Take the Power to Create Credit Away from the Giant Banks and Give It Back to the People

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Many people - including former analyst for the U.S. Treasury Richard Cook - argue that credit is too important a function to be left to the private banks.

Indeed, even after taxpayers have given trillions in bailouts, backstops, guarantees, and other gifts, the giant banks are still not lending out much credit to individuals or small businesses.

The talking heads say that real reform of this nature is not "politically feasible". But not politically feasible doesn't actually mean anything except that the powers-that-be don't want it.

We have been throwing ourselves against a brick wall trying to force the giant banks into doing the right thing, but as Buckminster Fuller said:

You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.

A Better Model

So what is a better model?

Gold advocates argue for a return to a gold-backed standard. This would, in fact, be a vast improvement over the fiat currency system we have now, as it would help to stabilize the currency, add discipline and consistency, and reign in the funding of unnecessary wars and other imperial mischief which are funded by the unlimited printing of new fiat dollars.

But Ellen Brown argues that a gold standard restricts credit for the little guy, not just Uncle Sam. If Brown is right - and given that the too big to fails are refusing to lend to most little guys - public banking might be the only way to restore a healthy economy and ease the pain for the average American. (Brown also argues that it was actually the bankers - and not the populists - who forced the adoption of a gold standard in the 1890s, and that the true meaning of the "Cross of Gold" speech has been forgotten).

But as discussed below, it may not be necessary to choose between a gold standard and other options.

National Public Bank

AFL-CIO president Richard Trumka told Congress last week:

If the Federal Reserve were made a fully public body, it would be an acceptable alternative.

The American Monetary Institute proposes the following alternative:

Incorporate the Federal Reserve System into the U.S. Treasury where all new money would be created by government as money, not interest-bearing debt; and be spent into circulation to promote the general welfare. The monetary system would be monitored to be neither inflationary nor deflationary.

Second, halt the bank's privilege to create money by ending the fractional reserve system in a gentle and elegant way.

All the past monetized private credit would be converted into U.S. government money. Banks would then act as intermediaries accepting savings deposits and loaning them out to borrowers. They would do what people think they do now. This Act nationalizes the money system, not the banking system.

Bloomberg News columnist Matthew Lynn writes:

The U.K. government needs to start thinking about what it will do with all the banks it now owns. The answer is simple: Hand them to the people...

Instead of selling the stakes it acquired in the financial system to other banks, or listing the shares on the stock market, it could create mutually owned societies. Royal Bank of Scotland Group Plc could be a people's bank, owned by everyone.That would ensure more diversity, competition and stability, all goals just as worthy as getting back the money Prime Minister Gordon Brown's government spent on bank rescues...

Sovereign nations such as the U.S. and England have the power to create credit and money (and see this, this and this). Taking the credit-creation power away from the banks and giving it back to the nation would ensure that credit is freed up for people's use, and the stranglehold over the economy is taken away from the too big to fails.

State Public Banks

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