Mitchell’s laws: To survive, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Continuing the discussion from the previous post, “Closing the gap between rich and poor: Eliminate all local taxes,” how about the elimination of all private banking?

What if the federal government took over all banking functions and eliminated private banks? What would be the advantages and disadvantages?

No bank ever would become insolvent. There would be no “runs” on banks by depositors. Savings would be 100% protected. Clearly, an advantage.

The lack of a profit motive would eliminate “credit default swaps” and other strange investment derivative beasts that helped lead to the Great Recession. Advantage.

The lack of a profit motive also would eliminate the temptation to lend to credit-poor borrowers. Advantage.

The absence of outrageous, multi-million dollar salaries would translate into less expensive banking services, plus services offered in “bank deserts,” where the poor are required to use expensive, neighborhood check-cashing services. Advantage.

There would be no need for reserves and for the massive bureaucracy needed to track reserves, nor for the massive compliance bureaucracies, nor for FDIC insurance. Advantage in efficiency.

No need for Fannie Mae or Freddie Mac. Advantage.

There would be no need for the Fed or for the likes of Greenspan and Bernanke. Advantage.

Bankers would hate the idea. Huge advantage.

Frankly, I’m having trouble thinking of disadvantages. O.K., I can think of one disadvantage. Government workers have the reputation of being without imagination or the willingness to take risks. Since lending always entails risk, and lending against new ideas involves even more risk, might federally owned banks choke off innovation or on the other hand, be subject to political pressure to grant bad loans?

I’m sure that would be the objection from those who believe the private sector can do no wrong and the government can do no right. But there are non-bank people in the private sector, known as “venture capitalists” who could provide investment capital.

Perhaps the question about socialized banking boils down to whether you feel banking should be considered just another profit-making business or a public service. Unless convinced otherwise, I suspect the negatives of privately-owned banks outweigh the positives.

What do you feel?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings