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So, to summarize: 1. The US government loans money to the banks at 0% interest 2. The banks buy treasuries at 2% interest Why is the US government selling tr
by seldo 17y ago
So, to summarize:
1. The US government loans money to the banks at 0% interest
2. The banks buy treasuries at 2% interest
Why is the US government selling treasuries in the first place? In order to have money to bail out the banks' earlier losses.
Net-net: the banks are stealing money from US taxpayers.
Do I have this right?
- nsrivast 17y agoThe US taxpayers are lending the money cheaply to banks and whoever else wants it. You can take part in this as well - go buy a government bond.
- yafujifide 17y agoBut can I borrow money at 0% interest from the Fed to do it?
- jjs 17y ago> You can take part in this as well Except for the free money part.
- wallflower 17y agoFractional-reserve banking http://en.wikipedia.org/wiki/Fractional-reserve_banking http://en.wikipedia.org/wiki/Fractional-reserve_banking
- deleted 17y ago[deleted]
- seldo 17y agoStealing is taking another person's property without permission. In this case, taxpayers handed over money to the government on the understanding that it would be used for the public good, to support common infrastructure and institutions. Instead it is being paid to the stockholders and employees of banks for doing exactly nothing: they are taking money from one federal account and moving it to another, producing no value for anyone but themselves. So I guess, technically, it's not stealing. But it's a massive violation of trust that should be criminal.
- cookingrobot 17y agoHow about if congress creates a "public option" bank. Then we can stop letting the private banks steal our money through tricks like this, and if that makes them collapse, so-be-it. Honestly I think every major institution should have a public-option competitor. If it turns out that the private companies are worse than a government run version, then they must really suck.
- seldo 17y agoThe problem with a public option in this case is that the investment arms of these banks aren't providing a service to anybody, they are profit-making institutions in their own right. We the public are not "customers" of these banks, so we can't take our money elsewhere; they're using their own money. The obvious government reform required here is stop lending the goddamn banks money at 0% interest.
- deleted 17y ago[deleted]
- cookingrobot 17y agoI agree, but I think the general assumption is that if we stop giving bailouts and 0% loans, then the banks would fail and bring down the economy. That's why we should have public banks ready to replace them.
- lionhearted 17y ago> Honestly I think every major institution should have a public-option competitor. This was a common line of thinking from 1930 to 1980 or so, and lots of world governments had public run businesses. England is a great example actually - the English government owned a lot of business that got preferential treatment in the UK. Under Thatcher, most English government businesses were sold off and most public housing was sold to its current tenants. Here's a short list of some of the businesses that were sold off, you can click on each individual business to see how they fared and the changes to industry afterwards. Generally speaking, it was a very positive thing. http://en.wikipedia.org/wiki/Margaret_Thatcher#Second_government http://en.wikipedia.org/wiki/Margaret_Thatcher#Second_govern... -- "British Petroleum was privatised in stages in October 1979, September 1983 and November 1987; British Aerospace in January 1981 and 1985; the government share in British Sugar in July 1981; Cable and Wireless in November 1981; Amersham International and National Freight Corporation in February 1982; Britoil in November 1982 and August 1985; Associated British Ports in February 1983; Jaguar in July 1984; British Telecom in November 1984; the National Bus Company in October 1986; British Gas in December 1986; British Airways in February 1987; the Royal Ordnance in April 1987; Rolls-Royce in May 1987; the British Airports Authority in July 1987; the Rover Group in August 1988; British Steel in December 1988; the Regional Water Authorities in November 1989; Girobank in July 1990; and the National Grid in December 1990." -- On a personal note, I'm an American, and the worse service I've ever experienced have been at the hands of U.S. government run institutions: The various state-run DMVs, TSA, Homeland Security, the IRS, and the Post Office. About the Post Office, by the way: I was frequently traveling 3-10 days at a time for work, and my mailbox would get completely full and my mail would get wrinkled and ripped and crushed. I ran into my postman one afternoon, and asked him, "Hey there - if I leave a note on my mailbox, can you stop delivering the bulk mail/junk mail? I don't want it, and my mail is getting ripped up and crushed from my stuffed mailbox." He said that the Post Office is paid to deliver the mail, and I have no say in what gets delivered. But, I could request the Post Office hold my mail and pick it up when I get done traveling. Now, can you think of any private business that runs like that? Could you imagine the outrage if FedEx dropped off junk samples at your door without your permission and refused to stop? Look at how outraged we get at email spam - but you're both legally required to have a mailbox, and can't tell the Post Office to stop spamming you. This is what happens when a business can't go out of business - they hold no respect for their customers. I mean, how much nicer, more efficient, and pleasant would the DMV instantly become if they had a competitor for licensing and registering cars?
- sage_joch 17y agoBanks borrow money at 0% interest and lend it to the government at 2% interest. That 2% has to come from somewhere (hint: us). Now suppose the government could also borrow at 0% interest (or print its own money, for that matter). Then taxes could be put to better use than lining the pockets of people who don't actually create any wealth.
- dantheman 17y agoAnd then money would quickly become worthless, as all fiat currencies have.
- fnid 17y agoThat's basically what is happening. Wait until the inflation kicks in. See Argentina as an example: http://academic.reed.edu/economics/course_pages/201_f06/Cases/money_and_inflation_in_arg.htm http://academic.reed.edu/economics/course_pages/201_f06/Case...
- lkozma 17y agoAs far as I understand (from watching krugman-talks on youtube) the tragedy of argentina was that its debt was in $, which skyrocketed (as expressed in national currency) due to inflation. In case of US, external debt is in national currency, thus inflation might not have the same effect.
- dantheman 17y agoIt won't have the same effect, but it produces another incentive -- to get rid of our national debt all we have to do is print our way out of it thus drastically inflating our money, and robbing all holders of US Dollars.
- lkozma 17y agoAgain, from krugman-talks: no-one really needs to get rid of national debt, that is what Romania did in 80s and it was the worst economic move ever. You only need to service national debt, i.e. pay off interests, and exponential growth will take care of the rest. US debt right after WW2 is still there but it is peanuts in today's numbers.
- anamax 17y ago> Do I have this right? You're missing an important detail - this is nothing new. Banks have always borrowed money from the US govt (and others) at X% and loaned it at Y%, where X < Y. (There's no point in that arrangement if X >= Y.)
- monos 17y agothis is probably trivial economics but it always eluded me: when the govt is giving out amount X money, and wants amount X + INTERESTX back. how can that work? where should INTERESTX come from when they only gave us X?
- vitaminj 17y agoNon-government deposit banks are legally allowed to create money (up to some reserve ratio).
- vetinari 17y agoTime. The govt gives out X/year, not the final amount X. When they want it back, it comes from different 'tranches'. This ensures, that there is always debt. Money has value only if there is debt and you must use some to get out of it. Why would you need it otherwise?
- eru 17y agoAnd the Fed gives its `profits' back to the government to spend. The ECB does the same (perhaps more roundabout).
- aaronblohowiak 17y agoWith risk. What is the risk in buying US bonds?
- dandelany 17y agoThat the USD is increasingly worthless in the world economy.