January 27, 2009
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
America is currently in the depths of the most severe financial crisis in seventy years. We have narrowly avoided a total collapse of our banking system that would have initiated a titanic world depression. While measures have been taken to stabilize the crisis, the underlying problems are systemic. To produce a real, lasting solution, the only option is to reform our entire banking system. Several steps should be central to that effort:
- Nationalize the Federal Reserve. Congress should repeal The Federal Reserve Act of 1913 and put the Federal Reserve under the Treasury Department’s control. All money should issue directly from the Federal government, backed by the “full faith and credit of the US.” The Constitution provides this authority to Congress, although it may be necessary to extend the definition of “coin” to include more modern forms of money.
This idea is not as radical as it may sound. During the Great Depression, a similar proposal was presented to President Roosevelt by a group of University of Chicago economists. Its supporters included two intellectual luminaries of the 20th century, the economist Irving Fisher and the economist and Senator Paul Douglas (D-IL). Former Congressmen Wright Patman (D-TX) and Henry Gonzales (D-TX) each proposed such action when they were chairman of the House banking committee in the 1970s.
In this current credit crisis, the Federal Reserve has lowered interest rates almost to zero and has few other options available to provide liquidity to the system. The consensus now is that massive government spending is required to avert a collapse of the economy. That spending may be as high as $1 trillion. Coupled with the $700 billion bank bailout, the federal debt may soon have ballooned almost $2 trillion in just six months. This does not factor the expense of ongoing wars in Iraq and Afghanistan and unfunded welfare liabilities.
Not spending is not an option. The depression of the thirties was extended because the government cut fiscal spending too early in the recovery. Japan was mired in a ten-year depression because they would not take the necessary measures to stimulate the economy. We need to spend. But we also need to steer clear of additional debt and the malignant interest burden it brings. The necessary solution is to give the government itself the power to issue money. Ask yourself this: If you were lending money to yourself why would you charge interest?
Critics have traditionally argued that government cannot be trusted with this authority because it will cause inflation by printing money beyond the capacity of the economy to absorb and utilize the increased money supply. Yet the current system requires inflation to support the interest carry, due to compounding interest on the national deficit. The private banking cartel has not demonstrated over the past ninety-five years that it is any more reliable or trustworthy than the elected representatives of the American people when it comes to managing monetary resources.
Display article as PDF for printing.
Would you like to send this article to a friend?
Remember, if you have a question or comment, send it to .
