Monday, March 18, 2013

High Noon in America

The Republicans have demonstrated over and over again that they want to dismantle the safety net and deregulate the economy so wealth can be concentrated even more in the hands of a few. Supposedly, the Democrats stand for maintaining the safety net, regulating the economy, preserving the hard fought gains of the new deal, and reducing inequality.

Once Republicans took over the Congress in 2010, Obama's main goal was obtaining a compromise with Republicans. How did that work out? Now there has been an election where the people of the country reelected Obama, a signal that he should fight for Democratic Party principles. So what does he seek now? More compromise.

What we have here is one party that is standing by its principles, however wrong they may be, and another party whose main goal appears to be compromising with a party whose principles they disagree with. Has the Democratic approached worked? You be the judge.

There comes a time when nothing is gained by trying to be the lite version of the other party. It's time Obama and the Democrats learned this. They have to relearn the lessons that FDR taught them. They must stand on principle, call out the Republicans, and make the case for their own supposed philosophy of governing.

It's high noon in America. What we need is a showdown between the two parties, standing on the principles they espouse in their platforms, not a stand on principle by one party and an attempt at compromise by the other. May the best party win!

Sunday, March 03, 2013

Countering Private Bank Money Creation

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.

The details of the Positive Money proposal are available in a video here and summarized in text here.

A Problem With Our Monetary System

There is a major problem with our monetary system that few people, even financial experts and economists, either don’t understand or refuse to confront.

The principle creators of our money are private banks that have incentives to act in their own interest, not the public interest. The overwhelming percentage of our money is created through the issuance of debt, unconstrained by anything but a lack of eligible debtors. And, even that doesn’t stand in the way when wins can be privatized and losses socialized.

Essentially free money is available to fund debt that need not even contribute to productivity, but instead can be used for unproductive speculation, if the return is greater. There is no need to take the risks involved with financing new productive ventures when loans can be collateralized with valuable assets like real estate.

It’s a prescription for endless bubbles and crashes that continue to distribute income to a wealthy elite from the most needy of the population. When money is created from the issuance of debt, the holders of the debt will always be the most needy and the interest will always accrue to those with the wealth to fund the debt. Attempts to correct the problem will lead to more debt and an accelerating cycle of increasingly severe crises.

The problem is not a new one. It was addressed decades ago by people like Hyman Minsky and others, but current so-called financial experts, economists, and political leaders have forgotten history and plunge ahead toward certain catastrophe.

To understand the details of the problem watch this short video describing the problem, this series of short videos describing the details of the problem, or spend a couple hours watching the free film, “97% Owned”. This is the British version, but the U. S. is directly comparable.