The Banking System

My eight-year-old granddaughter, Alyssa, has demonstrated a sophisticated understanding of our American banking system, and the results of her education could be edifying to many of us.

First, she drew up her own design for money, in this case called Alyssa-bucks, on a sheet of paper.  I pointed out that she could draw four Alyssa bucks per page and use the photocopier to create a small fortune, which she proceeded to do.

Then, she awarded me three Alyssa bucks for being nice, and announced the formation of the Alyssa bank, and asked if I wanted an account.  I did, and deposited my three A-bucks in my new account.  Then she asked if I had a job, and, when I said I did not, created a job application for me on the spot, which I dutifully filled out.

Next, she announced I had gotten the job, which apparently required me to do nothing other than keep her happy, which is already my first responsibility as a grandpa anyway, so that was easy.  Then she asked if I needed a loan.  When I replied in the affirmative, she created the documents on the spot and promptly loaned me three more A-bucks, but then charged me one for the loan, and another one for the monthly account fee, leaving me with one buck in hand and owing three more.  I decided I had better pay that loan off quickly, so I instructed the Alyssa bank to take three A-bucks out of my account and pay off the loan.

So at that point I was debt free, and still had one whole Alyssa buck in my pocket, leaving me solvent and happy.  I offered her the buck for some of her leftover Easter candy, which she was happy to take, but then it turned out all the good chocolate was gone already, so I complained and demanded my money back.  Her response to that was to decide that I was being mean to her, so she cancelled my account and charged me my last dollar for taxes, leaving me with no candy, no money, and no prospects, since she also fired me from my job.  It was nice while it lasted…

So the lingering question in my mind is how is this scenario different in any substantive way from the operation of the U.S. Treasury and the Federal Reserve?