The Chicago Plan: A More Ambitious New Deal

Yep, you're being deliberately obtuse.

No, you don't understand how banking works. Even if they used government money to pay the interest, that doesn't pay THEIR expenses. It takes money to pay the cashiers, it takes money to buy bigger vaults, it takes money to hire guards, it takes money to hire accountants to keep track of all that money.

All these expenses could be cut by not allowing deposits. You don't need as many cashiers if you don't have depositors, you don't need to buy more or bigger vaults, you don't need as many guards if you don't have as much cash and you don't have to pay accountants to keep track of non-existent money. Without the ability to lend out the money it is a liability, not an asset. All you have is the storage expense for no benefit. All the money you are loaning out is now coming from payments of past loans and possibly loans from the Fed.

Under that banking system, the smartest thing to do is cut the branches by at least half and just loan people money. You might allow deposits from big corporations so that they borrow their money from you but that is about it.
 

kernals12

Banned
No, you don't understand how banking works. Even if they used government money to pay the interest, that doesn't pay THEIR expenses. It takes money to pay the cashiers, it takes money to buy bigger vaults, it takes money to hire guards, it takes money to hire accountants to keep track of all that money.

All these expenses could be cut by not allowing deposits. You don't need as many cashiers if you don't have depositors, you don't need to buy more or bigger vaults, you don't need as many guards if you don't have as much cash and you don't have to pay accountants to keep track of non-existent money. Without the ability to lend out the money it is a liability, not an asset. All you have is the storage expense for no benefit. All the money you are loaning out is now coming from payments of past loans and possibly loans from the Fed.

Under that banking system, the smartest thing to do is cut the branches by at least half and just loan people money. You might allow deposits from big corporations so that they borrow their money from you but that is about it.
Okay, so maybe checking accounts won't pay interest, well guess what? They were banned from paying interest IOTL from 1933 until 2011. It was believed that the competition for depositers amongst banks had resulted in speculative lending. So that's not a big deal.
 
Okay, so maybe checking accounts won't pay interest, well guess what? They were banned from paying interest IOTL from 1933 until 2011. It was believed that the competition for depositers amongst banks had resulted in speculative lending. So that's not a big deal.

It isn't that they won't pay interest, it is that they won't exist at all unless you want to spend a lot of money. You won't have to just pay for the checks, you would have to pay have checking AT ALL. Either that or the price of checks would be sky-high. The big money for banks is loaning out their depositors money. They take in $100 from you and pay 2% for it and loan out at least $90 of it at 5% or more. THAT is where they make their money and if they don't make their money there, it has to make the money from somewhere else.

A big chunk of that would be charging a lot for the now useless (for the banks) checking accounts. To afford the expense of allowing you to write checks they have to charge a lot for the checks. There are accounting expenses, processing expenses, mailing expenses, etc. Those bills have to be paid and if they aren't being paid by loaning out money it is being paid by charging large amounts of money for the checks themselves. Expect the price of checks to at least quadruple.
 
No, you don't understand how banking works. Even if they used government money to pay the interest, that doesn't pay THEIR expenses.
Um, yes it does. They just pay less interest to the customer than they get from the federal bonds and take the difference. Haven't you noticed that only a tiny handful of savings or checking accounts pay more than the federal T-Bill rate? That's not an accident...

You seem to be treating bank interest rates as though they're fixed facts of nature, and a bank is going to pay some rate or nothing, with no in-between. That isn't the case, which is what we've seen in the real world.

It isn't that they won't pay interest, it is that they won't exist at all unless you want to spend a lot of money. You won't have to just pay for the checks, you would have to pay have checking AT ALL. Either that or the price of checks would be sky-high. The big money for banks is loaning out their depositors money. They take in $100 from you and pay 2% for it and loan out at least $90 of it at 5% or more. THAT is where they make their money and if they don't make their money there, it has to make the money from somewhere else.
There are very, very few banks that pay 2% on savings accounts nowadays. Me thinks you need to look at numbers from the current century, where banks like Wells or Bank of America pay rates like 0.1% on savings accounts. This is pretty much exactly what would happen with 100% deposit insurance--interest rates would go to a low number so that the remaining 1-2% or whatever on T-Bills pays the bank for all the things you named.

Oh, and of course most checking accounts aren't free. Especially at the big banks. You do have to pay to have checking, or in many cases checks, despite there being less than 100% deposit requirements. Basically, what you're doing is...describing what banking actually looks like nowadays. That...doesn't seem so terrible?
 
Um, yes it does. They just pay less interest to the customer than they get from the federal bonds and take the difference. Haven't you noticed that only a tiny handful of savings or checking accounts pay more than the federal T-Bill rate? That's not an accident...

You seem to be treating bank interest rates as though they're fixed facts of nature, and a bank is going to pay some rate or nothing, with no in-between. That isn't the case, which is what we've seen in the real world.


There are very, very few banks that pay 2% on savings accounts nowadays. Me thinks you need to look at numbers from the current century, where banks like Wells or Bank of America pay rates like 0.1% on savings accounts. This is pretty much exactly what would happen with 100% deposit insurance--interest rates would go to a low number so that the remaining 1-2% or whatever on T-Bills pays the bank for all the things you named.

