End the Fed's Big Bank Bailout Act

1,486 Views | 14 Replies | Last: 5 mo ago by Yukon Cornelius
jamey
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2:37p, 7/24/25
AG
Not sure the potential negative consequences of this


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Heineken-Ashi
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In reply to jamey • 2:46p, 7/24/25
jamey said:
Not sure the potential negative consequences of this



The mechanics can get very technical and convoluted, but it ultimately comes down to this..

Banks can do two three things with their deposits.
1. Hold them - Considering they pay even the tiniest interest on them, that would lose money, so will never be done.
2. Loan them out to the economy, keeping a tiny reserve held at the FED - The interest they receive will be based on treasuries or short-term swap rates with a spread (premium) on top.
3. Park them at the FED for a guaranteed rate just slightly lower than market rates with absolutely no risk

Which do you think they have chosen since 2022?

What Rand is saying is that we should stop letting the FED pay interest to banks for their excess reserves. This isn't money paid from some sort of cash surplus. The FED is hundreds of billions in the hole and hasn't remitted to the treasury since Jan 2022, and likely wont again for at least 5 years and likely closer to 10. The FED is going deeper in the hole to pay banks to hold excess reserves with them. Why? Because this is the money that will be confiscated and used a reserve balance to generate new money supply in the event of a bailout. The end. They are planning to rob you again.

The problem is, ending this just means the banks will park this excess in treasuries or lend it to more shadow banks. They certainly arent going to give out loans to Joe the plumber who is a risk of default.
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Yukon Cornelius
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In reply to Heineken-Ashi • 3:05p, 7/24/25
AG
I suspect they will use it to buy UST to print stable coins.
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TTUArmy
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In reply to Heineken-Ashi • 7:16a, 7/25/25
That's a fairly sobering take, H-A. I appreciate it but, sure makes the bile rise to the back of the throat.

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Bob Knights Liver
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In reply to Heineken-Ashi • 7:25a, 7/25/25
Understood, but wouldn't parking it in Treasuries be more useful to US than at the Fed?
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Bob Knights Liver
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7:30a, 7/25/25
My questions/thoughts:
I get that the Fed is abused and the M2 expansion on the reg the past 25 years is destroying the middle class, but doesn't having the Fed also provode us with emergency liquidity that's helped avoid defaulting or other disaster during economic crises?

If so is End the Fed better than Revise the Fed with constraints to limit abuse? Conversely if we End the Fed what do we replace it with? If that's something under the direct control of the Executive Branch doesn't that open us up for more abuse?
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Heineken-Ashi
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In reply to Bob Knights Liver • 12:28p, 7/25/25
Bob Knights Liver said:
Understood, but wouldn't parking it in Treasuries be more useful to US than at the Fed?

Yes, unless interest rates rise and those treasuries fall in value. What's a stablecoin if its parked in something not stable and no longer making a return for the company who issued it?
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Heineken-Ashi
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In reply to Bob Knights Liver • 12:30p, 7/25/25
Bob Knights Liver said:
My questions/thoughts:
I get that the Fed is abused and the M2 expansion on the reg the past 25 years is destroying the middle class, but doesn't having the Fed also provode us with emergency liquidity that's helped avoid defaulting or other disaster during economic crises?

If so is End the Fed better than Revise the Fed with constraints to limit abuse? Conversely if we End the Fed what do we replace it with? If that's something under the direct control of the Executive Branch doesn't that open us up for more abuse?

In general - yes.

If we end the FED and don't replace it with the dollar backed by something like gold, or even Bitcoin, then all we've done is rearrange deck chairs on the titanic.

But you aren't "revising" the FED. Would take a full act of Congress and would never get the votes.
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Yukon Cornelius
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In reply to Heineken-Ashi • 1:18p, 7/25/25
AG
1. How is that different than a MM?
2. Stavle coins are backed by 3 month bonds. How much value fluctuations is possible on those?
3. It's not the issuers money, it's the retail or institutions money.
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Heineken-Ashi
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In reply to Yukon Cornelius • 1:24p, 7/25/25
Yukon Cornelius said:
1. How is that different than a MM?
2. Stavle coins are backed by 3 month bonds. How much value fluctuations is possible on those?
3. It's not the issuers money, it's the retail or institutions money.

1. It's not. But money market might actually keep some portion in cash reserve.
2. You tell me



3. Exactly. But the issuer doesn't hold it. They put it in assets that could decline in value. And they hold the keys should you want to get your money back at par. You think they will sell underwater treasuries to buy back your stablecoin at the same amount you bought it for?
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Yukon Cornelius
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In reply to Heineken-Ashi • 1:30p, 7/25/25
AG
That graph is the yield no? Does that yield variation impact the value of the 3 month bond? They are constantly rolling around he money into the 3 months so it's less volatile right? Kind of why they do 3 months.
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Heineken-Ashi
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In reply to Yukon Cornelius • 1:43p, 7/25/25
Yukon Cornelius said:
That graph is the yield no? Does that yield variation impact the value of the 3 month bond? They are constantly rolling around he money into the 3 months so it's less volatile right? Kind of why they do 3 months.

i actually cant find a 3m chart. Only the yield. In general.. yields up = bond/bill price down and vice versa.

Here's BIL which is an ETF that tracks the 1-3 month t-bills. Only goes back to 2008 and doesn't show stagflation periods like the 60's and 70's where short-term bills weren't even a thing.



And here's BILS which tracks 3-12m only going back to 2021. You can see what the rate hike cycle did to it. While a $1 or so loss is negligible, you have to understand that the entire purpose of stablecoins is that they can take your money, buy bonds, and they themselves collect the interest. If say people were to flood them with orders to sell stablecoins, and they were forced to liquidate bill holdings, the sheer volume of sales would actual work to push treasuries LOWER, especially if there's low demand for them. Not only that, they would be selling the treasuries for a loss, and like I said above, there's no guarantee you would get back the full amount you spent to buy the stablecoins, if they even let you sell the coin at all. Likely they give you back current par value minus a premium they collect to make up the difference in their losses.

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Yukon Cornelius
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In reply to Heineken-Ashi • 2:27p, 7/25/25
AG
I think that risk is less than any bank remaining solvent will billions in ****ty CRE properties. It's a far superior system to what we have by and large today.
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Heineken-Ashi
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In reply to Yukon Cornelius • 2:35p, 7/25/25
Yukon Cornelius said:
I think that risk is less than any bank remaining solvent will billions in ****ty CRE properties. It's a far superior system to what we have by and large today.

You means the banks who will be issuing them? Why do you think they want them? It's a new liquidity source for them.
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Yukon Cornelius
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In reply to Heineken-Ashi • 2:51p, 7/25/25
AG
I mean there are inherent risks just putting money in a bank. And I don't think the stable coin risks out weight traditional banking risks.

I don't know if it's a new source of liquidity. It's a new avenue to deploy liquidity though. They can't spontaneously create stable coins. They have to buy debt with current liquidity.
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