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naraburns  nihil supernum  1yr ago (text post)   31649 thread views

Culture War Roundup for the week of December 5, 2022

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Long time motteizen, new pseudonym for extra privacy.

Some friends and I are launching a new anonymous group blog: https://www.theprotocols.net/ Many of us have interesting culture-war related takes that we post on forums like these, or on our group chats, but we felt like we needed a place to more permanently publish things that deserved a wider audience. Subscribe via ye olde email or RSS to see posts as they come out.

Our first post is "Regulated Banks Are Just Stealing Your Money Slowly". Here is the TLDR:

In the wake of yet another crypto scam blowing up, smug commenters are shaking their heads and saying: “This disaster is the consequence of jettisoning 100-years of regulatory progress. Traditional FDIC insured banks have never lost customer funds this way, not even in the 2008 crash.”

...Newsflash: FDIC insured banks are stealing your money. They do it very slowly, but the total amount is very significant.

Well, to be more accurate, it is the government stealing your money, not the banks. Actually, to be more accurate, it is impossible to pin down who exactly is stealing your money, because banks should be seen as arms of the state, and the state is the arm of an ecosystem of elites and elite clients, and the entire thing has grown fiendishly complex because it is in everyones interest to allow it to be complex. In fact, the real bandit may be your neighbor who bought a million dollar home with a 30-year, 2% interest rate loan. Or maybe the thief is your friend who cashed out on Apple stock after Apple funded a stock buyback with a loan at 1% interest. (Don’t go screaming at your friend – hate the game not the player).

Complaints about the “banks” or “guvmint” stealing money via inflation are very old and are often seen as the ravings of cranks – but I don’t think many people appreciate how bad the problem has become in the last two decades. Let us go through the numbers, courtesy of the St. Louis Fed. Well, to be more accurate, it is the government stealing your money, not the banks. Actually, to be more accurate, it is impossible to pin down who exactly is stealing your money, because banks should be seen as arms of the state, and the state is the arm of an ecosystem of elites and elite clients, and the entire thing has grown fiendishly complex because it is in everyones interest to allow it to be complex. In fact, the real bandit may be your neighbor who bought a million dollar home with a 30-year, 2% interest rate loan. Or maybe the thief is your friend who cashed out on Apple stock after Apple funded a stock buyback with a loan at 1% interest. (Don’t go screaming at your friend – hate the game not the player).

...We start with a simple yeoman saver who wants to exchange present labor for some sort of medium-of-saving...So he does the simplest thing: he puts his money in a 3-month certificate of deposit at his local regulated, FDIC insured, plain vanilla bank and continually rolls it over. No default risk, no interest rate risk.

If our yeoman made a deposit in 2002, according to Fed data, his account would have gained a total of 36% over the last twenty years thanks to the the interest paid out. But during that time the Consumer Price Index rose 68%! In 20 years, our yeoman would have lost 19% of his purchasing power! Actually it’s worse than that. The amount his money was diluted is actually more than CPI inflation, but since economic productivity increased, his effective purchasing power was not decreased by the full amount of the dilution....

The distinction between monetary dilution and CPI inflation is ignored in most college economic courses, but it is very important. Think of it this way: Imagine I buy a stock in a boring, stable company. A share of the stock happens to have the same price as ten 50” TVs. Over 20 years, the CEO and the board fraudulently and secretly dilute the stock by 50%, making my shares 50% less valuable. So if productivity had stayed constant, my shares would lose half their purchasing power, only being tradable for 5 TVs instead of 10. However, productivity did not stay constant, Chinese factory workers have made it 40% more efficient to buy TVs. Thus one share can now buy seven 50” TVs. My ability to turn my shares into the real good of a TV only decreased by 30%. Now given all this is it fair for the CEO to say, “hey, I only diluted you by 30%, not 50%!” Or, consider if TV factory productivity had doubled, and thus my purchasing power held constant, would it be fair for the CEO to say, “I didn’t steal from you at all, since you can still buy the same number of TVs with your share of stock.” No and no. The dilution is a completely separate issue from the price of tea (or TV’s) in China.

When we look at National Income change over the last 20 years, we see that our simple account owner lost 40% of his money. That’s not quite an FTX-level scam, but that is pretty serious theft.

We could also look at the performance of our yeoman saver’s bank deposits versus holding assets that are much harder to dilute – such as gold or silver. This shows us our depositor lost 50% to 60% of his savings. We could also compare against alternative investments, such as the S&P 500 ETF or real estate. Here is the full chart:

Purchasing-power-lost.png

No matter how you look at it, our yeoman saver has been jobbed. Even if he chooses a modestly longer duration for his store of value, such as a 3-year U.S. Treasury, our saver loses 12% relative to CPI and 35% relative to monetary dilution.

In order to simply stay in place, he must make a risky investment. Our saver could get a higher interest rate by purchasing a long-term bond. But that introduces large interest rate risks. Our depositor who bought a 30-year bond last year when interest rates were historically low would have just lost 30% of his money.

Now hopefully you see why we live in the golden age of asset bubbles. By default, if you put your money in the stodgy, regulated bank, you will lose your money via dilution. So everyone is looking for a place simply to stash their money that won’t get diluted. All the savings in the world sloshes around chasing some asset that can hold value. As any given asset becomes popular it shoots up in bubble, with the greedy and the scammers piling on too. Even the prudent investor cannot discern what asset is in a bubble, and what asset is properly priced. Is Silicon Valley real estate currently in a bubble? Or is it properly priced based on expectations in the next 20 years of lower interest rates and more monetary dilution? Is the stock market over-valued based on a long-term analysis of P/E ratio? Or is this the new normal based on a government that will inflate and lower interest rates in order to “make number go up”?

