Monday, January 30, 2012

A new way to bank

What if you could get direct deposit to your local post office? It's not so crazy and has huge benefits.

Instead of guaranteeing deposits in an institution the government has no control over and then regulating that institution as a way of saying "please don't make me cover all your crap!" Let's just have a national bank modeled on Credit Unions. We expand the Post Office to act as branches for the federal bank, but leave the banking to a revised FED. One that the depositors own, not the banks. There are many benefits to this model and few, if any, problems.

Deposits would give much more direct monetary control to the FED. If consumers are driving inflation, increase the interest paid to savings accounts. In a slump, lower the rate. The same can be done with loans. The FED can then create a balanced portfolio of mortgages, treasuries, business loans, and other assets as the needs of the economy require. Since no group of executives or investors will excessively profit from this, it will be as stable as the credit unions were through this crises.

During times of real economic collapse, these banks can be the means of direct consumer injection of stimulus. This provides for interesting opportunities. If all accounts are limited to $250k, then all account holders could be treated the same. While Warren Buffet may have an account and get some stimulus money he doesn't need, so will a person who pays no taxes because they are too poor. And there are far more of the former than the later.

Finally, imagine how much easier it becomes to distribute social security, unemployment, tax returns. The accounts can be limited to one per US citizen and thus be a great help to enforce immigration law.

The large banks would still function much as they do now. It is a fallacy that banks lend depositors money so others can buy a house. They create the debt out of thin air. If the bank is leveraged at 10:1, and require 10% down, it simply invents the other 90%. The down payment now becomes the banks reserve rather than depositors accounts.

We will never get such a system, but the idea does encourage new ways to think about things that we think we know. Maybe the biggest question this asks is who owns our economy? Is it the banks, or the government? Shouldn't means and responsibility reside with one group rather than risk goes to one while reward goes to the other?

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