Gresham's new law risks systemic financial bailouts
A modern inversion of Gresham's Law is driving consumers toward fast, cheap payment platforms backed by 'bad' (unprotected) money, which the guest argued will eventually force a massive central bank intervention.
The argument
The guest explained that while historical Gresham's Law was driven by the quality of money, the new law is driven by the quality of payments (speed, convenience, cost). Because these popular payment systems (like PayPal, Venmo, and stablecoins) sit outside the conventional banking safety net, a systemic shock will force the Fed to use emergency lending powers (Section 13(3)) to bail them out, creating severe moral hazard.
The thesis, stress-tested
✓ What validates it
- ✓A run on a major non-bank payment processor or stablecoin issuer
- ✓The Federal Reserve invoking Section 13(3) emergency powers to support non-bank payment rails
▸ Risks discussed
- ▸Users are legally unsecured creditors of non-bank payment platforms
- ▸Lack of ex-ante regulation increases the probability of ex-post taxpayer-funded bailouts
Hear it yourself
"This is why things like non bank payments are interesting to me because a properly regulated system of non bank payments takes some of the pressure off the banking system as a focal point for systemic risk, moral hazard problems, and bailouts."
00:00 / 00:16
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE