Options for Rebuilding the Financial System and the Economy

Abstract

Four non-exclusive options are considered for rebuilding the economy with a more efficient, equitable and resilient financial system. A common feature of three options is the introduction of cost bearing money as supported by Fisher (1933) and Keynes (1936) to help stabilise prices. Cost bearing or “Free-Money” increases the efficiency of allocating resources and can result in the generation of electricity from renewable sources becoming cheaper than burning coal. One option for issuing Free-Money is for governments to adopt a Bill like that presented to the US Congress in 1933. A second option is the private issue of “stamped scrip” that circulated in the US during the Great Depression. A third option is the issue of Free-Money redeemable into a commodity as used in Europe 1928-33. A fourth option is to reform the existing financial architecture to reduce the: (i) cost of seigniorage, (ii) interest on government debt; (iii) size of organisations considered to big to fail; (iv) tax incentives to use debt rather than equity (v) different types of risks accepted by financial institutions and (vi) ability of banks and “shadow” banks to create credit to finance derivatives many times greater than the GDP of the global economy.