Meaning, you lost money this month for having it in the bank,
This is happening right now already. I get basicially nothing in my saving account while my moneys worth shrinks 3% every year. This doesnt even include the very real possibility that inflation could be higher then is getting told (which is supported if you look at how the calculate it).
I hear you, but it's not the same as everyone seeing -$56.35,or whatever, on their bank statement. That could cause a bank run and throw the entire basis of our monetary system out the window.
I'm not saying this inflation isn't a real problem for people, it's just not in the same ballpark and real, out of control, deflation.
Okay I have to ask a couple questions comprehension wise.
First: So everyone would loose each month money from their account because of what exactly? The bank service fee? I already pay that
Second: If people would loose money having it inside a savings account then that should naturally bring people to use and invest their money now which is a counterforce to deflation. So a natural break to a deflation spiral, right?
And some more, but those are the most pressing ones.
No, the interest they pay on your balance, that would be negative.
Yes, this is exactly why they do it. The problem is it could also cause people to remove all their money from the banks and tank the monetary system. They can be unemployed with no hope of a job. (Not like now, where it's just pretty hard to get a job. Like, NO JOBS FOR ANYONE) Those hopeless people start acting lawlessly in large groups and the fabric of society breaks down.
Why would a private bank have negative interest rates? Its not like we want the goverment to mandate negative interest rates. No, deflation already happens naturally if you dont increase the supply of money in comparison to the increase of production each year.
For example we have 5 money and 10 Bananas on year X. And then 5 money and 20 Bananas on year Y. Are we on the same term here or is there a misunderstanding?
Real world doesn't work with bananas and money, real world works with bananas, money, and debt.
Bank has 5 money. Farmer has 10 banana. I have no money, but I can secure a line of credit from the bank.
I ask bank for 5 money for 10 banana. Bank gives me a loan for 5 money with 10 banana collateral, but I have to pay interest on the loan because of the time value of money. I don't get the money for free, I have to pay for it. Let's assume it's 20%, so it would be exactly 1 money.
I get 10 banana. Farmer gets 5 money. Bank gets nothing for now, but eventually they will have 6 money. I turn bananas into smoothies, which are more valuable that raw banana, and sell them to pay off my loan and keep a profit. Everybody wins.
Next year, deflation happens. 5 money can buy 20 banana now. Bank is fucked if I default on my loan now. If I defaulted, they would take back the collateral, but now 10 bananas doesn't get you 5 money. It only gets 2.5 money.
If I pay back my loan, Bank gets their money back, but they're sure as hell not giving out loans backed by banana collateral now, because it's too volatile. Bank is smart, and can recognize that collateral needs to maintain its value or appreciate over time in order to be safe. Bank does this for every asset class, which is why real banks have strict limitations on what can all be considered collateral.
All of this happens 100 years ago. Bank understand deflation bad, because loans are backed by assets that devalue relative to the dollar during deflationary periods. Bank always freaks out whenever it even smells like deflation, because they own so much debt that they will get fucked if it ever does actually happen. When banks get spooked, they increase interest rates and stop giving out as many loans. Less loans means less money eventually coming back to the back in interest payments. Savings account interest is paid out of money coming back to the bank from loan interest payments. Interest accrual plummets, and could possibly go negative to cover operational costs of the bank. People pull out of bank. Bank not doing so well.
Now, I can't secure a line of credit to buy banana in the first place, because bank can't afford to hold depreciating bananas. Farmer doesn't get paid for banana harvest, and gets fucked. Bank doesn't get to eventually get back 6 money, but at least they don't lose money by holding banana. I don't make money, because I relied on buying bananas on credit to turn then into something profitable for me, which I would have used to pay back loan plus interest. I get fucked.
This looks more like a problem of banks giving out bad loans, which definitely happens. And banks that are greedy and give out to many loans without actual collateral behind them should go bancrupt, so the "good" and sustainable banks are the ones left which is a win in my book.
If the bank in your scenario diversivies their creditors then one guy going default wont make the bank go bancrupt. If instead of you buying the 10 bananas it was 10 people buying 1 banana each then one person going default is just part of business.
The other thing is if for some reason the whole Banana industry goes bancrupt and this industry was a critical pillar of the country (lets say exports), then that means the Bank all of a sudden has no more supply of income from interest but a shit ton of bananas.
The Banana industry had to be not profitable to be able to default, right? So that means that maybe the industry got to big and produced way more bananas then the market needed. Now that the industry is bancrupt, banana production stops. This makes the price of bananas go up over time again until we reach profitability.
So even in this worst case scenario that wouldnt mean that the bank ends up with half of what it started with. The market would just sort out an unstustainable industry and the banks would learn to maybe not give out bad loans. The other outcome would be that the public through artificial money creation would pay to keep Banana industry producing more Bananas then anyone needs. And even in this scenario at some point the whol thing would crumble down like a house of cards, but with even worse effects for everyone.
You wouldn't want to live in a country where banks didn't loan out more than they had in collateral. It's the basis for all the growth that brought us to the modern era. We'd all still be farmers without it.
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u/TheHessianHussar 5h ago
This is happening right now already. I get basicially nothing in my saving account while my moneys worth shrinks 3% every year. This doesnt even include the very real possibility that inflation could be higher then is getting told (which is supported if you look at how the calculate it).