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Central Banking for All: A Public Option for Bank Accounts (2018) [pdf] (greatdemocracyinitiative.org)
116 points by toomuchtodo 30 days ago | hide | past | favorite | 103 comments



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 the case, the main function of private banks would be to control the issue of credit.


The Fed already intends to provide a real time payment system by 2023-2024 [1]. These accounts wouldn’t provide credit, simply hold deposits, hence the desire of this proposal to make the (arguably) trivial leap to issue retail accounts directly. The Fed implicitly backs the currency, so no FDIC insurance is required (an antiquated holdover from the savings and loan days, superseded by securitization of debt in the capital markets).

I assume fintechs of any size would be permitted to issue credit to folks by transfers directly into these accounts (in real time), thereby allowing for innovation while providing a bare minimum of financial service to citizens.

[1] https://www.bankingdive.com/news/fed-gives-new-details-on-it...


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 of a superpower and can be more safely entrusted to the private sector.


>>"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 will search (assuming it have not already enough) the legal reserves requirement for the new created money.

Note, that this is the opposite of what we normal hear. In reality, first come the credit, then the reserves.

The bank that gave the credit, trying to meet its legal obligations of reserves, will try to get reserves loaned from other banks, creating demand for reserves in the inter-bank system. If the Central Bank does nothing, the added demand would increase the interest rate.

Modern Central banks don't try to control the quantity of money in the system, but the interest rate. If the are not enough reserves for the existing demand, in order to keep the interest rate in their target, the central bank will increase the reserves in the system.

So, deposits are not necessary, otherwise, the quantitative easing programs of the last years, would be impossible.


To complete the picture, it's helpful to point out that what banks need to create loans is capital, not deposits.

If a bank is constrained by the Basel capital requirements, it can e.g. attempt to issue bonds. If it does so successfully, it can then create new loans corresponding to a multiple of the value of those bonds.


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


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.


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.


The reserve ratio is currently zero percent.

https://www.federalreserve.gov/newsevents/pressreleases/mone...


The reserve ratio is mostly a historical relic and is zero in many places, yet those places don't see an infinite amount of money.

This indicates that the traditional story of how fractional reserve banking causes money growth is wrong.

In reality, even a non-zero reserve ratio doesn't limit money creation if you look at the financial system as a whole, because the created money will simply become deposits elsewhere.

The true limiter of money creation is capital constraints: somebody must give money to the bank and be willing to lose it - only then is the bank allowed to make loans.


It's not wrong, it's incomplete since Basel regulation was introduced. (Although the Keynsian description you will still find in most textbooks is wrong, but that's another rabbit hole).

The two issue's with non-zero reserve regulation were (historically) the price of gold was implicitly linked to deposit expansion, and in the Bretton Woods era, all the countries had different expansion rates. Then post Bretton Woods, Basel comes in.

With Basel the Bank's risk weighted capital also regulates the amount of lending, and hence deposit expansion.


Just to clarify, most central banks do not have reserve requirements. In the U.S. the reserve ratio is 0% so it doesn't have one either.


The Bank of England used to do this to some extent - it was only four years ago that they closed these, which were available to government departments, companies and employees. They concluded that these customers would better served by conventional and online banking services, and that their resources were better spent on their main purpose.


Same in France, I had one as son of a government employee. I even used it to cash USD checks from my internship in NYC circa 1995. A few years later all those accounts were closed and users were told to open a new account in a regular private bank.


Didn’t know they closed this! When I was a potential graduate scheme entree for BoE, one of the perks they emphasise is the ability to pay others with a Bank of England cheque, which, according to the guide, is a fantastic way to start a conversation.


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.


We could have free file -like debacle, but that would be an intentional backstabbing by the part of Congress.

What so say is not a natural phenomenon: the government isn't so stupid as to unintionality write a contract so vague that the recipiant can just renk sneak all the want.


