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Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

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Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#71

Post by smabie »

abfan1127 wrote: post #6

this seems like the wrong direction. I'd prefer to get rid of the Fed. No reason for the Federal Govt to borrow money it can print itself. Opening up what it means to be a bank makes sense though.

Simply printing money only expands the monetary supply, it can never contract it. Government bonds on the other hand have the nice property that they can be used to contract the money supply (by selling bonds) or expand it (by buying back bonds).

Also, modern financial theory is predicated on a nominally positive risk free rate. If the nominal time value of money is strictly zero, a lot of things start to break down.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#72

Post by marnett »

solotronics wrote: post #18
yholio wrote: post #17

Banks as private middlemen providing society with a payment system is an outdated and baroque system. Today, the whole payment system of an average nation can work over a single cluster of computers in the basement of the central bank, there is absolutely no reason not to provide this service for free to all citizens and businesses since it's a critical part of living in a society. The whole superstructure of banks,…

I wonder why everyone is downplaying the moral and technical hazard of having a single entity controlling all the issuance and payments in a country? At least right now if some bank sucks I can take my money elsewhere.

This is wrong. You can be charged with crimes that bar you from the banking system. Not to mention the credit scoring system can prevent the mobility you speak of.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#73

Post by dathanb82 »

closeparen wrote: post #31
RobertoG wrote: post #4

This is an interesting proposal. Private banks have two very important functions in society: they provide the infrastructure for the payment system and they control credit. This proposal would disentangle those functions making, I think, a more robust financial infrastructure. The payment system is, by its characteristics, a natural monopoly, and it's so important that makes sense that it become public. If that was t…

Customers expect to have use the of the money they deposit with you, so once you take deposits you are the payment system. “Robust banking system” is inherently tied to reserve ratios, or having the deposits on hand to cover the loans you’re writing. A bank that only writes loans and doesn’t have deposits is the opposite of robust. If any bank gets to do this it would be the central bank. Payment facilitation is less…

I don't think I agree with your definition of "robust" in this context. A bank that only writes loans and doesn't have deposits must be lending out its own assets. In that case, they don't have a reserve, because the assets they're using to back their loans aren't liabilities, and aren't subject to runs. The reserve ratio is there precisely because banks are loaning out deposits, and deposits are liabilities. If a crisis comes, there can be a run on the bank, and all of a sudden the bank is insolvent. So a bank that's only writing loans and not taking deposits (if you can call it a bank at all; it's really more of a hedge fund) is in some ways more "robust" than a traditional bank that's lending out its deposits.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#74

Post by yalogin »

Who is gong to provide the account services in this scenario?

I suspect if the Fed is supposed to do it, they will outsource it to regular banks which will then add on restrictions, fees and other hurdles there by making it the same as today's bank accounts.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#75

Post by neffy »

dathanb82 wrote: post #73
closeparen wrote: post #31

Earlier quoted context omitted.

Customers expect to have use the of the money they deposit with you, so once you take deposits you are the payment system. “Robust banking system” is inherently tied to reserve ratios, or having the deposits on hand to cover the loans you’re writing. A bank that only writes loans and doesn’t have deposits is the opposite of robust. If any bank gets to do this it would be the central bank. Payment facilitation is less…

I don't think I agree with your definition of "robust" in this context. A bank that only writes loans and doesn't have deposits must be lending out its own assets. In that case, they don't have a reserve, because the assets they're using to back their loans aren't liabilities, and aren't subject to runs. The reserve ratio is there precisely because banks are loaning out deposits, and deposits are liabilities. If a cr…

The reserve ratio (which in most places is now down to 2% or less), is there to prevent runaway monetary expansion through lending/deposit creation. The Central Bank's role as lender of last resort is the backup for bank runs.

In the event of a run, a bank is considered illiquid, an insolvent bank is one where losses on debts exceed loss provisions and capital.

An entity that only wrote loans, and didn't have deposits would not be a bank - the definition of a bank is implicitly that it is performing fractional reserve banking via double entry book keeping. (Unless it's the World Bank, which is actually a fund, because the US and UK had an argument about who would control the International Monetary Fund (which is actually a bank) when the Bretton Woods agreement was setup.

No banks, including central banks can really be described as robust. They have at best around 1% fault tolerance in terms of the quantity of loans as a percentage of total lending that they can write-off each year.

Yes, that is about to become a huge problem.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#76

Post by neffy »

mempko wrote: post #56
hammock wrote: post #24

So "Great Democracy" is how they are going to wrap this, huh. "This" being helicopter money AKA digital dollars AKA direct fiscal injection into private Americans' bank accounts. Been a long time coming. Who is The Great Democracy Initiative, and where does their funding come from?

Fiscal injection into private American's bank accounts already happens all the time. So what is your concern here exactly?

Indeed:

https://fred.stlouisfed.org/series/M2

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#77

Post by hogFeast »

hammock wrote: post #53
hogFeast wrote: post #37

Earlier quoted context omitted.

Yep: I worked in finance for years, have degrees in economics...and their coverage is useful. To name one example of many, they were saying that JP Morgan was rigging commodities markets for years. I know people not in finance who heard that ZH story (years ago now, when ZH was in their pomp): lololol, tinfoil hat...that JPM were rigging commodities markets was known in finance for literally decades, it was common kn…

Totally. Curious, do you have any other news/blogs you recommend? I'm always looking for new ones. Epsilon Theory has been a new one for me, although its "pomp" as you put it didn't last long and seems to be on a politically motivated decline, as happened to Venkatesh Rao's blog

FT Alphaville. I don't keep up with this stuff as much anymore but there is a lot out there if you are willing to invest the time (just follow the right people on Twitter, read good books, etc.).

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#79

Post by chii »

RobertoG wrote: post #38
closeparen wrote: post #31

Earlier quoted context omitted.

Customers expect to have use the of the money they deposit with you, so once you take deposits you are the payment system. “Robust banking system” is inherently tied to reserve ratios, or having the deposits on hand to cover the loans you’re writing. A bank that only writes loans and doesn’t have deposits is the opposite of robust. If any bank gets to do this it would be the central bank. Payment facilitation is less…

>>"A bank that only writes loans and doesn’t have deposits is the opposite of robust." Maybe they are, but modern private banks already do that. Before a bank concede a credit it's just checking if it's a good business, not if it has enough deposits or enough reserves. When giving a credit, banks, are, basically, creating money that it's destroyed when the debt is payed. A posteriori of giving the credit, the bank wi…

dont know why you're downvoted - but you're absolutely correct.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#80

Post by chii »

kderbyma wrote: post #69

I have been thinking about something similar except that my idea is a little more extreme. I believe that citizens should be able to deal with the central banks directly or not at all. by effectively making every single person their own central bank, and thus they can choose to avoid country banks entirely.

if that's the case, i would not accept currency issued by you (an individual) since i cannot perform the work of verifying that you have assets to back your currency printing (which you are allowed to do as a central bank).
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