There are troubling questions lurking deep within our existing financial system that few of us dare consider. Here are just a few of those questions:
- What is the true cost of all the money our government is borrowing?
- When will foreign investors start demanding higher risk premiums?
- At what point does the government reach its borrowing limit?
- Will the government’s borrowing crowd out private credit needs?
- How will the government pay back all the money it’s borrowing?
- Will the government have to monetize the debt?
- What are the risks of inflation and hyperinflation?
- Is the government’s access to capital infinite?
- Is there a point when even our government doesn’t can keep the system afloat?
- Is there a better way that doesn’t involve so much risk?
Today, dire circumstances are pushing us into uncharted territory. The severity or our recent financial crises made it clear that systemic problems now cry out for require systemic solutions. Our moment of reckoning has arrived and the birthing of Capitalism 3.0 is already upon us. There is a world of possibility awaiting us in the midst of our current economic crisis. The key to unlock this hidden potential is a new answer to “The Money Question.” The current system–The 3C System–concentrates economic power in the hands of private, profit making institutions whose primary fiduciary responsibility is to provide a financial return to shareholders. That fiduciary responsibility trumps any other consideration, including the interests and needs of the larger society.
So The Money Question ultimately doubles back upon itself and stares itself in the face, like an infinitely reflecting mirror of trust. Upon this trust has been constructed an entire edifice we call the global economy. It’s an infinitely leveraged system built upon a foundation of debt that blows like sand in the wind. The debt based capital flows that are the lifeblood of our economy originate somehow, somewhere from within the inner sanctums of imposing temple-like structures in Washington, DC, huge banking towers that seem to touch the sky, and digital accounting entries that are as ephemeral as the 10 trillion dollars of wealth that simply evaporated during the recent liquidity crunch.
Today, there is righteous anger over the alleged fraud of bankers who were passing off toxic assets as sound investments; but this anger forgets about the long and distinguished tradition of swindling that has characterized the banking industry from its very inception. Student of economic history can cite a numerous examples of quick buck artists who chartered banks, issued bank notes and then absconded with the money, never redeeming the notes they issued. So the tradition continues with new tricks–financial innovations of increasing complexity invented at each new stage in the evolution of banking.
Nothing will change until we come up with a better answer to The Money Question. The Money Question is all about who has the power in our society to create money. There is a better way. If we extend the power to create money to other institutions in society, it will be possible to break the bonds of this form of debt slavery. This will not be easy. Bankers not only have economic power, but they also have the political power to influence public policy and perpetuate the status quo. Ultimately, America itself suffers most in this system. America has become beholden to foreign investors who hold trillions of dollars of U.S. Treasuries. The Money Question can be answered in one of three ways. The power to create money can be vested with the private sector, the public sector or the social sector. The current answer relies exclusively on the first option. In The 3C Form of Capitalism 2.0, the power to create money is given to an oligarchy of private commercial banks including the Federal Reserve Bank. In The 3D Form of Capitalism 3.0, the public sector, and the social sector will also be invited to the banking and investment banking party.
It’s time to reopen debate over The Money Question. Despite all the reported transgressions of Wall Street bankers, and righteous anger on Main Street, the two need each other. But they don’t necessarily need each other in the same way that they’ve needed each other in the past. Technology now provides us with intriguing possibilities for new ways to create and exchange money. We no longer need to give banks a complete monopoly over the creation of money. Other institutions with an integrated set of social, ecological and financial motivations can be empowered to create a new form of money to complement and stabilize the existing money supply. This simple innovation can redress the imbalances of the current system. We need not act out of vengefulness or fear, but we do need to act.
So what must we do now to stabilize the system? Regulatory reform has it’s limitations because clever lawyers can always devise ways around laws and regulatory agencies tend to become captive of the sectors they are supposed to regulate. Laws enacted in earlier times are inadequate to deal with the scale and complexity of our current crisis. During crises there is a push towards increased oversight, but as crises subside and fade from public consciousness, the political forces are arrayed against regulation. President Obama has put forth a bold plan for increased oversight, but the details and force behind it are lacking. Already, the political power of Wall Street is being mobilized to weaken what he proposes.
Doing nothing is not an option. Without social innovation and change, we are all headed towards a future of continued instabilities, wild swings in confidence, eroding trust in the system and eventually the collapse of the dollar and the institutions upon which a stable currency is based. When these institutions start failing, their collapse will be seen as obvious–as obvious as the collapse of credit markets and the meltdown of the real estate market.