US Banking & Finance Reform

The US federal government has created several threats that hang over our economy. These include the potential insolvency of our banks and the value of all of our assets from money printing inflation, $300 trillion in bets with hedge funds,  excessive, unnecessary government debt, excessive use of credit in all economies,

Money printing causes inflation. The Federal Reserve increased the money supply by 450% during the quantitative easing years.  This money is now on the books of the big banks as required liquidity.  Unfortunately, these banks have bet all of it and more on derivatives with the hedge funds.  These banks should use their assets as collateral against losses and be limited to that. 

But any banking crises is sure to loosen the printed money.  This makes current dollars worth less and results in price increases, first in commodities and next in everything else. There is no upside to inflation this time, because our wages, incomes and home prices will go down instead of up due to lack of demand. 

Banks need to be able to pay depositors and need to find a way to keep their ATMs full and a way to us some of their liquidity to transfer customer accounts to other banks. Banks should negotiate better deals on legal costs if bankruptcy is a possibility.

When this 450% increase in the money supply is finally released, we will begin to pay it off.  We can do it in one year if we want a 450% increase in prices in one year.  We can pay it off in 10 years by increasing prices every year by 45%. Or we can pay it off in 45 years by increasing prices every year by 10%.  Every country who has printed money has had to pay it off one way or another.

Congress needs to set limits on how much banks would be allowed to use placing bets with derivatives.  The limit should be the amount of real assets held by the bank, minus hedge fund bets.  If a bank loses enough bets and has to pay them off, they would be required to declare bankruptcy, begin to transfer customers to other banks, sell all of their assets to pay off the bets and return their liquidity money back to the federal reserve.

Excessive government debt can be brought under control by reducing spending to less than revenue and begin paying down the National Debt. There is no other way. 

Excessive personal and corporate debt can be controlled by restricting lending to qualified borrowers. Low interest rates are being manipulated by indebted governments so they can waste more money. Government needs to reduce its own footprint to reduce its costs. Congress needs to cut departments, agencies and programs.  For the US government, I suggest that it cuts the unconstitutional costs.

As soon as government debt begins to be reduced, interest rates can rise. This may mean fewer families will be able to get mortgage loans.  It may cause families to buy cheaper houses.  It may mean keeping your car longer and not buying a new car, or buying a used car instead or anything to eliminate your car loans.  Corporate debt will be limited by corporate assets used as collateral to secure the debt.  This will limit speculation, not a bad thing. But all of this will reduce demand.  It can be done gradually by tightening lending and inching up interest rates a quarter point at a time.  

All of this credit, waste, fraud, abuse and speculation creates a bubble.  Everything is in the bubble.  It’s like musical chairs; when the music stops, you need to find a chair to land on.

There should be less new construction and more upgrading and renovation.  It should follow the law of supply and demand, so if moving to the exurbs is less expensive and is a viable option, demand in the more expensive metro areas may drop.

Government may cut out spending on high cost, low utilization expenses like public transit, more parks, bike lanes, multi-use trails, recreation, senior centers, new college campuses, multi-million dollar salaries, wildlife preserves, nanny-state busy-body over-supervision of the people, free marketing services for businesses and industries, more money for education and healthcare, viewing government as a jobs program and other government excesses. 

Excessive stock and commodity prices will drop when the bubble breaks or leaks, because these prices factor in future demand and attempt to predict future recovery. 

Norb Leahy, Dunwoody GA Tea Party Leader