So here is our plea to any political influencer who thinks the answer to banking crises and crypto crises is just moar regulation: the number one priority should be ensuring the average person has a place where they can simply deposit their money and not have it diluted or inflated away. As long as the default state is to lose much of your money, people will be seeking a riskier, higher-yielding outlet – whether that be the type of money market accounts that crashed in 2008 or a “Nyan Cat” NFT....

To any reader who just wants to save for retirement – well, we don’t want to give financial advice because we would feel bad if we reverse our view next month and forget to tell you. And are you really going to trust a brand-new anonymous zine for investing tips? We can tell you that we here at Protocol have our own internal debates between bitcoin maximalists and those who believe in more diversification. Generally, we have our own net worth spread out among: short-term U.S. treasuries, dividend paying stocks, American and international equity index funds, gold, bitcoin, Urbit stars, our own startups, and our own homes. “Crypto” is bad, bitcoin is great, but do learn how to self-custody.

Myself (and the author of the post through this account) will be happy to answer any questions or respond to comments about this post.

Also, we are open to publishing guest blog posts if you have something you need to get off your chest and want to publish anonymously to the web. You can DM me here or email the contact address on the web site. Cheers!

EDIT: Looks like I did a really poor job of making a TLDR for the original post. I've added a bit more context, but I advise clicking through and reading the whole thing before leaving a comment.

Whenever interest rates are lower than the rate of inflation or monetary dilution, the incentive will always be to load up on debt and purchase assets that can appreciate – whether that be Brooklyn brownstones or Dogecoin.

Yes, but even if the value of the brownstone decreases, you still have a brownstone. Where as crypto markets are speculation absent any underlying asset. And it’s even a bit unfair to call it currency speculation at present, given how few transactions are conducted with it.

What U.S. currency and the regulated banking system has behind it is the U.S. state. Whereas crypto has hopes, dreams, and Bahamian bucket shops.

I find that I'm somewhat confused by who the advice is targeted at. If the typical yeoman saver is supposed to be someone that never accrues any significant net worth, it's fairly irrelevant whether their $5K in savings does more poorly than some other store of wealth over time. If, instead, we're talking about people accumulating fairly high net worth, I think you'll find that they already store most of their wealth elsewhere. The most obvious categories of wealth store are in their personal homes and in retirement funds, which I would wager is where people with six-figure (but not seven-figure) net worth tend to have the majority of net worth. For people with seven-figure net worth, they will (I think) tend to have business assets, property assets, and diversified paper asset portfolios.

Is there actually some significant subset of people that stores large percentages of their high net worth in banks?

Is there actually some significant subset of people that stores large percentages of their high net worth in banks?

Fewer and fewer because people have caught on that their money will be diluted away if left in banks. Thus, they pursue much more volatile assets like homes, stock portfolios and long-term bonds. This is a problem because when everyone is piling into these assets simply to escape dilution it becomes very hard to tell what is a bubble and what is not. Stocks have been at historically high P/E ratios. So are they in a bubble? Or is it the new normal.

Also, retirees close to retirement generally move to a more bond heavy portfolio, or at least this was the traditional advice. But if you put your money in Vanguard's retiree fund -- https://investor.vanguard.com/investment-products/mutual-funds/profile/vasix#price -- you would have lost considerably to inflation or to alternative stores of value in the last 10 years of artificially low interest rates and high inflation.

Maybe you can invite this woman to write a guest post.

Why do you think savers deserve risks free high return investment products or that any “government” agency is stealing from people.

People can invest in the real economy. If the real economy is offering few investment possibilities that are high return then banks won’t be able to pay a high interest rate and reinvest profitably

Being that traditional banks haven’t crushed it lately why do you think not just lack of investment opportunities.

Honestly I think you just don’t understand banking or interest rates. The fed doesn’t control real rates.

The fed doesn’t control real rates.

We despise the term "real" rate is as in plain English the "real" rate is the rate a person sees at the bank, the number that economists call the "real rate" is the rate adjusted by the price of a basket of goods in en enormously complex calculation filled with arbitrary and subjective decisions. But going with your term "real rate", this is a function of the nominal rate and the CPI, so no the fed does not control the CPI, although their actions do influence it as cheap money can in circumstances , nobody sets the CPI exactly, but the Fed does set the nominal rate, and when they set the nominal rate below the rate of monetary dilution, that is really bad for ordinary savers.

Why do you think savers deserve risks free high return investment products or that any “government” agency is stealing from people.

Savers deserve simply to keep their money and not have it diluted away. We don't demand that they be able to keep up with the stock market, but they shouldn't be losing ground relative to everything. Did you click through and see the image that was linked? This one: https://www.theprotocols.net/attachments/post-3---6-y9m_NavZtJ5NLIGpnLv8HfGVg/Purchasing-power-lost.png

Then why don’t they just invest in lumber or whichever product you find that a savings account has underperformed?

Money is a fake thing. There’s nothing stopping people from investing in real things. Banks can’t make money borrowing at rates that are above their returns.

The globe is aging which means theirs more people that want spending power in decades and fewer people who want to spend today. This causes rates to fall.

People can buy gold or oil and pay storage costs. No one is forced to to invest in cash. Everyone can invest in real things to avoid your issues with negative returns in cash. In fact I have negative cash positions.

The issue your presenting is more people want risk less high return assets than people who provide high return low risks investments. And the banking system can’t create an asset that doesn’t exists in the real world.

