Financial Reform, Welfare, Unemployment
and the Creation of Jobs

Inflation is impossible. Imagine a small town with its own monetary system. There are 100 people and each one starts out with one dollar, so the total amount in circulation is $100. Twenty years later the population has doubled to 200 people, leaving half as much money to go around. That means there is only fifty cents available for each person. In order for the money to remain useful the prices for everything have to drop by fifty-percent. As population increases money becomes more valuable, and less money will buy more things.

Instead we see the population increase and prices constantly climbing higher and higher. But as the example above shows, that is impossible. The only way inflation can happen is if someone injects additional money into the economy out of thin air, and that is exactly what has been happening all across the world. In the U.S. that money is "poofed" into existence by the Federal Reserve and private banks. The banks are permitted to loan out ten times as much money as they hold in reserve (at the Federal Reserve bank) through a process called fractional lending. That means if the bank started out with $100 in real money, it can loan out $900. When that $900 is spent by the borrower it eventually ends up back in the bank as customer deposits. The bank then puts $90 in the Federal Reserve bank and loans out $810. This process repeats until the original $100 becomes $1,000. That is ten times the initial investment becoming profit for the banks, in addition to all the interest they charge on loans. Every year the bankers pocket hundreds of billions of dollars they create out of thin air, while flooding the country with money that drives prices higher and higher due to inflation, which is devastating to people on fixed incomes and those whose savings lose purchasing power.

If anyone is going to create money out of thin air it should be the government, via a government bank. It would create money when necessary to stimulate the economy, and destroy money when required to prevent inflation. Any profits the government bank might receive in interest payments would go back to the treasury and reduce the amount of taxes we have to pay.

Because government would provide opportunity as one of its basic functions, the government bank would make small business loans to anyone who could complete a free course in basic business management, at a fixed, low interest rate. These would be small loans, perhaps $5,000 in today's money, with larger loans available to those demonstrating sufficient business skill. The small loans would be enough to start a small shop or other business which could be nurtured into a thriving enterprise. If the business fails, as many do, the person borrowing would become eligible for another loan only after repaying the first. Private banks could compete with the government bank, but they would be prevented from loaning money they didn't have.

Financial bubbles and collapse are caused by a lack of regulation in the financial markets. These cycles result in situations where the public invests heavily in stocks, housing or a particular industry due to constantly inflating prices, then when the market collapses the wealth is transferred from the public to a very few sophisticated investors. The rich get richer and everyone else gets screwed.

There are a number of reforms which can take gambling out of the stock market and stabilize prices and the economy.

Requiring that stocks be held for a minimum of 90 days before they could be sold would end huge fluctuations in stock prices. People would invest in businesses that pay dividends rather than gambling on whether a stock price will go up or down over the course of a few days.

Financial instruments which enable people to make profits when stock prices fall (short selling) should be prohibited.

Speculation on commodity futures causes inflated prices because people who have no intent to actually use the commodities buy them long before the products would be delivered in hopes of selling the product later at a higher price. This is particularly true in the oil market, with speculators causing the price to be about 20% higher than supply and demand would currently indicate. The solution is simply to require anyone who buys a commodity to take possession of it, including offloading from transportation vehicles, before they can sell it again.

It should be noted that if these market reforms are instituted in just one country, investors may simply move their money to other markets where these regulations do not exist. This is yet another reason why a single government must exist in order to maintain the same standards worldwide.

It is important to understand that no one deserves a free ride. Then again, it should be understood that when society became so large it took away the right of individuals to live freely off the land, society incurred the debt of providing everyone with the opportunity to support themselves. Welfare and unemployment compensation should be eliminated and replaced with guaranteed employment for anyone who wants it. People need items of basic necessity, and government can provide people with employment creating those things. Infrastructure and public works are other areas where employment can be created.

Reducing the work week to 35 hours right away would help put some of the 13 million officially unemployed Americans back to work.

So long as a person can always find decent paying work there would be less justification for petty crime, and no need for bankruptcy, which is unfair to the creditors who incur the loss. There should, however, be a reasonable limit on the percentage of income any creditors can forcibly withhold from a person in debt. I would suggest that limit be set at 20% after taxes. Not long ago an acquaintance who had previously been unemployed for a year found half his weekly paycheck being withheld for back child support, then the IRS took the other half for back taxes. It's no surprise that he quit his job and the creditors received nothing.

Everyone, other than the totally disabled, is capable of contributing to their own survival in some way. Those few individuals who are totally incapacitated would require medical care in medical institutions. They would not be considered "special cases" exempt from the socioeconomic structure that applies to everyone else, because free medical care should be provided to everyone.

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Why Education Should Be Free

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