Let the Big Banks fail, let the Stock Market lose 50% of its value overnight.
What happens next?
No need to panic. Nothing or early nothing will happen. We will only correct the errors of the Federal Reserve System (the Fed)
IF, and only if,
Credit is Returned to the People,
as a group of us is advocating.
Surely, quite a few people will lose their relative wealth. And that for sure will be a big psychological blow. But all wealth is relative. If we were all to lose equally (which, of course, never happens), no one would lose anything, except a few zeros behind the ?real? numbers.
Thanks mainly to the mismanagement of the Fed, the value of much wealth has been inflated. Were it to lose a few zeros, nothing at all of substance would happen.
But how do we get from here to there? We have pointed out the trajectory in our ?Patriotic Petition to Reform the Fed? (www.thepetitionsite.com/325/007/323/a-patriotic-reform-of-the-fed/). It is vital that you sign this petition.
First, we advocate that the Fed adopts some basic reforms administratively. The Fed can do that overnight. It needs to close all its windows to the Big Guys, and open up the Discount Window to Main Street. That, after all, was the original intent of the framers of the Fed.
If the Fed does not promptly adopt such changes, we suggest that the US Congress impose these changes legislatively. What the Fed administers is not money of the bankers, but the credit of the people. The value of national credit, the value on the basis of which money is created, is the accumulated and prospective value of the blood, sweat, and tears of all the people of a nation.
Indeed, credit is everywhere and all the time a personal commitment of the people. What gives value to the loan note is our credit?not the bank’s credit. The economic value of the note lies in our commitment to REPAY the loan.
Even when the bank sells that note to other investors, while the LEGAL responsibility belongs to the bank that sells the loan note, its economic value goes back to the ability of the person who receives the loan to repay the loan.
What the bank sells is only a sliver of the profit that it is expected to make during the life of the loan. It is this future income stream, derived from the note, which the bank sells. That is why most such financial instruments are called derivatives.
And if the Fed should be so stubborn as to ask the Big Banks to pay for an avalanche of lobbyists to change the will of the Congress, what is next?
The next demand of We the People will be to let the Fed pursue all its current functions?minus one. Minus the creation and distribution of money. This function can be released to a new public bank, let us call it The Public Bank of America.
Contrary to all presuppositions, our proposed reform is easy to specify and to administer. As we state in our petition, we ask that the Fed decides to issue
1. Loans?not grants?ONLY for the creation of new real wealth (neither for the purchase of consumer goods, nor for the purchase of financial assets);
2. Loans at cost of administration (not at variable interest rates);
3. Loans for the benefit of all the people in our country; hence, loans have to be issued not exclusively to financiers, but to individual entrepreneurs, governmental entities, cooperatives, and corporate enterprises that have Employee Stock Ownership Plans (ESOPs) in their constitutions.
Are we tired of the masters of mankind? Are we tired of living under the threat of the next financial catastrophe? Are we ready to experiment on how can we live in Concord for ever and ever?
Then, let us take this simple step right now. Let it be our New Year Resolution. Let us Reform the Fed.
Carmine Gorga is president of The Somist Institute. He is the author of numerous publications, including The Economic Process (2002, 2010). He blogs at http://www.a-new-economic-atlas.com and http://www.modern-moral-meditations.blogspot.com.