But again the fed doesn’t set the nominal interest rate for more than a few months. If they tried to set it too high then borrowers would quit borrowing and banks would reject deposits due to lack of investment options.

Right. I’m pretty sure they covered the “risk free” option in Econ 101, and it’s stashing one’s money under the mattress. Why should the government subsidize that asset instead of consumer spending or investing in capital? If there’s a reason, it’s not because of memecoins.

Why do you think savers deserve risks free high return investment products or that any “government” agency is stealing from people.

because bankers hate savers

Highly competitive business with no barriers to entry. Bankers don’t have much power over what they lend at and what they borrow at.

Cash, properly invested, is not guaranteed to lose to inflation. https://portfoliocharts.com/2017/05/12/understanding-cash-will-make-you-a-better-and-happier-investor/

Additionally, cash as a position in a portfolio has done better than risk assets for this calendar year.

Cash can be fine in times and places where government has handled currency dilution and interest rates responsibly. The United States since 2002 has not been such a place, which is the point of the post.

The United States since 1933 has not been such a place.

Congrats on founding your blog, I wish you and your companions well.

The problem with the theory that there is anywhere better to put your money than a bank is that you have to spend money to secure it. A significant lump of gold doesn't hold its value for you over time. The gold itself holds its value, but not for you. You have to guard it, you might lose it. If you lose it, you lose it all.

If you don't guard it, you risk theft and total loss. Your hypothetical yeoman saver is going to have, what, let's say $10,000.00. So he buys 5 ounces of gold. He can choose to keep it on him, like a pimp, but if he gets mugged there goes his life savings. Ditto keeping it at home, he better not get burgled when he isn't at home, better make sure no one ever finds out you're a goldbug. So while any single hypothetical yeoman farmer might get lucky and hang onto his retirement savings throughout his life, we should discount the value of physical savings like gold and silver by the odds of theft of that gold in the course of that 20 years. Of course, your level of personal security varies with who you are as a person. You might be big, tough, and live in a town where everybody knows you and either likes you well enough to protect you or knows that too many others like you too much to risk messing with you. But the unbanked small, weak, the stranger, the unloved, those who the police aren't interested in protecting, they can't carry their wealth with them; without banking they pretty much just never accumulate much mobile wealth at all in a modern and disconnected world.

The alternative in non-financial/banking investments in something concrete and productive like land. But land must be worked to give produce. Either by the owner or by a tenant. Any landlord will tell you, good tenant's are hard to find. Worth their weight in gold. The tenant who does his own repairs, pays his own costs, pays his rent on time, is rare. So if you want to invest in land, you're paying the costs (either by labor or by percentage) every year you own it. In cultures that are built around those kinds of leases, the costs are lower. But we don't live in those cultures.

I won't even countenance the idea of investing directly in a small business in this day and age. The risk of total loss without an owner putting blood, sweat, and tears into the business is basically 100%; even with that it's pretty high over 20 years.

So we probably need to start with eliminating the cash economy, the lack of connection and community among atomized individuals. But failing that, you're gonna need a bank.

Bitcoin does not cost anything to store, though you do have to spend some time learning how to self-custody securely. It's a lot easier than it was ten years ago, very low risk of losing your keys or having them stolen if you do it well.

Storage costs of gold are overblown. You can fit a million dollars of gold in a standard $70 a year safe deposit box. GoldMoney.com or BullionVault.com will store it for you with high security for 0.1% a year -- so that is a 2% loss over 20 years. That is far less than the numbers cited in the article for the monetary dilution losses from holding cash in a bank.

very low risk of losing your keys or having them stolen if you do it well.

Unless someone knows that in your brain is the key to $100,000 of untraceable, irrecoverable currency, in which case a 9mm held to your knee is sort of a universal key. With crypto transactions being, ideally, irreversible and untraceable, it's much riskier than gold coins because you can't even catch the guy with the gold. Alternatively, if crypto transactions are traceable and reversible, you are at the mercy of the government system, they can confiscate your money without even sending out the goon squad.

You have me on the safe deposit box, but I'm not sure I'd really trust a storage company with a significant fraction of my net worth. My bank can't fiddle with the numbers, I can show my math and my records. What do you do if your gold comes out lighter. Probably paranoia, I'm not sure that any of that is accurate, just vibes.

Unfortunately safe deposit boxes are steadily disappearing as a bank service across the US. And they're not exactly safe from Government intervention either.

Unless someone knows that in your brain is the key to $100,000 of untraceable, irrecoverable currency, in which case a 9mm held to your knee is sort of a universal key.

Do not tell anyone who much crypto you have. For a wrench attack, the thief would have to know how much you have, otherwise you just open up a side wallet and only give them a small portion of your funds. Also, you can use multisig or split up your seed so that you literally could not give an attacker your keys on the spot even if you wanted to.

But yeah, given a high enough rate of crime, nothing is safe, kidnapping loved ones is always a risk, no matter what form of wealth you hold.

You have me on the safe deposit box, but I'm not sure I'd really trust a storage company with a significant fraction of my net worth.

Safe deposit boxes aren't perfect as bank customer service has declined. There are horror stories about banks shutting down a branch and not properly notifying customers and the deposit boxes ending up in limbo somewhere.

Do not tell anyone who much crypto you have.

Which is practical, as long as Crypto is an extremely marginal aspect of both the world economy and your personal net worth, or you live as a kind of digital nomad cyberpunk gray man. But it rather precludes it as a primary store of value for settled individuals and communities as a whole. If we ever reached a point where most wealth was stored through crypto, you would just have to target random rich people.