1. I question whether this role lies within the charter of the Fed, and whether they are equipped to do so.

2. I worry that this might threaten the political independence of the Fed, which is something that I think is really important to maintain.


These are both valid concerns. I worry the most about 2; because this would mean that the Government would now have very direct control over the financial records of all citizens, which currently requires a warrant to obtain today.

But it may still be doable; there do exist Federal Agencies that are supposed to be apolitical but we've seen how the current admin has corrupted even non political agencies like the CDC, EPA etc. So ... I don't know. There would need to be better safeguards.


There's an excellent Fintech Beat podcast that covers the cons for a proposal like this in detail (centered around CBDC, but many of the arguments remain): https://pca.st/episode/e06c5ca7-df90-4fcf-86da-5ba2d5f0ead1


The next step would be allowing citizens to vote directly on the laws that govern central bank policy.


Hah, now that is something I'd like to see. I don't have my hopes up though because elitist central bankers don't like to be transparent or be subject to public scrutiny - all documents from the Swedish Riksbank in my country are classified with absolute secrecy (same level as military secrets) and cannot be inspected even by members of parliament as that may threaten "monetary stability". This is in a country where everyone's tax returns are public by default.


I heard that citizens are allowed to vote directly on national law in Switzerland... I don't think we need representatives anymore, if we aren't competent enough to elect the laws,how can we be competent enough to elect "representatives?" Electing representatives adds the complexity of guessing if you're voting on a liar to any policy stance. Democracy isn't perfect, but I prefer imperfection to centralized power.


There isn’t much I can think that’s stupider than direct democracy for monetary policy.


Perhaps oligopoly for monetary policy?


genius^


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).


People who thing this is a good idea do not understand how our money works. A central bank isn't a bank at all it does not have the function of a bank. It just has bank in its name. If you let banks compete against a central banks you may as well just close them all.


No, because you’d get no interest on your deposits. Private banks would simply have to offer something of value. obviously this conflicts with ZIRP, but that’s of dubious wisdom from the start.


You already get no interest on deposits. There is zero reason to deposit your money at a bank if a central bank provides the same service but by definition zero risk.

>Private banks would simply have to offer something of value. They do but they can not compete with a central bank.


You could probably just keep interchange fees on debit card transactions and still a lot of the other benefits. It would help pay for the services and support and make the banks less suspect that everyone would switch over.

I imagine the underbanked and unbanked individuals that would want this service aren't actually craved by the private banks right now.

Building out an ATM network though would probably be ridiculously expensive. You could probably just build them into the USPS though. I think Japan does this?


Imagine trying to reach customer service.

The US had "postal banking" from 1911 to 1967, but it was all paper based.


TreasuryDirect is already a thing. There wouldn’t be much service. It’s just a store of value and FedACH. Maybe password reset.


Can’t be worse than dealing with Chase, BoA, or Wells if you’re not a private banking client (ie high net worth).

It’s a bit tiring to hear the government can’t do, when those social security deposits roll out without hiccup each month, and Medicare has exceptionally high satisfaction rates from the 65 and older crowd.


Exactly this - and assuming congress wants it to succeed (yikes as an assumption, but let's be charitable) - people can talk to their congressperson to increase funding if they have deficiencies. Imagine trying to get Chase to improve their customer service as a low-dollar account holder.


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?


This appears to be a banking account and a payment processing system, and not actually giving any money to individuals above the standard index interest rate (which is already given out, but retail banks take their cut).


This system would make the execution of helicopter money policies trivial. Good or bad?


Definitely good.


https://greatdemocracyinitiative.org/about/

>The Great Democracy Initiative is housed at the Roosevelt Institute

https://en.wikipedia.org/wiki/Roosevelt_Institute


It's a think tank: https://greatdemocracyinitiative.org/about/

Lindsay Owens - ... Senior Economic Policy Advisor to Senator Elizabeth Warren...

Suzanne Kahn, Deputy Director - ... Director of the Great Democracy Initiative ...

Julie Margetta Morgan - ... served as a senior counsel to Senator Elizabeth Warren...

Ganesh Sitaraman - ... professor of law at Vanderbilt University ...

Anna N. Smith - ... supports the Education, Jobs, and Worker Power program for the Roosevelt Institute ...


Can we debate the idea on its merits rather than immediately trying to guess at ulterior motives?


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



Here’s how we’re doing with indirect injection: https://fred.stlouisfed.org/series/EXCSRESNW


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, credit card companies, payment processors etc. can be vanquished with one blow, by issuing every citizen with a digital identity card which can be then used to access his free accounts provided by the government, no other paperwork necessary. Some resources should be spent on preventing laundering and fraud with the system, but this needs to be done in the banking system as well, with the costs passed on to the consumers.

I disagree with some of the other claimed benefits. Central bank accounts holding monetary base would not offer interest, just like paper money, and will always offer negative real interest when considering inflation. The government pays interest when borrowing from the banking system, and you can certainly use your central bank account to buy these securities (just like banks do today) but then you are no longer holding the risk free monetary base, you have a security with some non-zero risk of sovereign default.

The stability of the system is also not a given. Commercial banks run the payment system as an ancillary to their main function, and that is to match un short term liquidity, that is temporary savings and surplus of people and firms, and redirect those resources to long term investments. This is a critical economic role and for the economy to work it will still need to be provided in some other fashion, for example by a credit market.

This already happens to a large degree, for example banks offer mortgages and package them into securities that are sold on markets. This whole MBS process was behind the financial melt-down in 2008, since these practices were less scrutinized than the direct loans and deposits of banks. In fact, both are the same process: monetary base increases in velocity and is multiplied in the form of interest bearing securities that represent investments in the productive economy. The stability of the whole financial system is predicated on the quality and diligence of these investments, and credit markets proved to be notoriously bad at discovering this.

One thing to note though, is that when a "bank run" happens in the "shadow banks" of the credit markets, the bad securities are wiped out but the goods ones quickly recover. So the central bank can ride a financial storm by blanket buying paper with fresh money and let the market discover the winners and losers. Bank runs are self-limiting because securities drop to a value where they become enticing to value investors. When commercial banks are involved though, you have massive contagion since bank runs are self-fueling, once a bank is in trouble every investors starts to request their money, even if the fundamentals of the loans made by that bank are sound in the long run.


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.


Well, the payment system facet of the banking sector is so tightly regulated by laws and central bank regulations that you could as well consider it controlled by a single entity - the government. Nothing much changes, and in fact you can provide by law some basic rights of access to the financial system. Currently, in most countries it is conceptually possible for an individual to be rejected by all commercial banks without compelling legal reasons.


The payments are already controlled by the central bank. How do you think a bank moves money to another?

If the financial system is a tree, the root node is the central bank, the second level nodes are the private banks and in the next level are the business and households.

By the way, this perspective makes clear that banks are not "only another business" as we hear sometimes.


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.


>Some resources should be spent on preventing laundering and fraud with the system, but this needs to be done in the banking system as well, with the costs passed on to the consumers.

I feel that you glossed over the most important part of credit card companies. I would say 100% of the reason I have a credit card is their diligence in preventing and solving fraud on my account. I would imagine the same to be true for many financially responsible HN readers as well.


It's debatable if this should be a lumped and mandatory feature of the payment system. For all in-person transactions, payments should be non-refundable and any fraud should be considered a technical weakness. This concurs with the longstanding tradition of paper money, with consumer protection handled off-line by adequate agencies, the courts etc. What currently happens is that credit card users enjoy a separate layer of protection that is subsidized by other consumers - debit and cash users - that pay the same nominal prices. Due to the credit card oligopoly, retailers are forced to do this since rejecting one of the major card issuers means forfeiting a large part of the revenue.

For remote transactions, aside from discontinuing the absurd practice of treating numbers printed on a card as secret authentication data, thereby reducing fraud manifold, we could have a unified system where consumer protection is offered by a 3rd party. For example, before you are allowed to shop online using your central bank account, you must select a private payment processor such as PayPal, Revolut etc., and agree to their terms and fees, and they in turn would handle charge-backs for remote transactions.


So the central bank can ride a financial storm by blanket buying paper with fresh money and let the market discover the winners

How can the market determine the winners if the central bank is propping up the losers by buying their paper?


Because the buying would be indiscriminate, while the market can (and will, to an extreme degree) discriminate.


If this was true, "zombie companies" wouldn't be a term bandied around as much lately.


Something like this would such a profoundly good change I shed a tear knowing it won't happen for years at a minimum.

Sigh


So who would be making consumer and commercial loans under this model?


In these proposals (which with the new CBDC furor going on are more common again), it would look a lot like China. The central bank would pick the "Agriculture Bank" or the "Industrial Bank", and hand over a set of deposits to enable loans. Hardly a model for success.


We used to have these in New Zealand but they didn’t succeed long term. Another model which does if well run is banking coops eg the Dutch Rabobank


A Fed-sponsored digital currency is probably already on its way...as the "fourth branch" of government, this may be as close as you ever get to "public banking".

The public will soon learn that public banking means your personal account is a policy instrument. Need to stimulate the economy? Just tell everyone that no accounts will be permitted to have a balance over $2k by Friday at midnight. Either spend the rest or lose it, up to you.

Or maybe you owe child support. Or maybe you haven't paid a parking ticket. Or maybe you attended a "riot". All of which may be "legal" reasons to deduct funds. Its all digital so you can't stop it. The possibilities are endless.

I suppose the upside is it will require a phone, so you'll get a free burner Android phone if you want one.


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.


According to my understanding of MMT, you'd use taxes to shrink the money supply.

Also, risk free interest rates are negative in Europe, let alone zero.


I agree with you on getting rid of the Fed. Borrow money from future generations to print today's money. Totally not ever going to be a problem, I plomise. ;)


This is interesting in the context of this recent article on Zerohedge: https://www.zerohedge.com/markets/loretta-mester-hints-fed-p...

In short, three Fed officials (two former, and the current President/CEO of Fed Bank of Cleveland) are speculating on a product like this. Most interesting is the idea of directly sending cash payments to individual citizens using this product.


I probably wouldn't consider Zerohedge a reliable source: https://en.wikipedia.org/wiki/Zero_Hedge


The direct quotes from this article can been found elsewhere on the internet. They collate them to provide a coherent narrative which is backed up by the OP article. This is an ad hominem argument and not compelling in this case.


It's really hard to convince ZH detractors. A naive perusal of the site is definitely packed with of, at its most charitable interpretation, a bunch of gobbledegook, and at its least charitable, pure propaganda. But between the lines there is a lot of truth, and importantly, many facts and analysis that you will never find in any mainstream sources, neither NYT nor Fox News nor the Atlantic nor whatever else. It takes real critical thought and an open mind to pull the value out of it - and it is there. I read it every day.


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 knowledge (I didn't work in commodities and heard about it, JPM were just fined $1bn for it).

I think people get confused because they have trouble signal from noise, particularly from people who are obviously biased (this is a key ability in finance, almost all the information you receive is conflicted, and you have to understand human nature at a deep level i.e. understand what people lie to each other about, what they lie to themselves about, etc.). I am totally fine with biased coverage (everyone is prone to biases, it is just some people deny that to themselves/others). I don't have to believe everything they say and, compared to every other finance publication, they really do cover stuff that no-one else is covering. Yes, it is sensational and their political coverage is usually insane (tbh, it is quite funny)...but, again, that doesn't mean they are wrong about everything or add no value (btw, almost every economist I have ever met has had bizarre political views...people who work in finance usually do because being an expert in one thing does not make you an expert in all things).

In my experience, people who talk about news not being reliable also believe all kinds of insane shit that appears in the mainstream media. Believing that you are hyper rational is, in itself, not rational.


