treasuries, which anyone can put money into at treasurydirect. Again, nobody has lost their FDIC insured deposits in 100 years. Sweep accounts provide cover for $5.5+ Personally I think individuals should just be able to open an account at the Fed.
  - than3 3y ago
    That's just crazy, or shill talk. Anyone saying something like that clearly has absolutely no clue or concept what the counter-party risks of doing so are nor how bureaucracies actually work in practice. Just promoting that kind of narrative is fundamentally deceitful because its outcomes pose such harm to not only yourself but everyone else you've enrolled in the process. You'd wake up one day and not be able to get your money. The account would be frozen, they'd refer you to some other department, who would then point back to the first department in a circle. No escalation route, 8 hours getting through to 1 department, another few days, your back in a loop no resolution. In the meantime funds are still going into your account but they can't be removed. You'd say that will never happen, but this type of finger pointing happens all the time in business and bureaucracies alike. There is a fundamental lowest common denominator, and in a state funded systems that denominator is ultimately negative production value. Business can't afford it, but government gets paid by the money printer (stealing value from those holding the currency over time). That's not even going into what they'll use your banking information for? We see you deposited and withdrew cash in 200+ dollar amounts multiple times over the span of a year. This is structuring, in addition to your reported income you owe taxes on the undeclared amounts and this has been referred to department X for further investigation, they make a finding and take your money first, wait time for their due process before returning (if you can prove its yours) or just keeping the money (in the case of non-responsive/lost mail). Civil Asset Forfeiture 2.0. Nevermind you do group grocery shopping on behalf of someone else (elderly who can't drive), or other plausible explanations, you are guilty until innocent because they have your money and you lack the power to stop them.

fourier54 3y ago

>Money is created when debt is issued and it is destroyed as the debts are repaid I understand money is created with issued debt, since the interests do not exist yet. I don't understand why do you say money is destroyed when interest are repaid? If the bank now holds that money, why do you say it is destroyed?

arcticbull 3y ago
When you borrow money at a fractional reserve bank, they don't give you other people's money. They create on one side new money, and they give it to you. The create on the other side, a negative balance. As you pay back your loan, it increments the negative balance and evaporates. The concept of fractional reserve lending just means that banks are allowed to issue new money to make loans. But the concept isn't really accurate anymore anyways, banks aren't limited in how much money they can create based on a percentage of their asset portfolio but instead based on complex loan qualification rules.
- inconceivable 3y ago
  i think the thing that people have a really tough time with is the fact that they create money out of thin air. that's really what happens. they hand you made-up cash and create a negative bank account for you to pay back. the opposite happens when you buy a government security or a corporate bond, except you had to get that cash from someone else, not create it on your own. it gets really weird when you borrow money to buy more money.
  - arcticbull 3y ago
    It's not made out of thin air, it's backed by your obligation to repay the debt that created it and the faith in the legal system to enforce said debt obligations. Corporate debt is basically exactly what you described... and I assume by 'government security' you mean debt, in which case I have more bad news for you. It's all based on faith in the legal system to enforce debt obligations.
    - inconceivable 3y ago
      in other words, out of thin air.
      - arcticbull 3y ago
        Absolutely not. Increased borrowing meeting the lending standards is a proxy for economic activity and the system is designed to expand money supply into increasing demand for money. The fact that the issuance itself doesn't consume countries worth of power is a feature, and it doesn't mean that it's backed 'by nothing' - it's backed by the economy and the legal system, and created in response to demand. Zoom out a little bit. The system itself is actually quite elegant and has functioned very well over decades and a wide variety of market conditions. Remember despite new money being created now in loan issuance the aggregate supply is shrinking so it's silly to look solely at issuances and say they're 'out of thin air' when the system is actually reducing the supply. Look at the whole thing, not one slice.
than3 3y ago
> Money is created when debt is issued and it is destroyed as the debts are repaid. fourier, fundamentally the quoted statement is wrong except in a very narrow niche. Its a overgeneralization that ignores core principles. There's no real way to clarify this in the span of a single post, there's a lot of fundamental material you need to be aware of. I'd instead refer you to a very solid book by David Graeber called Debt, The first 5,000 years; and then The Wealth of Nations & The Wealth and Poverty of Nations, for a more broad economic understanding (when things actually worked). Following those two, Bridgewater's Report (Ray Dalio) Big Debt Crises will give you sufficient background to understand what they are talking about and realize its just a narrow niche that ignores the forest for the trees. There are people that believe you can borrow from the future indefinitely with debt, and the price never comes due; Modern Monetary Theory is one such dogmatic approach and it ignores important distinctions about who decides what in trade, and also unfortunately many places reuse language in a completely different unrelated context which itself is misleading and corruptive. Start with the question, "What is money, what is it used for, and what requirements does it have to have, to be money".
- JumpCrisscross 3y ago
  > fundamentally the quoted statement is wrong except in a very narrow niche That niche being money and banking [1]. The comment you dismiss is correct: “Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” [1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

monero-xmr 3y ago

The risk is zero for individuals with less than $250k but even small businesses operating on slim profit margins will routinely have more than that. Think restaurants. A bankruptcy, or any reason where they can’t access their funds for even a month, is devastating. To argue that enabling a deposit taking bank that forwards all deposits to short term treasuries should be illegal, is absurd beyond comprehension. Yet that is the situation we live in.

arcticbull 3y ago
You didn't say short-term treasuries, you said treasuries, which anyone can put money into at treasurydirect. Again, nobody has lost their FDIC insured deposits in 100 years. Sweep accounts provide cover for $5.5+ Personally I think individuals should just be able to open an account at the Fed.
- than3 3y ago
  That's just crazy, or shill talk. Anyone saying something like that clearly has absolutely no clue or concept what the counter-party risks of doing so are nor how bureaucracies actually work in practice. Just promoting that kind of narrative is fundamentally deceitful because its outcomes pose such harm to not only yourself but everyone else you've enrolled in the process. You'd wake up one day and not be able to get your money. The account would be frozen, they'd refer you to some other department, who would then point back to the first department in a circle. No escalation route, 8 hours getting through to 1 department, another few days, your back in a loop no resolution. In the meantime funds are still going into your account but they can't be removed. You'd say that will never happen, but this type of finger pointing happens all the time in business and bureaucracies alike. There is a fundamental lowest common denominator, and in a state funded systems that denominator is ultimately negative production value. Business can't afford it, but government gets paid by the money printer (stealing value from those holding the currency over time). That's not even going into what they'll use your banking information for? We see you deposited and withdrew cash in 200+ dollar amounts multiple times over the span of a year. This is structuring, in addition to your reported income you owe taxes on the undeclared amounts and this has been referred to department X for further investigation, they make a finding and take your money first, wait time for their due process before returning (if you can prove its yours) or just keeping the money (in the case of non-responsive/lost mail). Civil Asset Forfeiture 2.0. Nevermind you do group grocery shopping on behalf of someone else (elderly who can't drive), or other plausible explanations, you are guilty until innocent because they have your money and you lack the power to stop them.