Eventually, it'll end up in a bank because someone in a real world situation won't be in debt. But your observation brings up another block in the system; interest. It's unlikely debtors won't charge interest using money that's not theirs. The reserve requirement is somewhere around 2%, I'm not sure, but that's actually enough. A raise of or the r.r. even a fraction of a percent has a large effect in the economy.
I like this idea. However, a friends kid who is in investing banking with Morgan Stanley says the big banks will wind up with all the money anyway. I'm still thinking about doing it. Will it be a hassle with credit cards and debit cards and ATM's and all the rest?
I'm in a credit union, and I have the debit card which also acts as a credit card. I don't use any other credit card at all. There are some credit union ATM's around, but mostly I have to pay the $2.00 fee. I can get around it by using the cash back option at grocery stores, and the like. Sometimes it sucks but it's worth it knowing that I don't have any accounts with the big banks. There are advantages where loans, CD's etc. are concerned. The rates and stuff like that seem pretty comparable.
The alternative is to nationalize all "too big to fail" banks just like what China is doing. You have to do this because trust on these banks are broken. Another way to do this is to let them fail, in the short term (ie 10+ years) will be painful but in the long run, new players will take their places.
I think AIG is still far from paying back $100+ billions of TARP money. Please correct me if I am wrong.