Even if you assume there's no risk, though, the loss to inflation is still there. Even if I don't secure my cash an no one steals it, it's still going to lose value even compared to the modest return a savings account or CD would offer me. Investing in gold is just another commodity subject to the normal swings of commodity markets—it may prove to be a good investment, it may not be.

Gold doesn't inflate, it fluctuates. At least until we can rip atoms apart and rearrange them.

Mining increases the global gold supply by 2% every year.

I wonder how much is lost per year from accidents, caching/hoarding, wear, etc. The best figure I can get for wear is silver coins losing 5% weight over a lifetime.

Probably much less of an issue these days: nobody's sunk any spanish treasure ships lately, and fewer people are burying valuables to hide them from raiders. Plus more gold gets kept in bar form rather than being periodically switched between plates/ornaments and coinage, with whatever losses are involved.

Long time motteizen, new pseudonym for extra privacy.

I am very curious about this. What is it about a theory that banks are "stealing" your money via inflation that makes you feel the need for extra anonymity? And I too have noted your username and domain name. Would you be willing to explain how you chose it, and why you and your friends are being so mysterious?

We are going to have more spicy posts in the future on all the hot button issues -- race, sex, etc -- of the kind that might attract doxxing and cancellation mobs. The name "protocol" comes from the original definition: "Protocol" -- "1. The first leaf glued to the rolls of papyrus and the notarial documents, on which the date was written 2. The original copy of any writing, as of a deed, treaty, dispatch, or other instrument." So we had the idea of a very sparse web site with a simple dispatch and a date in the upper corner (a million satoshis to anyone who can figure out what system the date is using). But "protocol" also has the association with modern tech stuff. And yes, there is the hint of edginess due to the association with a forged document from a long time ago, though we don't plan on writing much or anything about that kind of topic.

forged document

Allegedly forged, that is.

It's an obvious reference to the Protocols of the Elders of Zion; you best ban him before he posts an anti-Semitism.

That wasn't the first reference that came to my mind, I was thinking of "protocols" as something along these lines.

So perhaps it was "obvious" to you but not to me. This is the same problem around racism, sexism, transphobia, anti-Semitism, etc; someone says "that statement was an obvious dog-whistle, ban them!" but other people don't see what it is supposed to be whistling about until it's explained to them.

So is there really hidden bad intent, or is it just something the observer imagined was there?

Your sarcasm is noted. So let me spell it out for you: people are allowed to be "anti-Semitic" so long as they can stay within the boundaries of the rules (which people who want to pull out the Protocols and the full ZOG manifesto are rarely able to do). But we do require speaking plainly, and this looks and smells like someone either trolling or trying to "hide their power level."

If the OP actually comes clean and is honest and straightforward about their agenda, they'll get more slack than if they think being clever about it means they can slip stuff in.

You’re probably aware that an anti-Semitism, even several of them, is not cause for a ban here.

I don’t imagine Amadan is confused about the reference. I too would like to know what the OP is hoping to gain by hiding his power level.

I feel like a key issue in the "theft" metaphor is a distinction between the literal property (some number of dollars) and what that property can be exchanged for (its purchasing power). The "theft" that happens due to inflation does not actually entail taking any of my literal property, just a decrease in what that property can be exchanged for. The "theft" accomplished by FTX and other crypto exchanges involves the taking of actual property. The same logic that says inflation is "theft" to people who save currency would suggest it is "theft" from homeowners when the Federal Reserve raises interest rates and causes home prices to fall or that Elon Musk "steals" from $TSLA owners when his own sales decrease the price of the stock.

That aside, I also don't see how the conclusion follows from the premises or arguments. "We shouldn't put more regulations on cryptocurrency or banks because consumers don't have a risk-free way to preserve their purchasing power over some time horizon" is how I would summarize that final paragraph in the quote (and penultimate paragraph in the article). I just don't see how the argument connects to the conclusion.

Dilution is a form of theft. If, Musk, without his shareholders knowledge or consent, printed entirely new shares of Tesla and gave them to himself or his cronies, this would be theft, even if the price of shares actually rose during that period due to other factors. Tesla shares rising or falling is not theft.

"We shouldn't put more regulations on cryptocurrency or banks because consumers don't have a risk-free way to preserve their purchasing power over some time horizon"

Some amount of well-thought out regulation is fine. My point is that demand for scams and get-rich-quick schemes will exceed state capacity to police them as long as people must find an alternative to simple savings deposits in order to simply preserve purchasing power for retirement.

Dilution is a form of theft. If, Musk, without his shareholders knowledge or consent, printed entirely new shares of Tesla and gave them to himself or his cronies, this would be theft,

Not if that was legal for him to do it is not. If so, then anyone buying shares should have priced in the chance of further shares being issued in to how much they valued the shares at when they purchased them. In that case they have implicitly consented to Musk creating more shares in buying the shares in the first place.

The dilution itself then is not theft, only if done illegally or in breach of a contract. At which point that is the issue not the dilution in and of itself. Better to rephrase it to say that Dilution can in some cases be similar to theft, if carried out illegally.

Taking something from someone isn't in and of itself theft either. It entirely depends on the circumstances.

Not if that was legal for him to do it is not.

That's... a bit like saying "primae noctis" wouldn't be rape. Technically correct, I suppose.

The best kind of correct. If we want to argue that it is morally wrong, that is absolutely fine, and arguably correct in both cases, but then we should take care to use terms appropriately.

We could say:" If, Musk, without his shareholders knowledge or consent, printed entirely new shares of Tesla and gave them to himself or his cronies, this would be morally wrong and comparable in outcome to theft."

or "If, Musk, without his shareholders knowledge or consent, in breach of the law, printed entirely new shares of Tesla and gave them to himself or his cronies, this would be theft"

then those are both plausibly correct.

Dilution is a form of theft. If, Musk, without his shareholders knowledge or consent, printed entirely new shares of Tesla and gave them to himself or his cronies, this would be theft, even if the price of shares actually rose during that period due to other factors. Tesla shares rising or falling is not theft.

I continue to be confused. So the theft is not the loss of purchasing power of the dollars, but the literal printing of dollars? Is the takeaway supposed to be the government should stop printing new currency so as to stop the dilution? Given that economic output generally increases year over year this would almost certainly be a strongly deflationary position. Maybe that's good for currency hoarders with no debt, but it's pretty bad for everyone else.

Some amount of well-thought out regulation is fine. My point is that demand for scams and get-rich-quick schemes will exceed state capacity to police them as long as people must find an alternative to simple savings deposits in order to simply preserve purchasing power for retirement.

I wish this position was in the article! I can find nothing in the article that discusses state capacity to police get-rich-quick schemes or their relative frequency with regards to inflation.

The post conflates actual theft with some weird definition of theft which is nonsensical/wrong.

We shouldn't put more regulations on cryptocurrency or banks because consumers don't have a risk-free way to preserve their purchasing power over some time horizon

The second part here is false. You can put money into TIPS, but there is an opportunity cost, so people tend not to do so.

It could be considered theft of wages.

I work, and rather than immediately spend my money, I save it in a bank account hoping to spend it later. However, due to negative real interest rates, the value of my savings goes down 40%. And what's more, it is reckless government spending that is responsible for much of the devaluation.

Sure I could gamble on stocks, or hoard gold in my basement, but one of the advantages of living in a society is the ability to save my wages for later when I need them. Losing this ability is a strong negative. Just ask people in Argentina or Venezuela.

Sure I could gamble on stocks, or hoard gold in my basement, but one of the advantages of living in a society is the ability to save my wages for later when I need them. Losing this ability is a strong negative. Just ask people in Argentina or Venezuela.

No asset has any sort of guaranteed return on investment. The role of society is to preserve property rights, not to ensure that you are rich. When countries used precious metals, governments couldn't arbitrarily print money, but the value of your gold stores could still fluctuate wildly when e.g. new supplies of gold were found, or some foreign country changed their currency.

I feel like there's a confusion in both this post and the OP about what banks do. What banks do is play custodian for certain kinds of assets and give you access to those assets on particular terms. The interests rates that banks pay for being that custodian is compensation for the risk of having a third party be custodian of your assets. The interest rate is small because the risk is small. What banks do not (and cannot) do is save the purchasing power of your assets (i.e. some rate of relative exchange between your assets and other assets) at some time t_0 so it has the same power at time t_1.

I am not confused by what banks do, and I doubt the OP is either. Yes, I am aware that it is not banks that control interest rates, just as gas stations do not control oil prices. I was speaking in the context that everyone understands we are really talking about Federal Reserve and government policy. If not, I apologize for contributing to a banal discussion about banks.

Federal Reserve does NOT control interest rates. People who know monetary policy know the fed can maybe manipulate rates for 6 months but they have zero control over what the average real rate will be over 30 years.

Maybe not officially, but they absolutely have been controlling (or at least strongly influencing) interest rates via setting the FFR and also QE. If the Fed didn't step up to buy trillions in treasuries during Covid, who would have bought them at the comically low interest rates that were on offer?

And why do you think the market will jump 6% on news about Fed policy? The Fed has immense power.

They act second. It’s like you get -20 degree day and the Fed puts on a coat. That doesn’t mean the fed is controlling rates (putting on a coat) it just means natural rates moved (weather changed) and the fed followed the weather.

Are you a Scott Sumner fan? This reminds me of his arguments, and which I always found to be just plain wrong. But in order to actually have a productive conversation about it we need to go in full "rectification of names" mode.

Then I am confused by your comment. Your comment makes it seem like you have an expectation that you ought to be able to put money in a bank account and thereby be able to exchange it for certain particular goods at particular rates at some future time that are similar to the rates when you put it in. Even in a world that was absent the Federal Reserve and an inflationary government policy this would not be the case. It's not like individual bank-issued currencies held their value particularly constant against classes of goods in a pre-Federal-Reserve world.

Your comment makes it seem like you have an expectation that you ought to be able to put money in a bank account and thereby be able to exchange it for certain particular goods at particular rates at some future time that are similar to the rates when you put it in.

We would have the expectation that we should be able to save and be able to preserve our claim on a share of the economy. If output genuinely falls, if there was a grain famine, then we would not expect our purchasing power of grain to hold steady. But if output increases greatly, then we should benefit from that too.

Why? You say should, so I assume this is a values based claim, ought rather than is, so what is the underpinning to this belief?

Not to say I disagree necessarily, but I am interested in where this value comes from, more so than the value itself.

I feel like this comment evinces an even more confused conception of the economy. Why does being compensated some number of dollars at time t_0, which could be exchanged for some fraction of total economic output, entitle you to a similar share of total economic output at time t_1? Are you under the impression that large increases in output, under the current system, have not generally resulted in benefits to individuals due to inflation? I think that would be a pretty hard case to make!

Your comment makes it seem like you have an expectation that you ought to be able to put money in a bank account and thereby be able to exchange it for certain particular goods at particular rates at some future time that are similar to the rates when you put it in.

And that's just what I was able to do for much of the 20th century in the United States. Sometimes, I would even came out ahead.

I am confused by your objection. Perhaps you don't realize the role of the Federal Reserve in controlling interest rates. For example, in the Post-WWII period, the fed used Yield Curve Control to maintain low rates in the face of high inflation. This allowed the government to deflate the substantial debt it had accrued during the war. The patriots who bought war bonds lost out big time.

While the Fed is not explicitly using yield curve control now, the unprecedented government stimulus during Covid drove real interest rates to extremely low levels, reaching something like negative 8% at one point. Europe, of course, is much worse, and countries like Argentina, Venezuela, and Turkey have destroyed their currencies through political interference in central bank policy. That is starting to become a possibility in the United States as well with both Trump and several prominent Democrats calling on the Fed to lower interest rates to give a short-term boost to the economy at the expense of savers.

The fleecing of bond investors to reduce the US war debt was done through capital controls and other regulations, not monetary policy.

Gillitrut's objection is the overwhelming consensus among people who have researched monetary policy. A possible explanation for why you do not follow this objection is that you do not understand this research.

You sound pretty sure, but the U.S. did indeed use YCC to maintain hugely negative interest rates after WWII.

https://www.stlouisfed.org/on-the-economy/2020/august/what-yield-curve-control

YCC in the U.S.

The U.S. incurred massive debt expenditures to finance World War II, and the Fed capped yields in order to keep borrowing costs low and stable. In April 1942, short- and long-term (25 years and longer) interest rates were pegged at 3/8 percent and 2.5%, respectively. These rate caps were largely arbitrary and were set at approximately pre-1942 levels.

As the U.S. continued to incur debt, the Fed was obligated to keep buying securities to maintain the targeted rates—forfeiting some control of its balance sheet and the money stock. The public generally preferred to hold higher-yielding, longer-term bonds. Consequently, the Fed purchased a large amount of short-term bills, which also increased the money supply, to maintain the low interest rate peg.

After the war ended, FOMC members grew more concerned with addressing the rapid inflation that materialized. However, President Harry S. Truman and his treasury secretary still favored a policy that maintained YCC (which also protected the value of wartime bonds by implying a price floor). By 1947, inflation was over 17%, as measured by the year-over-year percent change in the consumer price index (CPI), so the Fed ended the peg on short-term rates in an attempt to combat developing inflationary pressures.

In combination with rising debt from the U.S. entering the Korean War in 1950, the peg on longer-term rates contributed to faster money growth and increased inflationary pressures. In 1951, annualized inflation was over 20%, and monetary policymakers insisted on combating inflation. Against the desires of fiscal policymakers, interest rate targeting was brought to an end by the Treasury-Fed Accord in March 1951.

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Money has never been all that stable. Inflation and deflation (mostly inflation) have been with us for all of modernity. There was a nice little blip in the middle where ordinary banks could provide decent returns on savings accounts, but there was never any reason to expect those conditions to remain constant forever.

For most of the 20th century, real interest rates in the United States were positive.

Expanding our window, yes life was nasty, brutish, and short for most of history. But the value to society of sound money is great and its loss should be avoided or at least mourned.

Most of the 20th century banks have global wars and then rebuilding massive continents to invest in. This raised the amount borrowers were willing to pay for investment capital. Today banks have apps to invest in. Completely different environment. Maybe if we boosted military spending back to 10% it could raise borrow demand for capital

Uhh... interesting domain name choice.

See our explanation here: https://www.themotte.org/post/221/culture-war-roundup-for-the-week/39692?context=8#context

let's not do what the ADL/SPLC does and read racist motives into everything

I don't know, you have this name of the domain and the first blog there is how banks in cahoots with government are stealing money from people. Let's say that my originally neutral Bayesian prior moved a little bit toward "red flag" area.

Look, I think it's hard not to look at it as spicy bait, this isn't a Greenblatt-esque overreaction. If anything, I think your post is overreacting/correcting in response to czr.

Yeah. I didn't see anyone else mention it, so I thought I'd be the one. Of course, it's probably innocuous, but I can't deny that's immediately where my mind went.

What's interesting about it?

It's been hinted at downthread but to explain the joke, this.

When we look at National Income change over the last 20 years, we see that our simple account owner lost 40% of his money. That’s not quite an FTX-level scam, but that is pretty serious theft.

Big difference between losing all your $ overnight vs. gradual loss of purchasing power.

...We start with a simple yeoman saver who wants to exchange present labor for some sort of medium-of-saving...So he does the simplest thing: he puts his money in a 3-month certificate of deposit at his local regulated, FDIC insured, plain vanilla bank and continually rolls it over. No default risk, no interest rate risk.

Or he could buy real estate, stocks, etc. which tend to not lose value to inflation. Or consumer goods. few people just park their discretionary income in savings accounts and do nothing else with it forever.

banks” . . . stealing money via inflation

This seems to imply that banks want high inflation. But the opposite is true; because banks make money by making loans, and because high inflation means that loans are paid back in less valuable dollars, banks want inflation to be low. Hence, it is not surprising that the Fed, which represents banks, prioritizes keeping inflation low over keeping unemployment low, and why debtors have historically advocated for inflationary policies.

Moreover, the assumption that, because my savings are worth less because of inflation, that therefore someone has "stolen" money from me does not work. I have only two options re what to do with my money; 1) I can spend it; or 2) I can save it. If I choose to save it, then I have many options, but they are of two general categories: a) High risk / high return; and b) low risk / low return. Federally insured bank accounts are at the far end of the low risk spectrum (just above burying it in my backyard), so of course those accounts pay low interest. That isn't theft; it is reality. Calling that theft is like complaining that gravity is stealing my water when it flows down the drain.

The TLDR cut out the more full explanation that is not actually the bank itself that is benefiting from the theft-via-dilution. Who benefits is a fiendishly difficult question:

Well, to be more accurate, it is the government stealing your money, not the banks. Actually, to be more accurate, it is impossible to pin down who exactly is stealing your money, because banks should be seen as arms of the state, and the state is the arm of an ecosystem of elites and elite clients, and the entire thing has grown fiendishly complex because it is in everyones interest to allow it to be complex. In fact, the real bandit may be your neighbor who bought a million dollar home with a 30-year, 2% interest rate loan. Or maybe the thief is your friend who cashed out on Apple stock after Apple funded a stock buyback with a loan at 1% interest. (Don’t go screaming at your friend – hate the game not the player).

Moreover, the assumption that, because my savings are worth less because of inflation, that therefore someone has "stolen" money from me does not work.

Dilution is theft. If the board of a company secretly prints new shares and gives it to their friends that is theft.

If I choose to save it, then I have many options, but they are of two general categories: a) High risk / high return; and b) low risk / low return.

Our put is that option b) is actually low risk negative return and that this is a big problem.

I don’t see why it matters that it is a negative return. That is the price I pay for, among other things, insurance on my deposits. And, banks are very clear on how much interest they pay on their various accounts, and it is completely obvious how that compares to the inflation rate. If I don’t like those term, I am free to put my money elsewhere. Nor is that at all analogous to a board secretly and fraudulently diluting the value of company shares.

This post is silly for several reasons.

At the broadest level, there's a question as to whether the government should target 0 inflation or not. Most mainstream economists agree that a small amount of inflation is good for a variety of reasons (incentive to invest, implicit cheaper cost of borrowing, relief valve for employers in lean times, etc.). I feel that reasonable people could disagree on these points, however, and there are some interesting points to be made for the overall net-benefits calculus of targeting a lower inflation rate. Certainly the recent inflation has been much higher than what anyone wants, which is why the Fed has been jacking up interest rates.

But instead of having that discussion, this post goes off in another direction. Firstly, the target of this article is simply wrong. Main street banks aren't stealing your money because they're not the ones causing inflation. The same loss of purchasing power would occur if you took your money and stuffed it under your mattress. It's the federal government's decision to target a positive nonzero inflation rate that's causing the issue, and that decision is no more of a "theft" of your money than simple taxation is. Some people might think the implicit tax of inflation is sneaky and therefore illegitimate, but there's nothing really secret about it.

The second, larger issue is that this post compares bank savings to gold, real estate, or the S&P 500 index. The problem is that these investments entail a significant amount of risk, so what's really being done here is an analysis of opportunity cost that the post tries to smuggle in as an argument towards the magnitude of supposed "theft". If you specifically want to save with inflation-protection as your main goal, there are investments specifically designed for that purpose. If you don't want to bother with something specialized for long-term savings like that, you can just put your money in a target date fund geared towards your retirement horizon and inflation shouldn't be an issue.

Finally, comparing inflation to the fraud (at least that's how I currently understand what happened) that happened with FTX is just goofy. The effects of inflation are known, and it's not hard to prevent erosion of purchasing power with minimal risk if that's your main goal. On the other hand, taking clients' money under pretenses that they couldn't discover without insider information like what FTX did is quite a different issue, and is something that regulation could indeed help with.

Firstly, the target of this article is simply wrong. Main street banks aren't stealing your money because they're not the ones causing inflation. The same loss of purchasing power would occur if you took your money and stuffed it under your mattress. It's the federal government's decision to target a positive nonzero inflation rate that's causing the issue, and that decision is no more of a "theft" of your money than simple taxation is.

The TLDR in my post cut out a more full explanation of this:

Well, to be more accurate, it is the government stealing your money, not the banks. Actually, to be more accurate, it is impossible to pin down who exactly is stealing your money, because banks should be seen as arms of the state, and the state is the arm of an ecosystem of elites and elite clients, and the entire thing has grown fiendishly complex because it is in everyones interest to allow it to be complex. In fact, the real bandit may be your neighbor who bought a million dollar home with a 30-year, 2% interest rate loan. Or maybe the thief is your friend who cashed out on Apple stock after Apple funded a stock buyback with a loan at 1% interest. (Don’t go screaming at your friend – hate the game not the player).

and that decision is no more of a "theft" of your money than simple taxation is. Some people might think the implicit tax of inflation is sneaky and therefore illegitimate, but there's nothing really secret about it.

Diluting the currency in the modern system is far, far, far less transparent in terms of how much dilution is occuring and who is getting it. It is far less transparent than taxation, and far less transparent than when a company board publicly votes new shares to be created to reward employees with bonuses.

The effects of inflation are known, and it's not hard to prevent erosion of purchasing power with minimal risk if that's your main goal.

"It's not a fraud because everyone knows it is a fraud and so avoids it." For a normie steel-worker retiring in 2013 it was not at all obvious that they needed to invest in the stock market simply to preserve purchasing power. The standard Vanguard retiree fund has lost out compared to inflation: https://investor.vanguard.com/investment-products/mutual-funds/profile/vasix#price

But actually it is really difficult to preserve purchasing power, because it requires buying extremely volatile assets and it is difficult to know if said assets are in a bubble or not. Consider the historically high P/E ratios we are experiencing -- are stocks still in a bubble or is this the new normal?

Your point about banks "stealing" seems more reasonable in context, as it seems you're casting the "stealing" label broadly which... I don't agree with, but I can see why you're doing from a writing standpoint. It's definitely worth summarizing more conscientiously, as not everyone will go read your entire post.

The point about inflation being bad because it's sneaky in some ways is understandable, but we live in a complicated world, and in the grand scheme of things inflation isn't that hard to understand. I can't speak for everyone, but I at least had a vague idea of what it was many years ago before I had any deep knowledge of economics. Any financial planner will be able to tell you about inflation quite easily if you ask. In a world where the legal system is impenetrable without the help of a lawyer, where medicine is impenetrable without the help of a specialized doctor, and where even taxes can be impenetrable without an accountant (or at least software like Turbotax), the sneakiness of inflation really isn't that bad. And the federal government isn't doing it because it's sneaky, at least for the most part. There are genuine arguments in favor of positive nonzero inflation that I detailed earlier.

The standard Vanguard retiree fund has lost out compared to inflation: https://investor.vanguard.com/investment-products/mutual-funds/profile/vasix#price

Firstly, this isn't a "standard retiree fund" as it's actually quite conservative, with ~80% of the assets being in bonds. Second, your math isn't right because it gives returns in an annualized format. A dollar invested from the start of the fund in 1994 to the present day would be worth about $4.50, whereas a dollar indexed to inflation from 1994 to today would only be worth about $2.00.

But actually it is really difficult to preserve purchasing power, because it requires buying extremely volatile assets

Again, if you just want to preserve your purchasing power while minimizing return/risk, TIPS are the exact opposite of "extremely volatile".

But instead of having that discussion, this post goes off in another direction. Firstly, the target of this article is simply wrong. Main street banks aren't stealing your money because they're not the ones causing inflation. The same loss of purchasing power would occur if you took your money and stuffed it under your mattress. It's the federal government's decision to target a positive nonzero inflation rate that's causing the issue, and that decision is no more of a "theft" of your money than simple taxation is. Some people might think the implicit tax of inflation is sneaky and therefore illegitimate, but there's nothing really secret about it.

I think a case can be made if banks are not paying full interest on deposits. For example, savings accounts yielding less than the federal funds rate.

The purpose of savings accounts is convenience in not having to store physical currency under your mattress. The selling point of savings accounts has never been returns or inflation protection or as a long-term retirement vehicle. If you want those things instead, then... go for a financial product that gives them.

I’m not sure what your point here is. Interest rates are determined by the market. Monetary policy doesn’t effect real interest rates in the long run and fiscal policy has been extremely expansionary and that increases real interest rates. This isn’t a failure of the banking system it’s just the fact there is a glut of capital. Lots of savings chasing few investments.

Interest rates are determined by the market. Monetary policy doesn’t effect real interest rates in the long run

Nonsense.

fiscal policy has been extremely expansionary

True, this matters too.

and that increases real interest rates

Expansionary fiscal policy causes CPI inflation which lowers CPI-adjusted interest rates.

Do some of you work at banks? I can't imagine a world where writing this post would be seen as dangerous. Maybe this is just the initial offering meant to be as inoffensive as possible?

As for the content, I agree and don't have much to say about it.

Maybe this is just the initial offering meant to be as inoffensive as possible?

This.

I work at a bank and the post really doesn't strike me as a well thought out critique of the banking system. I'm quite a fan of moving to crypto for other reasons so I definitely think there are good critiques of the banking system, but that they don't pay much interest on zero risk deposits is not one of them.

Maybe this is just the initial offering meant to be as inoffensive as possible?

Based on the domain name? Buckle up for a wild ride.

Which is a shame, really. I'd love to see some serious examination of what the net effects of modern seigniorage are. Is it effectively a progressive wealth tax, because it only directly hits people with accumulated cash? Is it regressive overall (above what level of wealth?) because anybody with real wealth has most of it properly invested, or at least can afford longer term bonds, because there's only so much cash you need to have safe and liquid for emergencies? Is it also effectively a fee the US charges the rest of the world, either legitimately (a reserve currency with a nice stable slow inflation being better than most other "safe" stores of wealth) or illegitimately (insert petrowarfare conspiracy theory here)? Is it a systemic risk, because of the vicious cycle of inflation we'd expect if the dollar ever ceases being the obvious world reserve currency?

But I'm going to be sadly unsurprised if this just turns out to be "In my country there is problem", only aimed at a different target audience and not ironic.

See our explanation of the domain name here: https://www.themotte.org/post/221/culture-war-roundup-for-the-week/39692?context=8#context

Based on the domain name?

TIL that withheldforprivacy.com (used along with namecheap to register that site back in July) has a listed business address at Kalkofnsvegur 2, 101 Reykjavík, Ísland, 101 Reykjavík, Iceland. I'm sure that's just a coincidence.

All I could find with a casual search was this cease and desist related to a crypto scam run from such a withheld address. How curious.

Edit: I clicked your last link and now I understand the strategy much better.

Most likely the scam site before the domain was seized was registered using the same privacy service. It's a standard add-in offered by namecheap and every website registered with that service will list that address on the domain rather that whoever purchased it.

Money printing is a complicated topic but if we just take inflation aspect I'd argue it's best for the class of people for whom mortgages are a significant portion of their wealth and have a stable job that gives inflation adjusted raises. The very rich are pretty insulated as their wealth is invested and the poor don't have the money in the first places but may not have their pay as regularly raised to keep up with inflation. The benefit of the extra incentive to invest probably dominates and makes everyone better off.

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