Limited Purpose Banking - The Time May Be Right

Two years of recession and the Fed seems not to know what to try next. Our political elite can only suggest that the the stimulus wasn't big enough and therefore more of the same should be done. The conservative voices continue to ring clear about the errors of the current approach and cry for less government and less taxes, which would be great; but we are really talking about is a complete overhaul of government and creating or recreating a whole new American consciousness and that type of revolution takes a lot of time. So mean while back at the ranch, we need to be doing something positive as of yesterday!

About a month ago, I came across an article, written by Professor Laurence Kotlikoff and Christopher Chamley. The article is written as an Action Memorandum to Secretary of Treasury, Timothy Geithner. The good Professor starts out by very politely explaining

"you appear to be misdiagnosing the problem and consequently applying
medicine that won't work." Kotlikoff goes on to explain that the the problem is
not liquidity, the problem is trust."

The article was written back in Ma y of 2009 and he was referring to the well earned lack of trust in the financial sector. His solution to resolving this lack of trust is to institute " limited purpose banking". If you are not familiar with this concept of banking, this article is a great place to start.

Although Kotlikoff was focused on the lack of trust in the financial world, I think the lack of trust is much broader. Currently the banks are sitting on trillions of dollars; they don't trust government and the unknown new financial system of controls that are coming. Business is sitting on trillions of dollars and they don't trust government or the bankers for good reason. The American people are saving instead of spending because they don't trust government to know what they are doing and they don't trust the financial manipulators either. There would appear to be plenty of money everywhere, but there is no trust and the economy is practically at a standstill.

Putting aside the changes that will occur with the November elections, the conservatives are not going to be able to make the sweeping changes that are necessary any time soon. But the American people with their lack of trust of government in general are desperate to hear just one good idea that they can clearly understand and that makes sense to them. They want something they can grab a hold of and say " Yes, this will work. Let's do it and let's do it right now."

I think limited purpose banking just might be the idea that the American people could get behind. It's easy to understand and it will make sense to them. Imagine , no more bank failures, no more market manipulations, no more fractional reserve banking, and it would greatly reduces the ways that the Fed would have to screw up the economy. Promoting and selling this idea will give a lot of credibility to the conservative movement.
The journey of rebuilding America in the image of our Founding Fathers, like all journeys, must start with the first step. Maybe limited purpose banking could be that first step.

Enough said for today.

Sense or nonsense?