That's how I think too.

There's a problem in wireless communications called multipath. When a signal is transmitted over the air, the receiver will often not receive the original signal. Instead, it will receive a lot of reflected, refracted and distorted versions of it.

So the question is: what's the best way we can combine those signals to recreate the original?

Not going into the specifics, but it turns out that to maximize information it's often necessary to listen to trash signals (one that has a lot of noise) because those might have information that good signals do not have (as many times they will be redundant).


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.).


Use to read Alphaville for a time. Gave up on it early. Went back to it yesterday and surprised to see how politically left it is now.


Is there a place in the US, outside maybe some really rural areas, where a credit union isn't available that doesn't offer accounts to the general population? In my experience credit unions' checking accounts are free.

(I realize that this proposal is something slightly different, but I wanted to preempt the inevitable "poor are unbanked because of fees" claims.)


There are lots of people who cannot get a bank or credit union account for one simple reason: Lack of identification.

I know it's hard to believe in today's tech bubble, but there are hundreds of thousands of people in America who simply don't have any identification. They might have a Social Security number they remember, but that's about it.

I'm not talking about hobos or criminals, but just people who choose to live a different lifestyle.

I was first introduced to this society when me and a bunch of friends cycled across the continent. We ran into all kinds of interesting — and very nice — people who just weren't on any official radar. Drifters, in a sense. People who just enjoy the freedom of working in a coffee shop in one city for a few months, then a bar in another city for a few months, then camping for a few months.

I'd forgotten about this subculture until a couple of weeks ago when the New York Times did a photo piece about the people who still ride Amtrak during a pandemic. One couple that was interviewed had to take Amtrak because they didn't have any official documents that would let them get on a plane.


Don't know how many people are unbanked due to refusal by financial institutions to open an account for them, but ChexSystems exists to let banks know if their potential account holder has had banking issues in the past. At the lower end of the economic spectrum where margins for error are low, there likely is a non-insignificant number of people with bad banking histories who now find it difficult to open a bank account.


Supposedly 25% are unbanked or underbanked in the US. It probably varies highly on how you measure underbanked.

I always thought this is what the target is for with the Libra cryptocurrency.


I'm pretty sure even credit unions charge overdraft fees, although they might be less punitive than major banks.


This is an obvious trojan horse for totalitarian central planning. Easier to enact negative interest rate policy when everyone is holding an account at the Fed and no one can take out their money since cash is either banned or made severely inaccessible (like in some EU countries).

In my opinion private banks are perfectly fine, the problem isn't the idea of independent banks, the problem is government and central banks subsidising losers by bail-outs and the "lender of last resort" mandate while also enacting enormous regulatory barriers that make it impossible for new banks/financial institutions to compete with incumbents.


The horse is out of the barn there.

Many forms of credit are basically government lons anyway. The current model of thousands of retail and commercial banks isn’t sustainable. Most bank business could be done at a post office or gas station counter. They exist as a sales funnel.


It is not sustainable when we have an unsustainable and quite frankly insane monetary policy which is being pushed by central bankers. In a sane world credit provision would be decentralised and provided by local banks who are close to the borrower rather than people sitting 1,000 kilometres away. Remember: the most important role of banking is not the provision of payment services (although that is important too), it is to intermediate between savers and borrowers (which is almost always done better in a decentralised system).

Indeed the current centralised banking model is quite recent and only started to creep in after the enactment of the Federal Reserve (and the consequent central planning of money and credit) and dramatically accelerated after the end of the gold standard in 1971 and the decoupling of money from sane fundamentals. It's not a coincidence that what followed was extreme consolidation of banks and the quasi-neofeudalism that we see today with large corporates who are able to get credit from large multinational banks which they are close to and then with that money price out small businesses and drive them to bankruptcy.