Oh, and of course most checking accounts aren't free. Especially at the big banks. You do have to pay to have checking, or in many cases checks, despite there being less than 100% deposit requirements. Basically, what you're doing is...describing what banking actually looks like nowadays. That...doesn't seem so terrible?

The money isn't being used 1 for 1. They take $1 from you and loan over 90 cents of it to other people of which the government is just a small part. THAT is where they make their money.

I was making examples not setting it in stone. Yes, interest rates vary, greatly over time. Back in the late 70's early 80s it was in double digits! That wasn't the point. The point is that banks make most of their money loaning their depositors money , not their own.

Again the interest rates were examples, the interest rates right now are very low by historic standards. Back in the 70s passbooks savings paid over 5% at times.

Part of the reasons for all these charges is again interest rates are very low by historic standards so banks have to raise cash other ways. Yes, you have to pay for checks right now. I do have a checking account you know. My point is that the price would go way up. I said the price would quadruple. That implies there is a price. Four times zero is zero after all.
 
That is a rather remarkable bit of semantics.

How so? Unless the law states directly that the interest goes to the depositors the banks will keep it. Considering how little to Feds pay in interests and how much money it costs the banks to keep track of nickel and dime accounts they would be lucky to break even. Remember, this is the time before computers. They have to pay the cashiers, they have to pay rent, they have to pay money for accountants to keep track of all the money, they have to pay money for deposit and withdrawal slips, they have to pay money to process such slips and they aren't even allowed to lend OPM except to the Feds.

It is a losing proposition for the bank even with the interest payments from the government. Joe sixpack and his $10 deposits are not going to be money makers if the banks are limited to US treasuries. It just won't. If they have to give that money to the depositers they completely lose their shirts. Under this system, there is zero reasons, none, for the banks to take deposits from Joe Sixpack even if they keep the tiny government interest.

The government pays practically nothing and small time deposits are relatively expensive to keep track of. It takes roughly the same amount of money to keep track of $10 as $10,0000. After all, they are just accounting entries.
 
The impact of this need not be disruptive. Banks could still make loans out of cash provided by the Federal Reserve and with enough Government spending on public works, the economy would still recover from the Depression.

In which case the Federal Reserve is on the hook for everything. If the Fed has to print cash to cover bad loans you will likely have hyperinflation. In any case, you can forget Joe Sixpack having a checking or savings account, that will be reserved for big corporations and the rich. The general public will have to resort to burying money in tin cans or something because the banks don't want it. It is an expense, not an asset to them.
 
Branch banking was also legalized, overriding the laws in most states that banned banks from having more than one office.
...to open thousands of branches across the country that would offer time deposits and sell loans.
AIUI, branches across the U.S. were illegal for all banks, due to an opposition to national banks. Has that changed? Or have I misunderstood the OTL state of play?
Savings accounts now required a one week notice of withdrawal.
That sounds unworkable. Lots of people don't keep lots of cash at hand, & lots can't risk it (for the chance of being robbed). Not to mention the sudden need situation.

I can believe a week's notice to close the account, or withdraw all the money in it.
Large industrial concerns such as General Motors, Internation Harvester, Westinghouse, and IBM purchased banks to provide in-house credit facilities to their customers.
GM Finance existed before this, IIRC, & had already drawn complaints from banks for offering financial services (loans). Why do banks go along with what looks worse?
2009- The Postal Bank launched its first mobile app, allowing payments by smartphone
If you do it right, you can more/less eliminate bank branches completely.:eek: (Cf Kenya.)
Yep, you're being deliberately obtuse.
No, he's not. The bank has bought the T-bond, not the customer, therefore the bank collects any interest.

Moreover, since (unless I'm mistaken) T-bonds aren't immune from taxes on purchase &/or redemption, & on any profit, the amount paid to the bank is less than the interest rate face value.

Is it possible to guarantee 100% of deposits? It might be, if banks are required to have assets of equal value to cover all deposits. That doesn't mean cash on hand, & AIUI, it means loans can still be made. (I acknowledge I'm a bit unclear if they can.)
 
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No, he's not. The bank has bought the T-bond, not the customer, therefore the bank collects any interest.
Exactly, they take the customers deposits to buy US treasuries. Those bonds belong to the bank, not the customer. Banks make money by loaning out. If they can't keep the interest on the US treasuries why the hell take deposits at all? As is they would be losing money with Joe Sixpack. My guess is that they would not only keep the interest on US treasuries but charge Joe Sixpack for keeping his money safely in the bank.

Moreover, since (unless I'm mistaken) T-bonds aren't immune from taxes on purchase &/or redemption, & on any profit, the amount paid to the bank is less than the interest rate face value.
The purchase is tax-free the interest is not.

Is it possible to guarantee 100% of deposits? It might be, if banks are required to have assets of equal value to cover all deposits. That doesn't mean cash on hand, & AIUI, it means loans can still be made. (I acknowledge I'm a bit unclear if they can.)

Outside of low-interest US treasuries the only money the banks would have to lend out is money coming in from past loans or any profit they made on any investments.
The US economy instantly freezes up as the number of loans plunge.

It seems a lot of people here don't understand how banking works. They make their money by loaning OPM. If they can't do that they have to make it up in other ways like charging for deposits, charging much more for their checks and drastically cutting back on lending.
 
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