Maybe this came up in the 200+ comments below, but I'll ask -- Why the Fed? Why not the USPS? That's the long standing practice in Europe. Banks and payday lenders will like this even less than having the Fed create electronic accounts. But it has a paper-based transition path which is getting to be sms-based. Has a presence on the ground (which is also getting smaller).
Let's also have competitors for payday-loan companies that are not-for-profit organizations, for-benefit corporations, or state-government programs. The for-profit approach has been a disaster for the poor.
Hey Matt, how do you feel about municipalities or states running banks as a stop-gap unless and until the FED does this? I know AY has been talking about an NYC municipally run bank as part of his mayoral run.
The US Treasury authorizes every one of us to pull all the cash from our wallets, take a Sharpie and add a "zero" to the denomination of every bill. Now we all have ten times as much money as we had before. Sounds like a sure path to full employment and prosperity.
Why not just pay private sector banks a small subsidy just for providing people banking services. Would eliminate a source of opposition. Many private sector banks do things like having offices in grocery stores which is very convenient and which the public sector bank really couldn't do.
Matt, you've mentioned the idea that since interest rates are super low it's not a big deal for the government to spend a lot, or simply to print money. I'd love to believe you but it feels like it can't be so - how can the government just take on debt without consequence? That certainly wouldn't work for me to do that.
Are there perhaps unforeseen consequences? Maybe it works fine for a while until foreign countries stop holding US dollars as a reserve currency and switch to bitcoin or something, and then the dollar gets hyperinflated all of a sudden. I have no idea - but I'd love to read an explanation of why this is or isn't possible.
The argument is that the Federal Reserve ends up buying a lot of US debt to control the money supply; they create money out of thin air to buy the bonds with, which increases the money supply by putting cash in the former bondholder's hands. That is actually how the Fed "prints money" these days. Meanwhile, most of the US debt on the Fed balance sheet will stay there forever until it is paid off. And since the Fed is technically part of the Federal government, this is essentially "monetizing the debt"; printing money to buy the bonds that were sold so we could spend the money. Why not cut out the middle man, issuing and selling debt to the private sector, and just have the Fed print money and put it directly into people's accounts.
Of course, the separation between a country's central bank and its Treasury is critical to the success of central banking over the last 50 years. To break down those walls is to break down the credibility of the Federal Reserve. Plus the idea that Congress could pass a law to tell the Fed "print more money and put it in everyone's Fed bank account" puts control of the money supply in the hands of Congress. It is the most dangerous thing I've ever heard Matt say.
If we ever did that, it would quickly blow up in our faces. Or to borrow the famous quote "inflation would go up very slowly, then all of a sudden."
Can someone help me understand why "in a low interest / low inflation rate environment you shouldn't worry about gov spending"? I see how higher interest rates and inflation can be bad, but isn't the bigger problem that we're spending money now that our children need to repay later? If I get 2000$ and spend it, then the economy gets stimulated and I get to subscribe to Slowboring which is nice. But won't the generation after us have to repay that (and not really care about the exact amount (whether it's 2100$ due to of higher interest rates or 1900 because of inflation)?
The unfortunate truth is that as long as the government debt stays below a certain percentage of our GDP, we will never pay back _all_ the money. We will keep rolling it over forever. And as long as our GDP grows and the debt to GDP ratio remains reasonable, it seems like the bond markets will let us keep spending money at the rate of GDP growth, rather than looking at our actual budget deficits and debt. As long as we remain the world's reserve currency and a "zero risk" investment because we haven't defaulted on the US debt, ever.
OTOH, the Debt to GDP ratio has just shot up to 136% of GDP because of Covid relief.
We were at 55% Debt/GDP ratio in 2000, then to 100% by 2016 because of the Middle East wars and financial crisis and Bush/Obama spending. Trump tax cuts and deficits added another 7% in a strongly growing economy, right before Covid. But Covid relief and the recession has put our debt ratio at 136%, well into Italian territory.
At some point, the markets will take notice, no matter how "risk free" US treasuries have been up until now. We cannot keep spending like this forever.
Okay, so we rely on future generations being able to borrow money just as cheaply as we can now because there's no risk of us defaulting on our debt. That makes sense, thank you!
Thinking big is fun! Alas, though, then this site will have to change its name and to acquire a new non-Weber aphorism: "Politics is the fast boring through gossamer-thin membranes of imagination."
For the last several years I used Simple as a bank. They were a startup focused on just a really good checking account experience. They had 100k~ accounts and they only had like 300 employees, mostly customer support staff.
They didn't have any fees, and the interest wasn't great, but they focused on just making the experience of online banking as pleasant as possible. I feel like they're a pretty good showcase that nowadays you don't need a bajillion dollars and lots of specialists to make a decent banking experience if you decide to avoid stuff like car/home lending and whatnot.
First, I strongly oppose the push towards a cashless society. There's a lot of benefit to financial anonymity. Let's look at a couple of scenario's
1. Maybe you are visiting a store that you don't want our corporate overlords (or your wife) knowing you visited.
2. Maybe you live in the many states where cannabis is still illegal and you partake.
3. Maybe you are an undocumented immigrant and need to be paid under the table.
4. Or maybe you just don't like the idea of your entire financial life being tracked.
Moreover, say we give all these unbanked people bank accounts. What happens when they start bouncing checks? Do you hit them with fees, do you take away the bank account, or does the US treasury just start covering all those bounced checks.
I have to admit I instinctively hate the idea of a cashless society, especially due to privacy issues.
Still I think that Matt's proposal would help a lot of people. Would prefer if it were combined with a law requiring all physical retail establishments to accept cash.
No part of this proposal takes cash out of the picture. He says there will be ATMs, for heavens sake. You want cash, you go to the Post Office and use their ATM to get some bills, and then you take them to the store.
What's wrong with pre-paid credit cards (with cash) in this scenario? I understand people might want certain transactions unlogged in the financial system, but it does not automatically follow that these transactions should be as easy as all others. It also does not follow that giving everyone a bank account will automatically grease the skids for a cashless society- being able to pay people, have a safe storage for funds, and have access those funds almost anywhere at no customer cost provides a ton of benefit all on their own.
Heya, have huge fan of this basic idea for years: universal gov-provided checking accts.
Just to say it's not quite as easy as it seems. "Give people a debit card and ACH access, problem solved."
Two key examples: chargebacks, and legal garnishment/attachment of account balances. Both require a significant administrative and adjudication bureaucracy. May seem like edge cases, but they necessarily implicate all accounts. It's the hardest thing that Visa, for instance, does.
Also, aside: there's no need to even mention digital/electronic "currency." Your checking balances are digital currency. Nobody needs to hear that to understand how a checking account works. It's just a completely separate wonky issue (Bitcoin: run screaming) that clouds the waters.
Honestly the main practical obstacle I see is that government IT security is so horrifically bad that every single account number would be public within a year or so. The states paid out paid tens of billions in fraudulent payments last year since they were so easy to hack.
Very thought-provoking and worth discussing. Here are the main concerns I have, top of mind...
-If the biggest obstacle to this plan is bank lobbyists, why would we let bank lobbyists stop us from passing a law requiring banks to offer no fee checking to everyone? Certainly banks would prefer to be in the game than not.
-You did not address the other huge driver of the unbanked- deep, historic mistrust of financial institutions. I do not think people would suddenly be more trusting of an invisible bank account just because it is run by the Fed.
-The ability to make money magically appear in people's checking accounts at any moment would likely lead to more demands for money to be distributed. As a liberal, I'm not as averse to this as most conservatives would be, but I can also see where this could be the first step in a huge increase in entitlements.
All that being said, I still think it's interesting and could have more upside than down!
Maybe this came up in the 200+ comments below, but I'll ask -- Why the Fed? Why not the USPS? That's the long standing practice in Europe. Banks and payday lenders will like this even less than having the Fed create electronic accounts. But it has a paper-based transition path which is getting to be sms-based. Has a presence on the ground (which is also getting smaller).
And I am not against "putting way more money into the USPS."
Yes! (That is all)
Let's also have competitors for payday-loan companies that are not-for-profit organizations, for-benefit corporations, or state-government programs. The for-profit approach has been a disaster for the poor.
Hey Matt, how do you feel about municipalities or states running banks as a stop-gap unless and until the FED does this? I know AY has been talking about an NYC municipally run bank as part of his mayoral run.
Here is something that would work just as well.
The US Treasury authorizes every one of us to pull all the cash from our wallets, take a Sharpie and add a "zero" to the denomination of every bill. Now we all have ten times as much money as we had before. Sounds like a sure path to full employment and prosperity.
Why not just pay private sector banks a small subsidy just for providing people banking services. Would eliminate a source of opposition. Many private sector banks do things like having offices in grocery stores which is very convenient and which the public sector bank really couldn't do.
Matt, you've mentioned the idea that since interest rates are super low it's not a big deal for the government to spend a lot, or simply to print money. I'd love to believe you but it feels like it can't be so - how can the government just take on debt without consequence? That certainly wouldn't work for me to do that.
Are there perhaps unforeseen consequences? Maybe it works fine for a while until foreign countries stop holding US dollars as a reserve currency and switch to bitcoin or something, and then the dollar gets hyperinflated all of a sudden. I have no idea - but I'd love to read an explanation of why this is or isn't possible.
The argument is that the Federal Reserve ends up buying a lot of US debt to control the money supply; they create money out of thin air to buy the bonds with, which increases the money supply by putting cash in the former bondholder's hands. That is actually how the Fed "prints money" these days. Meanwhile, most of the US debt on the Fed balance sheet will stay there forever until it is paid off. And since the Fed is technically part of the Federal government, this is essentially "monetizing the debt"; printing money to buy the bonds that were sold so we could spend the money. Why not cut out the middle man, issuing and selling debt to the private sector, and just have the Fed print money and put it directly into people's accounts.
Of course, the separation between a country's central bank and its Treasury is critical to the success of central banking over the last 50 years. To break down those walls is to break down the credibility of the Federal Reserve. Plus the idea that Congress could pass a law to tell the Fed "print more money and put it in everyone's Fed bank account" puts control of the money supply in the hands of Congress. It is the most dangerous thing I've ever heard Matt say.
If we ever did that, it would quickly blow up in our faces. Or to borrow the famous quote "inflation would go up very slowly, then all of a sudden."
Ok, yea...that seems to match my intuition on this. Very dangerous game to play with the economy.
Can someone help me understand why "in a low interest / low inflation rate environment you shouldn't worry about gov spending"? I see how higher interest rates and inflation can be bad, but isn't the bigger problem that we're spending money now that our children need to repay later? If I get 2000$ and spend it, then the economy gets stimulated and I get to subscribe to Slowboring which is nice. But won't the generation after us have to repay that (and not really care about the exact amount (whether it's 2100$ due to of higher interest rates or 1900 because of inflation)?
The unfortunate truth is that as long as the government debt stays below a certain percentage of our GDP, we will never pay back _all_ the money. We will keep rolling it over forever. And as long as our GDP grows and the debt to GDP ratio remains reasonable, it seems like the bond markets will let us keep spending money at the rate of GDP growth, rather than looking at our actual budget deficits and debt. As long as we remain the world's reserve currency and a "zero risk" investment because we haven't defaulted on the US debt, ever.
OTOH, the Debt to GDP ratio has just shot up to 136% of GDP because of Covid relief.
We were at 55% Debt/GDP ratio in 2000, then to 100% by 2016 because of the Middle East wars and financial crisis and Bush/Obama spending. Trump tax cuts and deficits added another 7% in a strongly growing economy, right before Covid. But Covid relief and the recession has put our debt ratio at 136%, well into Italian territory.
At some point, the markets will take notice, no matter how "risk free" US treasuries have been up until now. We cannot keep spending like this forever.
https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287
Okay, so we rely on future generations being able to borrow money just as cheaply as we can now because there's no risk of us defaulting on our debt. That makes sense, thank you!
Thinking big is fun! Alas, though, then this site will have to change its name and to acquire a new non-Weber aphorism: "Politics is the fast boring through gossamer-thin membranes of imagination."
For the last several years I used Simple as a bank. They were a startup focused on just a really good checking account experience. They had 100k~ accounts and they only had like 300 employees, mostly customer support staff.
They didn't have any fees, and the interest wasn't great, but they focused on just making the experience of online banking as pleasant as possible. I feel like they're a pretty good showcase that nowadays you don't need a bajillion dollars and lots of specialists to make a decent banking experience if you decide to avoid stuff like car/home lending and whatnot.
"I think the Fed accounts should pay no interest and offer no services beyond basic deposits, payments, and ATM withdrawals."
That menu of services is going to have to be expanded. At least to include a button for substack subscriptions.
This is a bad idea on so many levels.
First, I strongly oppose the push towards a cashless society. There's a lot of benefit to financial anonymity. Let's look at a couple of scenario's
1. Maybe you are visiting a store that you don't want our corporate overlords (or your wife) knowing you visited.
2. Maybe you live in the many states where cannabis is still illegal and you partake.
3. Maybe you are an undocumented immigrant and need to be paid under the table.
4. Or maybe you just don't like the idea of your entire financial life being tracked.
Moreover, say we give all these unbanked people bank accounts. What happens when they start bouncing checks? Do you hit them with fees, do you take away the bank account, or does the US treasury just start covering all those bounced checks.
This is just a REALLY bad idea
I have to admit I instinctively hate the idea of a cashless society, especially due to privacy issues.
Still I think that Matt's proposal would help a lot of people. Would prefer if it were combined with a law requiring all physical retail establishments to accept cash.
No part of this proposal takes cash out of the picture. He says there will be ATMs, for heavens sake. You want cash, you go to the Post Office and use their ATM to get some bills, and then you take them to the store.
What's wrong with pre-paid credit cards (with cash) in this scenario? I understand people might want certain transactions unlogged in the financial system, but it does not automatically follow that these transactions should be as easy as all others. It also does not follow that giving everyone a bank account will automatically grease the skids for a cashless society- being able to pay people, have a safe storage for funds, and have access those funds almost anywhere at no customer cost provides a ton of benefit all on their own.
Sounds good, except that I'd add ITINs (tax numbers for people without SSNs). A lot of the unbanked are undocumented immigrants.
Heya, have huge fan of this basic idea for years: universal gov-provided checking accts.
Just to say it's not quite as easy as it seems. "Give people a debit card and ACH access, problem solved."
Two key examples: chargebacks, and legal garnishment/attachment of account balances. Both require a significant administrative and adjudication bureaucracy. May seem like edge cases, but they necessarily implicate all accounts. It's the hardest thing that Visa, for instance, does.
Also, aside: there's no need to even mention digital/electronic "currency." Your checking balances are digital currency. Nobody needs to hear that to understand how a checking account works. It's just a completely separate wonky issue (Bitcoin: run screaming) that clouds the waters.
Honestly the main practical obstacle I see is that government IT security is so horrifically bad that every single account number would be public within a year or so. The states paid out paid tens of billions in fraudulent payments last year since they were so easy to hack.
Very thought-provoking and worth discussing. Here are the main concerns I have, top of mind...
-If the biggest obstacle to this plan is bank lobbyists, why would we let bank lobbyists stop us from passing a law requiring banks to offer no fee checking to everyone? Certainly banks would prefer to be in the game than not.
-You did not address the other huge driver of the unbanked- deep, historic mistrust of financial institutions. I do not think people would suddenly be more trusting of an invisible bank account just because it is run by the Fed.
-The ability to make money magically appear in people's checking accounts at any moment would likely lead to more demands for money to be distributed. As a liberal, I'm not as averse to this as most conservatives would be, but I can also see where this could be the first step in a huge increase in entitlements.
All that being said, I still think it's interesting and could have more upside than down!