In the last post we discussed how banks create new money from debt to augment their income. The problem with this is that private entities are allowed to make investment decisions which may not result in a better outcome for the country as a whole, but simply augment the wealth of their investors and executives, resulting in a concentration of wealth and asset bubbles that destabilize the economy.
There are two ways to counter this to create an outcome that is more in the interest of all the people. One way is to simply tax away the income and use it to fund more productive uses that are more in line with long term stability, such as improving infrastructure, education, health care, retirement security and income tax breaks or income augmentation for those who have been damaged by the concentration of income from the private bank decisions. Another way, advocated at the Positive Money site in the UK, is to adjust reserve requirements and separate transactional money requirements from investments involving risk.
Requiring banks to meet higher reserve requirements will allow some of the money creation to occur as base money creation and not private money creation, with that portion of the income from the debt going to the government where it can be applied to more productive uses and counter the inherent wealth concentration of purely private money creation that leads to economic instability.