President Obama on Wednesday announced the nomination of Janet L. Yellen to be the first woman head of the Federal Reserve, calling her “one of the nation’s foremost economists and policymakers” who would be a champion for American workers.
Obama said Yellen was committed to the central bank’s dual mandate of stable prices and maximum employment.
But Obama stressed Yellen’s concern for one part of that mandate — reducing unemployment — as he and she emphasized that the work of recovering from the Great Recession was not over.
Yellen, the current Fed vice chair, is widely seen as willing to tolerate somewhat higher levels of inflation in order to reduce unemployment. That view brings her strong Democrat support but is expected to produce Republican criticism, although the Senate is likely to confirm her.
“She’s committed to increasing employment and she understands the human costs when Americans can’t find a job,” Obama said.
If only President Obama would have stated instead: “She’s committed to broadening private sector individual citizen ownership of FUTURE productive capital assets and increasing economic growth and employment, and she understand the human costs when Americans can’t find a job and lack the opportunity to acquire productive capital ownership that is self-financing and pays for itself.”
The Federal Reserve controls the money supply in the world’s largest economy.
While Chairman Benjamin Bernanke failed the America people on such a policy approach, Janet Yellen and other members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans where there isn’t enough savings in the system to finance economic growth.
Before I addressed problems with Federal Reserve policy choices, it is important to point out the wording of Section 13, Paragraph 2 of the original Federal Reserve Act of 1913.
2. Discount of Commercial, Agricultural, and Industrial Paper
Upon the indorsement of any of its member banks, which shall be deemed a waiver of demand, notice and protest by such bank as to its own indorsement exclusively, any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Board of Governors of the Federal Reserve System to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act. Nothing
in this Act contained shall be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being eligible for such discount, and the notes, drafts, and bills of exchange of factors issued as such making advances exclusively to producers of staple agricultural products in their raw state shall be eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except bonds and notes of the government of the United States. Notes, drafts, and bills admitted to discount under the terms of this paragraph must have a maturity at the time of discount of not more than 90 days, exclusive of grace.
SAME PARAGRAPH UNDER CURRENT LAW:
2. Discount of Commercial, Agricultural, and Industrial Paper
Upon the indorsement of any of its member banks, which shall be deemed a waiver of demand, notice and protest by such bank as to its own indorsement exclusively, any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Board of Governors of the Federal Reserve System to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act. Nothing in this Act contained shall be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being eligible for such discount, and the notes, drafts, and bills of exchange of factors issued as such making advances exclusively to producers of staple agricultural products in their raw state shall be eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except bonds and notes of the government of the United States. Notes, drafts, and bills admitted to discount under the terms of this paragraph must have a maturity at the time of discount of not more than 90 days, exclusive of grace.
[12 USC 343. As amended by act of Sept. 7, 1916 (39 Stat. 752), which completely revised this section; and by act of March 4, 1923 (42 Stat. 1478). As used in this paragraph the phrase “bonds and notes of Government of the United States” includes Treasury bills or certificates of indebtedness. (See act of June 17, 1929, amending section 5 of Second Liberty Bond Act of Sept. 24, 1917). As to eligibility for discount under this paragraph of notes representing loans to finance building construction, see this act, section 24).]
The Federal Reserve was intended in part to replace the government debt-backed United States Notes (Greenbacks), National Bank Notes, and Treasury Notes of 1890 with private sector asset-backed Federal Reserve Notes.
U.S. entry into World War I was financed on debt, which resulted in backing the new Federal Reserve Notes with government debt rather than private sector assets. This was being paid down when the 1929 Crash came, fueled by money creation for speculation on Wall Street, driving the Dow up to unheard-of levels.
The Keynesian New Deal was financed on debt, and then World War II (against Keynes’s own recommendation!), causing debt to balloon. The idea that only government debt can back a currency instead of private sector assets has resulted in a global economy where an asset-backed reserve currency simply doesn’t exist any more.
In 1935 Dr. Harold G. Moulton, then president of the Brookings Institution, presented a counter proposal to the New Deal that was based on private sector initiative backed up with asset-backed instead of debt-backed financing. It was completely ignored.
Bernanke has yet to support the policies that will result in substantial double-digit GDP growth while simultaneously broadening, private sector individual ownership in FUTURE wealth-creating,income-generating productive capital assets. Hopefully Yellen will.
What is needed is to implement the Capital Homestead Act. (http://foreconomicjustice.org/?p=8942) with interest-free capital credit loans made available via super-IRA-type CHA accounts, repaid with the future earnings of the investments. Thus, instead of the Federal Reserve slashing bankers’ cost of money, the capital credit loans would be directed to enrich ordinary Americans by systematically broadening private sector individual ownership of the formation of FUTURE productive capital investment to empower EVERY American to accumulate over time a viable capital trust (super-IRA) portfolio of stock in diversified companies and reap the full earnings payout of corporate earnings as dividend income to support their livelihood and retirement.
Right now the Federal Reserve creates money by loaning it to banks, who re-loan it multiple times because of fractional banking rules. With Capital Homesteading, money would be created by loaning it directly to citizens via banks at near-zero interest to invest in FUTURE wealth-creating, income-generating (full dividend payout) productive capital assets formed by producer companies. To build real wealth and also phase out our near-defunct social security scheme, the new full-reserve money would go into a long-term retirement account to be invested in dividend-paying, asset-backed shares of corporations. That way, money power would be spread to all citizens. The middle class would be invigorated using the principle of compounding interest, instead of being decimated by mushrooming public and personal debt.
The Federal Reserve could play a more positive role, removing artificial barriers to equal citizen access to acquiring and owning productive capital wealth. By creating asset-backed money for production, supported by growth-oriented tax policies, the Federal Reserve could truly help promote shared prosperity in a market system.
Here’s where the asset-based money would come from:
As a citizen of the United States, Joe Lunchbucket gets a notice in the mail from the Government that the U.S. Congress passed the Capital Homestead Act of 2014. A government survey of the capital growth needs of the economy has determined that in the coming year new and existing small and large for-profit companies want to sell $2.31 trillion worth of newly-issued, full dividend-payout, full voting shares to buy capital assets to meet their growth and modernization needs to meet the demands of their U.S. and global customers.
The Act gives all companies a way to save costs, meet new customer demand for new and better products and services, and even begin to construct and modernize new infrastructure through citizen-owned for-profit corporations.
The notice informs JLB about a new right of citizenship under the Act. Like access to the political ballot, Joe has the right, if he chooses, to receive a free government-issued Capital Credit Card. For the coming year this will entitle Joe to receive free of charge capital credit to purchase with interest-free “new money $7,000 worth of the newly-issued shares of “qualified” companies. Joe will not be at risk if the bank loan cannot be paid off, because the loan will be insured by one of several licensed private capital credit insurance companies. The loan will also be reinsured by a for-profit capital credit reinsurance company established by many capital credit insurers.
Joe’s loan will be entirely backed by the anticipated profits in the form of dividends on each of the “qualified” shares that Joe, with his advisors, decides he wishes to buy. The capital credit insurance pool with added insulation from personal risk if the shares fail to earn a dividend. After the loan on each of the shares is repaid, Joe will receive dividends directly as “supplemental income” over and above income received from his work and all other sources.
The notice would also inform Joe that he should go down to his local commercial bank that is a member of the Federal Reserve System to set up in his name a “Capital Homestead Account” (CHA). The CHA, like an Individual Retirement Account (“IRA”), is a “tax-shelter” for Joe to accumulate each year income-producing investments for meeting his future consumption expenses. Joe’s CHA is designed to distribute dividend incomes during Joe’s working career as well as when Joe retires or becomes disabled. Joe’s Capital Credit Card would authorize his CHA “tax shelter” to be the legal vehicle for receiving each loan to purchase and insulate Joe from taxation when he buys “qualified” shares from the market.
Each loan for buying shares would take the form of the bank’s promissory note, which is backed by the borrower’s “bill of exchange”, which in turn is backed by the present value of the full untaxed stream of future profits paid out to Joe’s CHA. These anticipated (but obviously uncertain) future profits would in turn be turned into “future savings” when future tax-free dividends from tax-free profits are used to pay back the money borrowed by Joe’s CHA. Future profits would be generated through the production and sale of future consumer goods and services produced by the company issuing the shares bought by Joe’s CHA.
The bank subtracts from the loan principal borrowed by Joe’s CHA a discount to cover its own service fees and capital credit risk premiums. Each bank’s promissory note to a borrower like Joe is a form of asset-backed “money” (over and above money issued by the government in the form of coins and official currency). Banks can take Joe’s bills of exchange directly to the discount window of the regional Federal Reserve Bank to be used to “purchase” (reduced by a Fed discount) newly-issued new currency or Fed deposit accounts under Section 13, paragraph 2 of the Federal Reserve Act. In other words, “asset-backed money” and new capital credit can be created in ways that it can be repaid entirely with “future savings”, making it possible for every citizen to become a capital owner, without attacking private property rights or depending on past accumulations of existing owners.
Support the Agenda of The Just Third Way Movement athttp://foreconomicjustice.org/?p=5797
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice
Support the Capital Homestead Act athttp://www.cesj.org/homestead/index.htm andhttp://www.cesj.org/homestead/summary-cha.htm
See “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at NationOfChange.orghttp://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624and “The Income Solution To Slow Private Sector Job Growth” athttp://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490.
