Thursday, January 14, 2010

Nationalize the Banking System

Because the Federal Reserve System and banking regulation only allows certain corporations to increase the money supply (via lending), the private creation of money is monopolized by an exclusive cartel. This finance industry cartel is able to sustain higher margins than any other industry because of its privileged position. In essence the banking industry is allowed to tax all of us by causing asset inflation. We cannot escape this private taxation because we are forced to use US currency.

How much of a drag on the economy is this? The recent bailout was about $1 Trillion for about a 10 year bubble, so let's guess $100 Billion per year (roughly decade of 2000 to 2010 dollars). The additional volatility added by the asset bubbles (which generate banker profits) also drags down the economy. Let's estimate that at the same magnitude, $100 Billion per year. The finance industry is costing us about $200 Billion per year in waste. This economic inefficiency goes straight into the pockets of a few thousand finance industry leaders.

Without a complete revolution in worldwide government finance, there is no way to get rid of this Keynesian inflationary cycle (caused by long term constant increase in money supply from both government and private sources). I also suspect that it would be very difficult to eliminate the economic inefficiency. Financial dealings in our globalized world have become so complex and so interwoven with regulation that a Libertarian pure capitalist "efficient market" would be impossible.

What is the only rational alternative? Distribute the inefficiency over the largest group of people possible. NATIONALIZE THE AMERICAN BANKING SYSTEM! I am not saying that the government will be able to make the system more efficient. In fact, it will probably get LESS efficient, but this is outweighed by the benefit of distributing the money more evenly throughout the economy.

What would this mean? It would mean a direct government monopoly on lending. This is different from government control of economic assets. Private corporations still get to operate and generate profits from investment. You are free to invest your cash however you like it. The catch is the government monopolizes CREDIT.

This system would actually be MORE transparent than our current obfuscated financial system, where inflation generating asset bubbles are called "economic growth" by Wall Street. Instead, the government inflation "tax" would show up in congressional budget office documentation and statistics and everyone would know that the money was being spent directly by the government.

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