What has been happening for the past 40 years is not natural, and what banks are doing now is almost entirely driven by central banks and not some natural order resulting from the free market (which throughout history has always selected a decentralised banking system with thousands of small local banks). In my opinion we need to protect what little we have left instead of just yielding to the central planners at the Fed, the ECB etc.


> which throughout history has always selected a decentralised banking system with thousands of small local banks

The free market in my country has produced two banks that provide banking to 80% of the population (6M people). It has also more or less killed off cash in favour of credit cards and more recently a single, 100% privatized smartphone app. Accepting cash is still a legal requirement, ie. it is being kept alive by our government and central bank, but it is mostly old people and a few privacy/conspiracy kooks who use it.

Almost all of the private banks also have negative interest rates, at least for deposits over a certain amount. And they are all pushing investment (stocks) as an alternative for savings.

I really do hope our central bank wakes up and starts providing a way to store my savings without gambling them on the stock market soon, as well as a way to transfer money to other people without going through a privatized middle man. There is obviously a need for financial services like loans and mortgages, and even investment for people who want that, but storage and transfer of money should not rely on private businesses who then get to charge money for the use of money - the original definition of the word usury! - but be a publicly owned, publicly accessible infrastructure just like central bank cash was.


>The free market in my country has produced two banks that provide banking to 80% of the population (6M people).

I don't want to assume where you are from, but almost every developed country has incredibly complex, expensive, and insurmountable bank licensing procedures which make it impossible for startups to compete. That is not a free market, it is a crony capitalist market which shields incumbents.


That's probably true but we also have like two major supermarket chains, so I think it's hard to make the case that government regulation is the only cause of monopolies.


The USA actually has a history of disallowing large, centralized private banks. So-called unit-banking, driven by a powerful small-bank lobby created a great deal of instability in the 19th and 20th centuries. Canada and Scotland have a history of much freer banking than the USA. This is a very interesting subject, and I highly recommend reading a bit about it.


> What has been happening for the past 40 years is not natural, and what banks are doing now is almost entirely driven by central banks and not some natural order resulting from the free market (which throughout history has always selected a decentralised banking system with thousands of small local banks). In my opinion we need to protect what little we have left instead of just yielding to the central planners at the Fed, the ECB etc.

Yes, we've had sustained economic growth and wealth generation to a magnitude never seen before in the history of the world (although not equitable, but that's a different policy problem).

What does it mean that its not "natural"? There is nothing "natural" about the "free market"; its a way we decide to organize resource allocation. There are other ways to do so. Central banks have prevented catastrophic economic failures in the past few decades. I think I like this system better than one which results in "natural" destruction of economy and livelihoods like what happened in the Great Depression.


>Yes, we've had sustained economic growth and wealth generation to a magnitude never seen before in the history of the world (although not equitable, but that's a different policy problem).

There are many ways I'd like to rebut this, but instead I'll just ask for who and how? Technology has improved that is for sure as it is a incredibly deflationary, but what else has improved in your eyes? The vast majority in the U.S. and some parts of Europe while nominally earning more than what they did in the 1960's are in my opinion worse off than before. Minimum wage used to be 40-50 dollars inflation adjusted, and one lower middle-class salary could support an entire family and provide material comforts. I don't see much of that happening now as I and many others believe inflation has completely ravaged the middle-class in the West and is making it increasingly difficult to get ahead.

>What does it mean that its not "natural"? There is nothing "natural" about the "free market"; its a way we decide to organize resource allocation. There are other ways to do so. Central banks have prevented catastrophic economic failures in the past few decades. I think I like this system better than one which results in "natural" destruction of economy and livelihoods like what happened in the Great Depression.

We didn't "choose" to have a free market. A free market is simply the voluntary and spontaneous interaction between free individuals, nothing more, and is entirely natural. Central planning and using coercion to force market outcomes, on the other hand, is definitely not natural.

It is often taught that we have avoided a scenario like the Great Depression almost exclusively due to the enactment of a central bank, but this is outright false and is borderline malicious historical revisionism (in fact many economists, including some at the Fed, believe that the Fed was actually the cause of the credit bubble during the 1920's which eventually burst in 1929). We had periodic recessions before the Fed, but they almost always resolved themselves quite quickly and wasn't near the impact that recessions have today.

Ask yourself this, why is it that recessions seem to get worse and worse and more importantly affect everyone and not just localised sectors in an economy? 2008 was definitely worse than 2001, and the current covid recession is arguably worse than 2008 due to how overleveraged everyone is (a direct consequence of Fed monetary policy).


> We didn't "choose" to have a free market. A free market is simply the voluntary and spontaneous interaction between free individuals, nothing more, and is entirely natural. Central planning and using coercion to force market outcomes, on the other hand, is definitely not natural.

So what? A free market was the only possible market when society did not have the tools to organize and control resource allocation on the scale its possible today, due to advances in technology and expansion in education. We have better tools today, and we as a society can choose other methods for resource allocation that are now accessible.

This kind of thinking baffles me: horses are the only "natural" way of transportation, by your definition. But we discovered automobiles, trains and all that shebang.


> A free market was the only possible market when society did not have the tools to organize and control resource allocation on the scale its possible today, due to advances in technology and expansion in education. We have better tools today, and we as a society can choose other methods for resource allocation that are now accessible.

Many have thought like you, some have even tried to architect society into something like you are describing, and fortunately those that did failed so spectacularly that they are remembered in the history books with names like the Soviet Union, Venezuela, Cuba, and maoist China. They all failed because centrally planned societies, either done through envisioned high-tech computerised/AI systems or through at-the-time high-tech 5-year plans like the Soviet Union, all suffer from the knowledge problem. It is simply impossible for someone to know everything about an economy to be able to plan it efficiently.

Perhaps a more tangible argument for the tech-crowd on HN is the lack of understanding that non-engineer managers in some companies have for the software development process and the disastrous results that follow. Now imagine having a Politburo dictating what every little work group in a country should do from software engineers to janitorial staff and you can see where this leads.

>But we discovered automobiles, trains and all that shebang.

Ironically things that were discovered and developed in the 1800s, the times of almost unrestricted capitalism and market price discovery.


>Yes, we've had sustained economic growth and wealth generation to a magnitude never seen before in the history of the world

Citation needed. I'm pretty sure the growth of real GDP in the US was higher in the 50 years prior to the end of the gold standard, than in these ~50 years since.


You honestly think there isn't already central planning? If you believe private banks are perfectly fine, what exactly happened in 2008?


I should qualify that I think the idea of private banks is perfectly fine. I agree that what we have right now is a quasi-governmental centrally planned banking system and that should definitely be dealt with as it was government (through guaranteed mortgages) that largely encouraged the conditions that lead to 2008.


Commercial banking, together with the Intellectual Property system, is one of the greatest Rentier swindles of all time. We are literally renting the money we use, for extortionate prices [1].

"The dollar as a reserve currency transfers wealth from the rest of world to the USA

One final way in which money works today that has a substantial effect on the workings of the global political economy is the use of the US dollar as the international reserve currency. This follows the decision of the OPEC countries shortly after the end of the Second World War to accept only dollars for their oil. Today, the dollar is used for trade in many other commodities.

This acts as a huge subsidy to the US economy, since countries elsewhere in the world sell goods and services to the US, but instead of buying back from US companies, they keep the dollars so as to be able to trade among themselves — as well as to be able to protect their currencies from speculative attack. This effective transfer of wealth from the rest of the world to the US permits the US to be easily the world’s largest debtor nation, while driving the unprecedented widening of wealth disparity within the global community (Douthwaite, 1999)." [2]

[1] https://www.youtube.com/watch?v=ZzCegQVljdY

[2] https://medium.com/insurge-intelligence/impacts-of-our-curre...


The USA is not, in percentage of their economy, the largest debtor nation. The dollar have a special status, because of the importance (economic and geopolitic) of the USA, but that's not what explain the untroubled existence of a big public debt.

If that theory was true how they explain Japan?


37% of USA debt is held by foreigners, while it's just about 9% in Japan.


There is not reason why the Federal Reserve can't do the same that the Bank of Japan if they choose so.


Sure but the Fed should not be buying REITS and equity markets. I don’t think people realize how damaging it would be to the country long-term. Financial Engineering can smooth economic cycles but real forces determine LT growth rates. The Fed knows this and has been asking for fiscal support.


In exchange the United States act like the world's rent-a-cop, keeping shipping lanes open and getting rid of those who stand in the way of global commerce (sometimes violently). Inflation on the reserve currency is more or less a tax in exchange for these services. Who benefits the most? Pretty sure the answer isn't the common people of (insert any country name here, including the United States).


I have a really hard time naming any law that benefited the common people the most.

Usually a good law will end up expanding the number of people who are elite, but still give marginal benefit to the commoner.

For example, statutory jurisprudence as opposed to rule by nobility, let people who were only good at trading become part of the elite. Previously you had to also have a private army, in order to be elite.


Labor laws greatly expanded protections for the commoners, as did Social Security and other welfare programs.


> commoners

When you use the word 'commoners', is this akin to the word consumers, in contrast to producers - who make and invent the things commoners/consumers buy and use? I'm asking because this definition comes up from Wikipedia:

"Commoner: The common people, also known as the common man, commoners, or the masses, are the ordinary people in a community or nation who lack any significant social status, especially those who are members of neither royalty, nobility, the clergy, nor any member of the aristocracy."

> Labor laws greatly expanded protections for the commoners, as did Social Security and other welfare programs.

Many argue those post-war gains are being wiped out [1]

[1] https://www.weforum.org/agenda/2016/11/precariat-global-clas... or video: https://www.youtube.com/watch?v=nnYhZCUYOxs


> In exchange the United States act like the world's rent-a-cop, keeping shipping lanes open and getting rid of those who stand in the way of global commerce (sometimes violently)

"sometimes violently" is a bit of an understatement.

With the use of our current system we are literally making the world uninhabitable for human existence. We are systemically destroying mother earth's carrying capacity through ecological destruction, not to mention the misery caused by Magical Voluntarism and labour rights abuses the world over.

I'm still finding ways to describe the issues with our economic system and it's apparatus, and the meaningful changes proposed by one of the projects I follow, in a way that acknowledges that in a way we are all victims to this current system (including neo-Imperialist USA), as today's money does not respect the law of requisite variety [1]. My above critique might sound anti-American, but America (together with other formal colonial powers in the Global North) is just the most powerful player in a game with outdated, harmful and inadequate economic models and governance systems. It's a painful era where we are using inadequate wealth acknowledgement systems, where the old Platform Capitalism paradigm is breaking down and showing it's flaws, and where the potentiality for Protocol Cooperativism is starting to emerge. Money is an information technology created by humans, operating a set of protocols. Tomorrow's world is governed by the practice of Commons-based peer production that is not subject to the contrived scarcity of today's value regime and system, where a neoliberal Intellectual Property system blocks innovation and monopolizes knowledge and information [2].

[1] http://eric.harris-braun.com/blog/2007/05/14/id-53, especially:

"When I’m talking with free-market business people my elevator pitch [for community currencies supported by the MetaCurrency Project's Holochain pattern] is about allowing the power of competition and the marketplace to work on the currency system itself. [...] When I’m talking with engineers and information-theory folks my elevator pitch is about Ashby’s Law of Requisite Variety and questions of the insufficient information carrying capacity of the monetary system to handle the control problems posed by the modern economy. When I’m talking with computer geeks my elevator pitch is about cc as a peer-to-peer distributed information system and about “pushing the intelligence to the edges” as in Reed’s Law."

[2] https://c4ss.org/content/52947 and https://www.resilience.org/stories/2017-08-03/book-day-corru...




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