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 over $2 trillion worth of newly-issued, full-dividend-payout, full-voting shares to buy capital assets to meet their growth and modernization needs to satisfy demands of their U.S. and global customers.
The Act gives all companies a way to save costs by eliminating Federal income and payroll taxes without increasing government spending and future deficits, to expand to meet new customer demand for new and better products and services while reducing the need for direct business borrowing for financing that growth, and even begin to construct and modernize former public-sector infrastructure through citizen-owned for-profit utility corporations.
The notice informs JLB about a new right of citizenship under the Act. Like access to the political ballot, Joe now has the right, if he so chooses, to receive a free government-issued Capital Credit Card. For the coming year this will entitle Joe to receive free of charge a bank loan to purchase with interest-free, asset-backed “pure credit” money $7,000 worth of the newly-issued “qualified shares” of 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 sector capital credit insurance companies. To further spread the risk of potential default on the loan, reinsurance would be covered by for-profit capital credit reinsurance companies established by capital credit insurers.
The notice also explains that “pure credit” is a set of promises recognized as asset-backed “money” created under Section 13(2) of the Federal Reserve Act. Fed member banks in each of the 12 Federal Reserve regions since 1913 have the power to monetize “notes, drafts and bills of exchange arising out of actual commercial transactions . . . issued or drawn for agricultural, industrial, or commercial purposes” in that region. Such new money does not require backing by past savings or already accumulated assets of wealthy owners. Therefore, asset-backed Capital Homesteading loans can be offered interest-free but subject to discounts to cover servicing costs of the banks and the central bank, plus risk premiums on CHA shares.)
Joe’s loan will be entirely backed by the anticipated profits in the form of tax-free dividends on each of the “qualified” shares that Joe, with his licensed advisors, decides he wishes to buy. The capital credit insurance pool would insulate Joe from personal risk if the shares fail to earn a dividend. After installments on the loan for each of the shares is repaid, Joe will receive dividends directly as “supplemental taxable 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 through “future savings” (i.e. future dividends) each year dividend-producing investments (i.e., paid-for share accumulations) for meeting his future consumption expenses. Joe’s CHA is designed to receive Joe’s dividend incomes during his 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 his “qualified” shares from the CHA market and insulate Joe from taxation during the time future dividends pay for the shares.
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 dividends expected to be paid out to Joe’s CHA. These anticipated (but obviously uncertain) future tax-free dividends would in turn be turned into “future savings” when future dividends from tax-free profits are used to pay back the money borrowed by Joe’s CHA. Future tax-free profits of the company issuing the shares bought by Joe’s CHA would be generated through the sale of future consumer goods and services produced by the productive assets acquired with the money from the sale of the company’s shares to Joe.
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 Fed-created “money” (over and above money previously issued in the form of coins and official currency for covering wages, salaries, entitlements, investments based on past accumulations or for purchasing government debt-backed Treasury issuances and bonds.) 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 rediscount charge) newly-issued new asset-backed 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 to accelerate growth of a market economy by enabling every citizen to become a dividend-earning capital owner, without attacking private property rights or depending on past accumulations of existing owners.
Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm. See the full Act at http://cesj.org/homestead/strategies/national/cha-full.pdf
