WI: Massive Postal Bank Expansion During Depression

kernals12

Banned
I already posted a thread about the Chicago Plan and am now going to discuss another widely proposed depression era banking reform. Starting in 1911, the US Post Office had a service called Postal Savings that offered banking services. It was popular with immigrants who had similar systems in their home countries. During the Depression, it was inundated by depositors who wanted a bank that was not going to fail since all its assets were in the form of treasury bonds. But, Postal Savings was limited. It did not offer checking accounts and it had an account limit of $2500. This was due to the lobbying by banks. They were happy with the government giving bank accounts to the working classes, who were deemed unprofitable.

So, it seems like a simple change would be to just have the Post Office be authorized to offer checking accounts and have no limits to its deposit sizes. No FDIC or Glass Steagall.
 
They were happy with the government giving bank accounts to the working classes, who were deemed unprofitable.
Working class? A quick search has it having a deposit limit of $500 when it was set up in 1911, increasing to $1,000 in 1916, and finishing as $2,500 in 1918. Looking at the Federal Reserve site it gives modern day values of roughly $12,600, 23,000, and $41,600 respectively.
 
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kernals12

Banned
Working class? A quick search has it having a deposit limit of $500 when it was set up in 1911, increasing to $1,000 in 1916, and finishing as $2,500 in 1918. Looking at the Federal Reserve site it gives modern day values of roughly $12,600, 23,000, and $41,600 respectively.
Ok maybe not working class, but pretty small. Only 1/3 of total bank deposits in 1933 were held in accounts with less than $2500. And remember, this was long before the computer age. Bank accounts had to be maintained by hand.
 

kernals12

Banned
I think this would probably be the best way to do the Chicago plan. The Post Office would be allowed to hold accounts with more than $2500 and offer checking services, while all private banks that offer demand deposits could only hold treasuries. Given the post office's convenience, economies of scale, and the guarantee provided by the Federal Government, they probably would've gotten over 90% of the business.
The transition could work like so:
People would close out their old bank accounts and deposit at the post office
The post office would hold the money at the Federal Reserve (who would start paying interest on reserves)
The Federal Reserve would use the money to issue discount window loans to banks that don't have enough liquidity to meet their demand for withdrawals
At the end of this process, the Fed would have a massive balance sheet consisting mostly of postal deposits on the liability side and most of the nation's commercial loans on the asset side. Also, with FDR's gold confiscation and revaluation, they would have the same increase in gold assets with a corresponding rise in liabilities.
The Fed would then proceed to sell its discount loans with the goal of instead holding treasury bonds
Lending companies would now be created. They would be funded by stock and would buy up banks who would then use the money to pay off their loans from the Fed.
There wasn't enough government debt outstanding in the 1930s to back all bank deposits, so the government would need to run larger budget deficits, which is a good problem to have.

Once this was all over, our banking system would be completely safe from any crises and the government would get far more seignorage revenue.
 

kernals12

Banned
This would also pave the way for America to have a Postal Giro system. Forcing Americans to wait days for their checks to clear, and charging fees for that inconvenience, is one of the greatest conspiracies perpetrated against the public in human history.
 
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