davefairtex wrote:
I'll start out by proposing a "Public Money System" - only the government can create money (either bank credit, or cash). It does this by spending money into the system. Government also still imposes taxes, and this is how it can also remove money from the system. Under this system, banks could no longer create bank credit. The only entity able to create both "bank credit" AND cash would be the central government. Banks could lend, but only from deposits on hand. Deficits aren't borrowed, they're printed. Surpluses result in money vanishing - its the only way to vanish money, in fact. In a growing economy which needs more money to function, government will print to construct surplus money.
Deficits or surpluses are set by an annual popular referendum. "The people" get to decide how much money to create, or destroy. Politicians then figure out which programs to fund once the overall budget parameters are voted on.
Would this be better, or worse, than private bank credit creation by commercial banks? Its an interesting question. Certainly I like the concept of an annual referendum (since I don't trust politicians - or banks), but I do think that things would go in cycles. National character would make an appearance. Frugal Germans would always vote to pull money out of circulation, while the more expansive US would probably always vote to increase it - at least until inflation got out of control.
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In some sense, "the people" could hardly do worse than the private bankers have done.
We are being played by those who are reaping benefit from the status quo.
I am an early boomer who can see fault with my generation’s stewardship of the country during our turn at the wheel.
As was mentioned earlier in this thread my generation grew up on endless blessings as a result of the US being the only whole man left standing after the rest of the world tried their best to destroy each other. Thanks to the Soviet Union, Hitler was finally beaten and the US was the beneficiary.
The US was able to become the dominant world power which resulted in life being glorious for those of us lucky enough to be born in the late 1940’s,50’s and early 60’s. As has also been mentioned, if that’s all you know, you think that’s how things are.
I learned too late, that our normal was in fact an aberration, not only historically but ecologically. I think my generation is responsible for taking the gift we were given and driving all systems to their extremes, financial, political, social etc. We had an opportunity to throttle back militarily, politically and economically, but we did not.
Here we are.
After these multi decade abuses of all systems we find ourselves broke and keeping our lifestyle supported with ever increasing amounts of debt, which is being noticed by some as maybe being a problem.
So now we fight over who’s fault it is that we are broke and fighting over who’s going to eat the lower expectations going forward.
It seems to me that we should turn our attention to who is the biggest beneficiary of our current status quo and see if there is any fat we could cut and be put to better use for the general populace and not just certain corporations and elites.
I recently watched a video profiling a former CIA officer named Kevin Shipp, who being in a position to know, added up our current budget expenditures on the 17(?) security agencies, the defense department, foreign aid, etc.,etc., and came up with the astounding figure of $800 billion. That is a very large portion of our budget for the whole year.
So it appears to me that we are borrowing money to keep this absurd fantasy afloat, giving the majority of the spoils to the military/industrial/security/banking complex and we are then turned on each other to fight over who gets the scraps.
I admit that my generation isn’t blameless in where we have gotten ourselves, but this ball was already rolling when we became “The Man”. I think it’s human nature to react to your surroundings as they appear to be (this will go on forever) which is what I believe happened during my lifetime. To think differently requires wisdom which seems to in short supply, especially now.
The Peace Dividend expected after the collapse of the Soviet Union has been captured by those who need more war and thus control of the citizenry in order to keep the money flowing their way. They have succeeded stupendously while we are at each other’s throats and stuck paying the bill.
Tim.
Luke-
I agree that nobody anywhere would vote for austerity immediately after a deflationary crash. That policy is insanity anyway - we see just how successfully it has worked in Greece. People would all vote for reflation, because they’d be voting their own situation.
Rich people could flee to gold, while poor people could get government support while the currency reflated and forex rates get hit. Maybe it would be a wash in the end.
As I think it through, banks can still engage in fractional reserve lending even if they don’t have the right to create new bank credit for loans. It all depends on what that reserve ratio is; how much capital they need to keep around in order to provide for losses. And that’s really just a rate limiter, its not some sort of absolute limit on lending.
What would happen if we changed the nature of lending entirely? For instance, if depositors in banks basically had their money tied up to the duration of the loan. So if a borrower wants a 5-year car loan, then some depositor has to agree to a 5 year CD in that same amount, with the bank taking the spread. Depositor only gets money back as the loan is repaid. And if borrower defaults, depositor loses cash. (Assume this is “pooled”, so borrowers aren’t taking individual loan risk)
This is what it would look like if we get rid of fractional reserve lending.
I suspect money would become a lot more expensive, since it would be more scarce. Who wants to tie up their money for 5 years - much less 30? But there wouldn’t be any more bank failures. And everyone would understand risk. And money could only be created by the people, not the banks.
Its a thought experiment. I’m not sure I’m for it. I’d need to model it in some sort of simulation to see how it affected things.
The economy as we know it is doomed. The wealth gap, derivatives, pensions, debt, endless pursuit of more money and more stuff, expectation of endless growth on a finite planet. Even those of us who see these issues don’t see the real cause of the problems. We’re like fish in water or birds in air. We can’t see the water (mindset) that surrounds us. When did people learn that it’s ok to take everything away from fellow man, monetize it, and sell it back to them? What would it take to shift away from the current mindset?
http://sacred-economics.com/
http://sacred-economics.com/film/
I had a recent correspondence with Pam Marten over at Wall Street on Parade and hear is what she had to say…The Mega Wall Street banks do not own the Mega insurance companies that have exposure to the hurricane disasters.However,the Mega Wall Street banks do use Mega insurance companies as counterparties to their derivative contracts.Unfortunately,the Wall Street banks keep the details of who is on the hook for their over-the- counter derivatives a secret…even from the regulators for the most part.The Wall Street banks likely have syndicate loan exposure to companies in the hurricane impacted regions but probably not enough to sink the largest banks.It does,however,add to the growing list of bad loans the biggest banks have not taken adequate loan-loss reserves to cover.hope that helps…I suggested she write on the subject because analysts are trying to find out who may be holding the bags…