[dragontamer]

> Can someone tell me if this is substantially wrong?

Yes it is wrong in its almost entirety. I don't even know where to start. The fundamental assumption that "Banks don't have your money" is already wrong on the surface level, as all banks have to prove to the Government (FDIC in particular) that their assets are greater than their liabilities.

That is: if a bank owes $5 Billion to its customers, it needs to prove to the FDIC that it has at least $5 Billion hanging around somewhere.

Does the $5 Billion have to be cash? No. It can be a bond, it could be a mortgage, etc. etc. The risk-on/risk-off of lending that asset to others to make further profits is the entire damn point of a bank.

But banks cannot print money, except for the Fed and Treasury in collaboration with each other.

[NoMoreNicksLeft]

> as all banks have to prove to the Government (FDIC in particular) that their assets are greater than their liabilities.

What assets? Defined as you would define them, the things most of us think about as liabilities (outstanding loans) are the same assets.

It's more than a little circular.

> if a bank owes $5 Billion to its customers, it needs to prove to the FDIC that it has at least $5 Billion hanging around somewhere.

This simply isn't the case. Neither in physical cash deposits, nor in electronic deposits of any sort. It may have some collateral, of the sort that isn't and can't be made liquid, and those values are all inflated into the stratosphere anyway. If they did have to liquidate this collateral, the prices would all collapse, and it'd have a tiny fraction of what they had claimed they were worth just days prior.

> No. It can be a bond,

That's another word for "outstanding loan" as I understand it. They gave (imaginary?) cash to some company or municipality somewhere, got a fancy piece of paper saying they can "cash it in 20 years later". That's called a loan.

> it could be a mortgage, e

I thought you were claiming these were liabilities not two sentences higher? If they're not liabilities, what the hell are they? You make it sound as if all banks ever have is assets.

> But banks cannot print money, except for the Fed and Treasury in collaboration with each other.

Who needs printed paper, when you can just modify a few bits in a few flipflops somewhere that amount to an electronic ledger?

They can't print money, but they can certainly let me use the credit card they mailed to me, and they aren't digging around in the couch cushions for some coins so that they have that covered with "assets" as you contend above.

Hell, if I understand you correctly, they could offer someone another mortgage, and then use that as the "asset" that covers my credit card loan (and my credit card loan is also an asset that covers the mortgage!).

[dragontamer]

> What assets? Defined as you would define them, the things most of us think about as liabilities (outstanding loans) are the same assets.

Liabilities are money you owe someone else. Assets are money (and things) people owe you.

You're playing word games with extremely precise words and trying to pretend that these words... don't mean what they mean.

Its perfectly fine to owe $5 Billion to other people, if you yourself have $5 Billion owed to you. Assets and liabilities cancel each other out in all forms of modern accounting.

> They can't print money, but they can certainly let me use the credit card they mailed to me, and they aren't digging around in the couch cushions for some coins so that they have that covered with "assets" as you contend above.

Are you seriously trying to say that Costco doesn't get their money when you swipe a credit card and pay for your groceries?

The banks that fund credit cards have huge amounts of cash on hand. They pay Costco _BEFORE_ you pay the credit card companies (especially if you keep the balance beyond the payment period), and that's only possible because they have huge reserves of cash. Beyond "just" an asset, like true cold-hard cash that they're transferring.

Now the timing is a bit weird. Maybe credit cards pay in net 30. That's somewhat common. But if they have an asset (ex: a 30-day bond) with enough money coming in by day#30, then that's fine. The bond matures, the credit card gets the money on Day#30, the credit card company transfers it to Costco.

Super-short bonds, such as 7-day, 30-day, or even 90-day bonds, are treated as near-cash for good reason. With industry pseudo-standard net30 deliveries of cash, a 30-day bond basically is as good as cash.