This presentation is intended to give a step-by-step (eventually illustrated) explanation of how the Capital Homestead process would flow….
From a business seeking to grow by issuing and selling new shares;
– To the Capital Homesteader’s account seeking feasible Capital Homestead investments;
– To the local bank that scrutinizes, monetizes and discounts the Capital Homesteader’s bill of exchange (arranging for capital credit insurance), issues a promissory note to the Capital Homesteader, and rediscounts that bill of exchange at the discount window of the regional Fed;
– To how the new currency or demand deposit is created by the regional Fed so the business can expand (buy new plant and equipment, hire more people, etc.).
To where the process is reversed:
– The company generates profits distributed as dividends to the Capital Homesteader;
– The Capital Homestead loan is repaid to the local bank; and
– The new currency is cancelled (or recycled).
Script for Capital Homesteading Cartoon/PowerPoint
(Dave Kelly, Michael Greaney, Norman Kurland, Dawn Brohawn––Center for Economic and Social Justice www.cesj.org)
Set-up notes:
1. Objective of the Capital Homestead Act: Empowering citizens through ownership sharing.
2. In the U.S., we have the right to vote. But do we have any real power? Power follows property (ownership), just as property follows access to the means to acquire and own productive (income-producing) wealth.
3. How do we articulate the message so that the 99 percent GET IT and buy into CHA?
4. CHA would change the system at the local, state, national and global levels.
5. Kelso: The law of the Urgent and Important (our basic survival and security needs are more immediate than our higher human needs, i.e. Maslow’s hierarchy of human needs).
6. A War of Ideas: the Just Third Way vs. capitalism and socialism.
7. The 3 principles of economic justice
• Participative Justice
• Distributive Justice
• Harmonic Justice/Social Justice (encompassing the Kelso-Adler principle of
Limitation)
8. This presentation starts with the assumption that the Capital Homestead Act has already been passed.
Defining our Terms:
1. Property: It’s not the natural resources and the things one owns. It’s the right to be an owner, to control what one owns, and to share in the fruits (profits) of what one owns. It’s the right to own our labor (the opposite of slavery). Slavery, which means that you have no rights, is the condition where someone else owns your body and all that you and your labor produce.
2. Growth: Sustainable increases in production and private sector jobs depend on growth in customer purchasing power. The last time we had real, sustained growth was during WW II when the customer was the U.S. government and when unemployment went from 17 percent to 0 percent. Our government supplied maximum customer power for war and weaponry. We can supply the means to achieve maximum customer power to all citizens, but now for peace and prosperity.
3. Money: It’s not just coin, currency and demand deposits (checking accounts); it’s anything based on trust or promises and backed by assets that can be used to settle a debt or engage in a deal where each party will benefit.
(Note: In the following wherever any underlined word or phrase appears it will be a LINK to a definition. Plus, we are starting here with the scenario that the Capital Homestead Act has been passed.)
SCENE 1: Men and women sit around a large table in a business board room
BD member 1: Our new customers are out there. But how do we finance our expansion?
BD member 2: We don’t have enough savings, or a fat-cat investor.
BD member 3: Well, there is another way, a new way.
BD member 4: Yes, the new Capital Homestead Act was just passed by Congress and signed by the President.
BD member 5: What does that do?
BD member 3: It will provide people with the right to obtain capital credit to buy our new shares.
And it doesn’t take away property rights from current owners.
BD member 1: Who’ll be able to get the credit?
BD member 4: All our workers as well as every Capital Homesteader.
BD member 2: What’s a Capital Homesteader?
BD member 3: Every man, woman and child. They’ll all have an equal right to a yearly allotment of capital credit to purchase our newly issued shares or those of other companies. This credit will provide the investment needed for new private sector growth, technologies, sustainable energy systems, and even infrastructure like highways. Citizens can now buy new capital on credit backed by “future savings” in the form of new marketable goods and services produced by companies like ours.
BD chair: But remember, these must be full-dividend-payout voting shares.
BD member 3: Yes, and these dividends and new jobs will create more customers with more money to spend.
BD member 4: And the money for us to hire new workers.
BD member 3: And expand our plant.
BD member 4: And this will cut the cost of government, balance the budget and lower taxes.
BD member 5: How?
BD member 3: When people have money in their own hands, they don’t need the government to redistribute it.
BD member 4: Then the government can keep the promises of the past, like Social Security, while paying down the debt and cutting the deficit.
BD chair: OK, how will we market the shares to the Capital Homesteaders?
BD member 3: Through brokers.
BD chair: Well, we just need to vote on a resolution to move forward. All in agreement, raise your hand.
ALL HANDS ARE RAISED IN VOTE OF AGREEMENT……………….
SCENE 2: A living room with a husband, wife, college-age son and daughter and their trusted financial advisor
Husband: How will each of us get the money to buy shares?
Advisor: [BREAK THIS INTO SEVERAL SLIDES]
– First you set up your own asset-accumulation trust, a Capital Homestead Account – a tax shelter like an IRA.
– This account will periodically receive a voucher from the government entitling the trust to administer each year’s capital credit allotment to buy newly issued shares.
– When dividends on the shares are paid out, they first pay off the local commercial bank that made the capital credit loan and then all remaining dividends go to you to supplement your labor and all other forms of income.
– It works like a tax-exempt Employee Stock Ownership Trust (ESOP), which was already in the law.
The CHA allows you to borrow with “pre-tax” dollars to purchase capital assets that pay for themselves out of the profits they produce.
Husband: How will we make our selection of shares?
Advisor: With my advice. Also, the bank and the capital credit insurance company will be rating the shares in which you’re investing.
Wife: Where will we get the money?
Advisor: From your bank.
