Saturday, March 31, 2012

Roger Mitchell on bank nationalization

Rodger says nationalize 'em. They had their chance and blew it.

Read it at Monetary Sovereignty
The end of private banking: Why the federal government should own all banks
by Roger Malcolm Mitchell

Money creation is a public utility. In the United State, the US Constitution, Article 1, section 8,10 establishes the federal government as the currency sovereign with a monopoly on currency issuance. Under present institutional arrangements, the federal government creates a central banking system, the Federal Reserve System, and allows banks and bank-like institutions to generate credit money denominated in USD by extending credit. The banking system is a public-private partnership already, and the argument that banks are "private" is simply mistaken. Regulators are already required to put insolvent institutions into resolution. According to Bill Black, the law did not fail in the present crisis, the regulators did.

There is little question that the federal government acting through elected representatives can determine money and banking in the US largely as it sees fit. The question is to what extent should the money creation process and banking in general be public or private. 

Those who favor free banking would like to see money and banking completely under the control of the private sector, with government borrowing from the private sector to fund itself and using taxation for revenue. Thus government would be a currency user, and its policy space would be extremely limited.

At the other end of the spectrum is a currency only system in which government issues currency directly without needing to tax to get revenue or to borrow to finance itself. This, of course, puts an enormous amount of power in governmental (political) hands, and it greatly expands policy space.

I don't think that there is a way to resolve the issues involved through going to either an entirely private or an entirely public system, or, for that matter, a remix of the present system. The problem isn't configuration bu rather perverse incentives that distort the system. Any system can work with the appropriate incentives and controls to make it work as desired.

One thing we do know for sure is that the present system is broken and that if it is not repaired, the next crisis is already in the making.

1 comment:

Unforgiven said...

Bingo. Though I don't really think they blew it. I think it was by design. They've done it many times in the past and are planning to do it again. With the national confusion about the nature of our economy, it once again will be easy to cover their tracks and blame it on the other guy.

In a way, it reminds me of the punks that rock a car back and forth until the alarm becomes desensitized...