●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
The great thing about having readers is they not only offer solutions you might not have considered, but perhaps more importantly, offer questions you are forced to answer. For that I must thank readers Yuu Kim and Woj for their very insightful comments and questions.
Yuu Kim asked the a question, elegant in its simplicity:
If the government is the banker, then what would be the point of making loans to the public?
My answer was:
Not only does the government not need to make a profit, it doesn’t even need to receive the loan money back. The government literally could give money rather than lend it.
The problem then becomes: To whom to give the money, and how much? The credit system provides a method, albeit a method that could be criticized on many fronts: Give (or lend) money to people who have good credit. It’s weak, but it’s a method.
It was a lousy answer, especially since I often have criticized the European Union for lending, not giving, euros to the euro nations. Clearly, loans to people who can’t repay, make no sense.
But Yuu Kim’s question implies, “Does it make any more sense to refuse loans to people who can’t repay — if you don’t need repayment?
Then came Woj, who said:
The (current) credit system, however, works because it is a market in which the profit motive helps different individual/institutions price credit.
Yes, that is partially true — though only partially. Credit card issuers are notorious for not considering credit ratings, whether for granting credit or establishing rates. Mortgage lenders consider credit ratings more on a “go, no-go” basis, than on a rate-setting basis.
That said, nothing would prevent a federally owned bank from setting lending rates according to credit rating — if that were important. We really need to explore the notion that a lender with infinite dollar resources (the U.S. government) should charge interest, or if it does charge interest, scale that interest according to credit rating — or lend at all.
Currently, the government gives, not lends, dollars to people whom the government judges “need” dollars or “are entitled to” dollars. All poverty aid falls into this category. Social Security and Medicare (which, by the way, are not paid for by FICA), are gifts from the government. So are roads, food inspection, military protection and thousands of other valuables.
So I ask:
1. Should a person with poor credit be charged higher interest than a person with good credit, if the lender doesn’t need the loan to be repaid?
2. Should that lender even charge interest, or rather should it lend on a no-interest basis?
3. Should that lender actually lend at all, or should it only give?
4. What should be the determining factors with regard to whether a person or business receives a loan with interest (and what interest rate) vs. a gift?
Currently, the for-profit market makes those determinations, but is that the best, public-interest way? The for-profit market puts roadblocks in the way of “money-needers” having poor credit. But, should all such money-needers be denied money or charged more for it?
What happens to America, when someone wants to buy a house or rent an apartment, build a business, pursue an invention or get an education, but can’t receive an affordable loan? No one knows.
Is there a homeless genius out there, whose ideas could revolutionize the world, but whose homelessness precludes his advancing those ideas? No one knows.
Is there a 180 IQ somewhere, who can’t afford to go to college, not only because of tuition costs, but because she needs to work to support her family? No one knows.
Every year, millions of dollars are destroyed in our economy, as loans are repaid. How much has this money destruction inhibited economic growth and contributed to recessions and depressions, joblessness and misery? No one knows.
Is private banking’s profit motive the best determinant (or even a good determinant) of “who-gets-money“? Is credit rating the best allocation method for America? Currently, the government spends trillions answering that question. But the private banks spend even more trillions.
Consider the criminal banksters who caused the Great Recession. What role in “who-gets-money” should they have? Then consider private credit rating agencies that gave AAA ratings to worthless investments — ratings that helped cause the Great Recession. What should be their role in “who-gets-money“?
Finally, consider our inept, politically driven Congress, President and Supreme Court. Should they be the sole determinants of “who-gets-money,” or do the private sector criminals provide some sort of economic balance against the public sector criminals?
In short, how should America decide “who-gets-money”?
Questions, questions, questions. My intuition (without proof) says:
1. Federally owned banks would be less criminal than the large privately owned, profit-driven banks. Some may believe that small banks would be more responsive to the public, though my personal experience with a local Social Security office (survey of one) has been excellent. A federally owned agency can deal with the public, just as well as a private bank, even on an individual customer basis.
2. Lending, rather than giving, weeds out those who do not have a serious purpose, so though federally owned banks could give, they should lend.
3. The federal bank lending rate should be zero for all. If, according to whatever lending criteria the bank sets, the borrower deserves a loan, that loan should not carry interest. Neither interest payment to the government, nor punishment of borrowers, serves any public purpose.
Consider this a think-piece, and tell me: What do you think?
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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports