I think we are on the verge of a serious discussion about our peoples future. This will necessarily entail a discussion of how the system is structured, as the policies and rules make a big difference in whether or not EVERY citizen has an equal opportunity to succeed. At the core of the problem are barriers that inhibit or prevent ordinary people from succeeding. These barriers have resulted in the concentration of productive capital wealth. One feasible way to significantly broaden capital ownership simultaneously with the responsible growth of the economy is to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. Removing barriers that inhibit or prevent ordinary people from purchasing capital that pays for itself out of its own future earnings is paramount as an actionable policy. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the federal government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street.
The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings.
The question is how is it possible to eliminate economic inequality and economic insecurity that creates fear that opportunities are disappearing for ordinary Americans and their children and grandchildren?
The plan should be to provide an equal amount of capital credit annually to EVERY child, woman, and man with the only requirement being citizenship. This would empower EVERY citizen, as an individual, to become an owner of the wealth-creating, income-producing capital formations simultaneously with the growth of the economy. One critical part of this solution is using the Federal Reserve Bank to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today — management and banks — that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation –– the Capital Diffusion Reinsurance Corporation (CDRC) –– through which the loans could be guaranteed. The CDRC would reinsure any portion of any financing risk assessed as reasonable and insurable but not already insured by the commercial capital credit insurance underwriters. In establishing the CDRC, the federal government would not be undertaking a new responsibility but merely simplifying and rationalizing an existing one. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
The Capital Diffusion Reinsurance Corporation would function similar to the Federal Housing Administration, generally known as “FHA”, which provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. The FHA insures mortgages on single family and multifamily homes including manufactured homes. FHA borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. While pay-downs on home mortgages require a separate source of income, capital credit for productive capital formation is self-liquidating, with the earnings from the investment the source of the pay-down.
Disclaimer: The Public Economist does not necessarily agree with the views expressed. It is first in the series of seven pieces which Gary has generously agreed to share with TPE.