Husband: But banks only make loans if you have collateral. Besides our house, we don’t have a lot of other investments or savings.
Wife: Yes, as they say, “you need money to make money.”
Advisor: The Capital Homestead Act will provide you and every citizen a new source of money and collateral. This will help you invest in capital growth assets that will pay for themselves with the future profits they generate. The Capital Homestead Act will also encourage private insurance companies to issue capital credit insurance. They will pool all the risk premiums to cover losses in case a specific loan is not repaid. Capital Homestead loans are “non-recourse” loans — that means the bank can’t seize your home or other personal assets if your capital loan goes bad.
Husband: I still don’t understand where the money comes from.
Daughter: Some Tea Party people say this is just one more government program.
Son: My Occupy friends say it’s another Wall Street rip-off and conspiracy with the Federal Reserve.
Advisor: Neither is correct. Under the Capital Homestead Act the new money starts with a loan you get from your local bank or other qualified lender. The bank turns your loan into money by selling it to the regional Federal Reserve Bank, which creates currency or a demand deposit to buy it.
To see how this works, it’s very important to understand what money really is. It’s anything that is used to settle a debt. Rather than being top-down, Capital Homesteading is a bottom-up way to finance private sector growth without inflation, while creating new jobs and widespread citizen ownership.
Son: Wow! Sounds revolutionary.
Advisor: Yes. We no longer need “old” money – including the savings of the rich – to pay for new productive capital assets.
SCENE 3: Local bank with Loan Officer, Husband and Wife and Financial Advisor
Husband: These are the shares our Capital Homestead Account trustee would like to buy for us and each of our dependents, and here’s our offer in the form of a Bill of Exchange. This represents the present value of future goods and services that will be produced by the company we’re investing in (he hands the Bill of Exchange to the loan officer).
Loan Officer: Okay, the bank and the capital credit insurer will evaluate the feasibility and risk involved in your offer. Also, your advisor and the broker will continue to guide you.
SCENE 4: Same as scene 3 (Later)
Loan Officer: We have accepted your offer. Our bank will “discount” your loan, meaning it will take a percentage of the $7,000 of the new money your Capital Homestead Account will receive from the Fed as a loan to purchase the new shares. Our percentage will cover the “risk premium” on your capital loan, as well as our service charge for setting up the transaction and our profit.
Loan Officer hands a large “Promissory Note” to the Husband
(A big picture with the label “Promissory Note” is shown.)
Husband signs the Promissory Note.
Advisor (to husband and wife): This is how we create the new asset-backed money to build a nation of capital owners, from the bottom-up….
SCENE 5: Loan Officer puts the Capital Homesteaders’ Promissory Note in the bank’s vault with a caption that reads: “Backing the new Demand Deposit in the name of the Capital Homestead Account.”
SCENE 6: Discount window at the Federal Reserve Bank
Loan Officer hands the Bill of Exchange to the Fed Clerk behind the window.
Loan Officer: Here is the Bill of Exchange for our new Capital Homesteaders.
SCENE 7: Fed Clerk accepts the Bill of Exchange and hands a Promissory Note issued by the Federal Reserve to the Loan Officer.
Fed Clerk: This Promissory Note we are issuing to you backs your Demand Deposit — a checking account with the Federal Reserve. This checking account will transfer the new money to your Capital Homesteader’s account at your bank. The Capital Homestead Account will use the money to purchase shares from the company selling the shares. The company will then buy new equipment and expand its plant. The added capital will generate future profits first to repay the Capital Homesteaders’ loan, and then provide them with a future stream of dividend income.
Loan Officer signs the Promissory Note and hands it back to the Fed Clerk
The Fed Clerk hands the checkbook for the Federal Reserve Demand Deposit to the Loan Officer.
SCENE 8: The Loan Officer puts the checkbook for the Fed Demand Deposit in the Bank’s vault.
SCENE 9: (TEXT WITH ILLUSTRATIONS, if Bert can figure out a way to say it
graphically)
When the Fed accepts (“re-discounts”) the local bank’s promissory note (taking a percentage out for its administration costs), the new asset-backed money is issued in the form of currency or a demand deposit (checking account) with the Federal Reserve. The new money is transferred from the Fed > to the local bank > to the Capital Homestead Account trustee > to the broker > and finally to the company that sold the new shares to the Capital Homesteader.
With the money (Capital Homesteaders’ investments), the company builds new plant and buys new equipment, creates new jobs, and begins producing goods or services.
Profits generated from the Capital Homestead investments are distributed to the Capital Homesteader’s Account.
Before the dividends become income to the Capital Homesteader, the CHA will first take these dividends and repay the lender (the local bank). The bank then repays the Fed.
At the end of the money creation-and-repayment cycle, the Fed cancels the money or re-issues it for the next round of Capital Homesteading.
SCENE 10: (TEXT AND ILLUSTRATIONS):
Through Capital Homesteading a nation can finance its growth with equal opportunity for every citizen to become an owner of capital. This can be done without taking away income or property from today’s owners.
Based on current White House figures for financing all forms of productive capital added each year, at modest rates of growth (2 to 3 percent) every citizen would receive – annually – a CHA voucher, giving him or her the right to obtain an equal annual allotment of capital credit ($7,000, at present growth rates) to purchase shares in a lender-approved business venture of his or her choosing.
Under Capital Homesteading, assuming no increase in growth rates, the average child born today would receive by age 65 the following benefits:
• A capital accumulation of $460,000, after taxes.
• Annual income of about $46,000 in after-tax dividends.
• From birth to age 65, a dividend income stream of $1.6 million.
This is how Capital Homesteading would create a nation of economically liberated citizen-owners.
THE END
