Like many of you, I have read dozens of articles over the past few months dealing with our economic crisis. Having thus established my credentials and being unencumbered by years of confusing economic training, I offer my 959 word solution to our current problem:
Our National Debt, currently standing at over $11 trillion and expanding very rapidly, consists mostly of Treasury Bills, Notes, and Bonds. That private corporation, the "Federal"- Reserve insists that the U.S. Treasury issue these as a requirement for them to create an equal amount of dollars. We trade U.S. Treasury notes for Federal Reserve Notes. Unfortunately, we taxpayers must provide the unending interest payments generated by $11 trillion in Treasury instruments. That interest is over $500 billion per year and represents most of the money we Americans pay every year with our personal income tax. If we eliminate the Treasury Instruments, we eliminate the interest payments and we can lower all of our taxes by over 50% - stimulating all of us and our economy to boot. This is easily accomplished by buying that private banking cartel we call the "Federal"- Reserve and subsuming its functions into the Treasury Department - where they rightfully belong. Since the U.S. Treasury can crank out money just as easily as the privately-owned "Fed,"- there would be no requirement to produce an equal amount of Treasury Bills, Notes, and Bonds. The ones in circulation could be redeemed at maturity and our National Debt would rapidly shrink. New money entering our economy would then reduce our National Debt, instead of enlarging it - as is currently the case. With the "National Debt"- gone, we Americans just might get our gold back that the "Fed"- took as collateral. That's right, that privately-held corporation called the "Federal"- Reserve, now holds all of America's gold in Ft. Knox as collateral for the paper money they cranked-out on their printing presses.
Treasury Instruments tie-up money that could be better used elsewhere. If these Bills, Notes, and Bonds were eliminated, there would be 11 trillion unencumbered dollars available for investment in businesses, real estate, and state and local government bonds. To take the place of the Treasury instruments in our money markets, the Treasury can insure some corporate bonds backing the principal and interest with the "full faith and credit of the United States."- The interest rate that the issuing corporation pays investors on these insured notes and bonds would be less than what is paid on their uninsured debt and this difference would be sent to the Treasury by the corporation as payment for the insurance. Of course, the debt instruments of more financially sound companies would have a narrower spread than the lower grade paper and this spread would no doubt fluctuate over time as the corporation became more or less solvent, automatically adjusting the price paid for the insurance to the risk involved. The U.S. government would have a significant new source of revenue and corporations would gain easier access to funding while reducing their expenses. Everybody wins.
The U.S. economy, even in its current anemic state, cannot absorb a transfusion of $11 trillion without serious disruption and dilution of the dollar (inflation.) The best way to infuse these "lost"- funds while controlling inflation is to increase the reserve requirements for loans at lending institutions. Currently, banks have a 10% reserve requirement on checking deposits and, essentially, a 0% reserve requirement for savings accounts and CDs. A 10% reserve requirement means that if your bank takes in $100 in a checking account, it can loan out $1,000 to somebody else. Your bank simply "creates"- another $900 of "money"- by making that loan. If that sounds bizarre to you, take a minute and think about what a 0% reserve requirement means. Is it any wonder our financial house of cards is collapsing? Currently, banks create about ten times as much "money"- as the Federal Reserve System. Do you think that our economy might be on a little firmer footing if the reserve requirements were slightly higher--a little more meaningful? We can control inflation by balancing this infusion of money into our economy while increasing the reserve requirements of lending institutions. This will not only stimulate our economy at a time when it is sorely needed, but also fortify our banking system (at a time when it is sorely needed.) Balance is the key. If we raise the reserve requirements too little, we risk inflation... raise them too much, and we continue our deflationary spiral into depression.
U.S. history, from 1763 to today, is littered with periods of tight money resulting in recessions and depressions. Historically, the reason why access to money is easy one day and difficult the next has been due to big banks acting in concert to "shear the sheep"- and to eliminate their competition. (See: www.dailyrepublic.typepad.com/flint/2008/12 for many examples.) I see no difference today. If private banks are unwilling to lend, perhaps it's time they had competition from a public entity. The Treasury could declare several banks complete failures, take them over, purchase other banks' "toxic assets,"- and serve as an ever ready "lender of last resort"- for Americans. This national bank would surely be a losing proposition, at least initially as "toxic assets"- turn "deadly,"- but it would help clear-out the other banks' problems and let them return to normalcy. Eventually, the economy will pick up and the asset base will grow, returning at least some of our taxpayer investment.
Alternatively, we could just give every man, woman, and child in the United States $10,000 to spend as they see fit. With 300 million of us, this would cost $3 trillion, about the amount spent so far using the experts' plans - with no relief in sight. And, honestly, this plan helps far more people and would be way more fun.
If you have any better ideas, send them in and remember, your 1,000 words could be worth $1 billion--not a bad days pay in these times--even for a banker!
