O’Malley’s Utopian Banking Scheme
Our money is not backed by gold, silver, or any other material. Rather, its value comes from our mutual, collective faith in the stability and long-term prospects of the United States, as well as the physical assets of the United States–our land, parks, timber, coal, etc.. It’s backed by our creative, productive labors our output. It is “legal tender,” which means you can’t legally refuse to take it. But if we lost faith in the government, in society, the legal tender aspect would fail: people would simply switch to some other form of money they had more faith in. Our paper dollars work because we collectively believe in ourselves.
The amount of paper money circulating is roughly indexed to the gross national product–that is, the money supply is determined by our collective labors, our output and creativity. The Federal Reserve Bank looks at the GNP; it looks at wage levels, price levels, employment figures and other indicators and decides how much money should circulate–the money supply . This in turn effects interest rates–the cost, to you, of borrowing money for a house, or a car, or a student loan. Our money, then, the money supply, is indexed to our national creativity, energy and ambition. We create it, we give it value.
Why, then, do you go to a bank for a loan? If money is a symbol of our creativity as a society, a symbol which derives its value from our collective enterprise, why must you go to a bank to borrow it, and pay extra costs to the banker?
The federal government will loan money directly to its citizens. Interest rates will cover only the costs of administering the loan–let’s imagine that’s .5%. In this proposal, all citizens are entitled to borrow an amount of money connected to their net worth and annual income. Loans would be had simply by applying at the post office. The post office would quickly check your income tax records, which are computerized; a mathmatical formula would establish the maximum you are entitled to, and then the postal clerk would give you the money you requested. The more you borrowed, the longer you would have to pay it back. There would be no review of what you planned to do with the money, but you would be strictly obliged to pay back. Those who failed to pay back the loans would be jailed or set to work at public service jobs until they had paid off the debt.
Borrowing money is incredibly cheap. Say you want to buy a car. Instead of paying 8% interest to a bank, you would pay .5% interest to the federal government. Buying a car would suddenly become much easier. It would stimulate the auto industry and all related industries. If you wanted to put an addition on your house, you would borrow $100, 000 at .5% interest. Lots of people would hire carpenters, builders, architects: the lumber industry would be stimulated, the home furnishings business, etc. Suppose you wanted to buy a house. You need $300,000. For 30 years at 6%, the monthly payment would be $1798.65. Under O’Malley’s Utopian Banking Scheme your interest rate would be .5%, and your monthly payment would be around $800–less to half as much. If you wanted to start a business, money would be easy to borrow, eliminating the major barrier to new enterprises. And you would have all the extra money to spend on goods and services
The disadvantages are only to those who loan money at interest–they would be forced to work for a living, as the value of the money they hold would be reduced. But there would probably be a secondary market in high risk loans. There would also be an initial period of inflation, which would injure people on a fixed income.