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Comment by ajross | Hacker News Reader

Yes, but the government can. The 2008 crisis didn't happen in deposit banking, but it was effectively a "bank run" in the same sense you're talking about -- all the assets banks could normally use to draw on to meet obligations froze up, and they ran out of money.

And the government stepped in, becoming a lender of last resort. And it worked (not well, maybe, but it worked).

Saying "the economy is powered by belief" isn't quite right. Finance is powered by belief and trust. But at the end of the day the "economy" is all the people out there able to work, and they aren't susceptible to bank runs.

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I think the absolutely titanic levels of quantitative easing that came and went in the last crisis can only be viewed as an unequivocal vote of confidence in our financial system. Consumers and investors got scared and shut down their buying, but we printed out way back to heaven and no one batted an eye. Fiat currency belongs in the pantheon of history's greatest inventions alongside fire, the wheel and electricity.

I agree. Without fiat currency, the US would have crumbled into a pile of blood soaked rubble.

Can't tell if you guys are being facetious or not. The fiat model parallels the currency debasement in ancient Rome pretty well, and it'll probably have similar results.

Inflation is a symptom, not a disease.

It arises out of a recognition that the basis of prior financial obligations on expected return was false.

Options are debt repudiation, inflation, debasement, or collapse.

No it doesn't. Besides the fundamental economic rules of supply and demand, there is absolutely nothing we can learn from looking at ancient Rome that is relevant to the modern world. And honestly, you look really foolish trying to draw a parallel between such a primitive society and anything post-industrial.

Fiat is the reason why the financial institution is so reckless.

Everyone when there is an issue, the Federal Reserves stepped in, printed money and bailed them out.

The end result, the financial sector gets bigger and bigger over the last few decades. Privatize the reward, socialize the risk.

> (not well, maybe, but it worked)

Obviously we don't have the alternative universe where President McCain opted to do nothing for comparison. But looking at the economic boom we're living in 10 years out, it's difficult to make an argument that the government's handling of the housing crisis was poor. I have a hard time coming up with an outcome more ideal than what we got.

2008->2018 was a much nicer decade than 1928->1938.

Hindsight is ridiculously useless at understanding the automation wave we’re experiencing right now. There is a fragmentation of the economy; as someone eloquently put it, your life is either dictated by algorithms, or you’re the one writing them. So for many, the economy is rosy; for the majority, not so much.

Maybe. But what about housing prices that came with QE, aren't they just delaying the catastrophy ?

If 'delaying the catastrophy' equates to the longest expansionary period in US economic history I'd say we did a pretty good job.

The government is powered by belief too. When a critical mass of people start saying "This is not my government, and I'm not subject to its authority", it ceases to be the government. This last happened (unsuccessfully) in the U.S. in 1861, but is a regular occurrence in many other parts of the world.

The effect of 2009's QE was to couple the full faith & credit of the financial system with the full faith & credit of the government, effectively backstopping the financial industry with the trust that the government had built up over 230 years. This worked, but it was not free. The cost was an erosion of that trust in government, which you see in movements like Occupy Wall Street, the Tea Party, Black Lives Matter, the alt-right, Trump, sovereign citizens, and Democratic Socialism.

As long as things are good, the government (and the financial system) can continue to build up that trust that they spent down in the financial crisis, and we'll have weathered the storm with no problems. Things are still not good for many people. And so the risk is that if there is another crisis in the next few years, while that trust is depleted, the whole society will come crashing down, like Syria or Venezuela. Not just a financial crisis, but a political crisis as well, because the two of them are now coupled in peoples' minds.

"the whole society will come crashing down, like Syria or Venezuela"

Especially if a certain foreign power and its allies act accordingly to Nietzsche's "That which is falling, deserves to be pushed"

Erm... not quite. in the Insolvency vs Illiquidity stakes, 2008 was all about Insolvency.

That's why the government stepped in and bought the mortgages from the banks - if the banks had had to account for the losses on those loans it would have brought down the entire system.

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