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My point was that the “insurance” premiums and whatnot the FDIC collects are all fiction, because in practice, the Federal government will always step in if the

My point was that the “insurance” premiums and whatnot the FDIC collects are all fiction, because in practice, the Federal government will always step in if the reserves are insufficient (assuming it can). If it can’t, then the country is about to dissolve or otherwise undergo some major changes. Kind of like the PBGC premiums that are wholly inadequate, and the real DB pension insurance is the political power your union has (see multi employer pension bailout a couple years ago). https://news.bloomberglaw.com/daily-labor-report/biden-to-unveil-bailout-plan-for-multiemployer-pension-funds https://news.bloomberglaw.com/daily-labor-report/biden-to-un... >No, it isn’t. The Fed (and Treasury) issue currency. And when the FDIC is coming in the risk is deflation. The short term risk is deflation, but I think the longer term would be still be reduced purchasing power of currency since it would disrupt so much of US society’s ordering, that it would decrease confidence in the US to be as economically productive and secure as it used to be.

deleted 3y ago
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dragonwriter 3y ago
> The short term risk is deflation, but I think the longer term would be still be reduced purchasing power of currency Not really given the FDIC’s role: a threat to FDIC reserves would require the kind of broad collapse that would be produced by an economic collapse that would threaten deflation even before considering the loss of money supply from deposit accounts evaporating. FDIC coverage of insured (and even uninsured, as allowed under the systemic risk exception) amounts in such accounts can only reduce to zero the money lost from those accounts, it can never be stimulus that would go beyond neutralizing that additional deflation threat to actually deal with whatever the broader cause of the collapse was. Now, the separate fiscal and monetary response to that cause beyond preventing losses to deposits might overshoot and produce excess inflation eroding purchasing power, but that’s a separate issue.

deleted 3y ago

[deleted]

dragonwriter 3y ago

> The short term risk is deflation, but I think the longer term would be still be reduced purchasing power of currency Not really given the FDIC’s role: a threat to FDIC reserves would require the kind of broad collapse that would be produced by an economic collapse that would threaten deflation even before considering the loss of money supply from deposit accounts evaporating. FDIC coverage of insured (and even uninsured, as allowed under the systemic risk exception) amounts in such accounts can only reduce to zero the money lost from those accounts, it can never be stimulus that would go beyond neutralizing that additional deflation threat to actually deal with whatever the broader cause of the collapse was. Now, the separate fiscal and monetary response to that cause beyond preventing losses to deposits might overshoot and produce excess inflation eroding purchasing power, but that’s a separate issue.