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The consequence is, in the financial system nowhere you can put your money is safer than US government debt. If you can deposit your money directly with the FE
by dageshi 3y ago
The consequence is, in the financial system nowhere you can put your money is safer than US government debt.
If you can deposit your money directly with the FED then that IS safer than government debt.
During a financial crisis such as 2008 money would go straight to the FED for safety forgoing everything else. This causes interest rates to spike everywhere including gov debt at precisely the time the government needs to borrow heavily to fix whatever went wrong.
That is why there will never ever be direct deposit with the FED because it circumvents one of the most important safety features in the modern economy, which is in the event of a crisis the government can borrow cheaply to fix things.
- lotsofpulp 3y agoWhat is depositing money if it is all electronic? And why would numbers in a database at the Fed be more safe than numbers in a database at some other US federal government organization? With electronic funds, all you are doing is subtracting it from one legal entity’s database entry and adding it to another’s. If people want to invest their money in US federal government debt, then the government has to pay interest. I do not see where thesafety” factor comes from, surely that is ensured by a functioning court system that ensures the numbers in the database cannot be altered.
- dageshi 3y agoThe legal owners of the databases have vastly different business models, legal powers and levels of dysfunction. So they are in no way equivalent. The government can default on its debt, that's why the debt has a credit rating. As unlikely as it is to ever happen it could happen with enough political dysfunction because political opponents are playing chicken with each other. A direct deposit with the FED can't, the FED does nothing with that money and can literally just print it back into existence, which the government cannot do.
- lotsofpulp 3y agoI have not heard of the Fed being able to “literally just print” money. As far as I know, that is solely done by the US Treasury and Mint. Also, why does money in an account have to be debt? For a physical bank dealing with lots of staff and physical cash, they have expenses they need to recoup. But with instant communications and electronic database, why can the government simply not operate a database where the money (a number that someone had the legal power to spend) simple exists?