It is different though. The FDIC would force the bank into receivership and return the insured money to account holders. That doesn’t exist for tether.
> The FDIC would force the bank into receivership and return the insured money to account holders.
Fair point. If a run-on-the-bank only occured at a single bank, that would work. And that's probably a more fair comparison to my example of everyone taking out their money at all the banks.
But for clarity, my statement was that the money to cover everyone's deposits at all the banks simply doesn't exist. The FDIC can only cover so much insured money before they just plain run out.
The paper currency doesn't exist. Why would you think the _money_ doesn't exist? As long as the banks aren't in fact fraudulent, the assets are there. I guess it's easy to trust in fraudulent banking if you have an unassailable belief that fake banks are the norm, but they're not. That's what people have spent thousands of years figuring out how to avoid.
And if the FDIC didn't have enough money, the government would start printing it like crazy and the US would start looking more like Venezuela in a very short period of time.
Bank collapses happen during times of deflation. In that environment, printing money like crazy just returns the financial system to normal, low levels of inflation.
Small amounts of inflation are a good thing. Deflation in a currency is almost always bad, and this is why limited-issue crypo like bitcoin will never replace real currencies.
No. The money would come from the federal deposit insurance program, which is funded by the banks, not the government. The money would also be recovered over time, when the bank’s loans become due and other assets are liquidated.
In general the money would come long before the FDIC get involved, because the role of the Fed (and other country equivalents) is ensuring that commercial banks can always borrow enough money to meet short term withdrawal requests if their loans aren't defaulting. Lending at n+x% because it can always borrow at currency at n% is a modern bank's business model.
Needless to say this is quite different from having a business model where you don't have any right to borrow money and claim to be backing it 1:1 with actual dollars, but it turns out that the bulk of the not-necessarily matching amount of actual dollars you have is lent out to some other shady operation...
Fair point. If a run-on-the-bank only occured at a single bank, that would work. And that's probably a more fair comparison to my example of everyone taking out their money at all the banks.
But for clarity, my statement was that the money to cover everyone's deposits at all the banks simply doesn't exist. The FDIC can only cover so much insured money before they just plain run out.