Issue 131 Another Approach: A Federal Bank July 30, 2013

What would you think if the Federal Government established a new national bank? I'm not talking about the Federal Reserve type that we have now, but an actual bank that replaces all other banks. Here is the concept broken down.

Centralized Banking: All private banks would be forced to give all their accounts to this national bank. In essence it would take the money out of the private banks hands. Thus, when we draw money we would be drawing it from our federal bank account. All of our income (well the income on the books) would go into this account. This would make it easier for government to tax us based on income (if that is kept) and to see where people derive their revenue. It would also eliminate the need to have money backed by the Federal Reserve in case your private bank failed. Well that is a given because the government bank cannot close down ever.

Welfare recipients: To add a perverse incentive to welfare recipients to get off welfare, those on welfare would have their accounts monitored and limited. What does this mean? This means that every transaction that they do is scrutinized, including how much money they take out and how much "cash back" they get at a cash register. All of this data is used to ensure that they are only buying what they need to live, not drugs and alcohol. A step further would be limiting the whole account (private/welfare) to specific types of items. This again would limit how much a welfare recipient can buy and give incentive for them to get off welfare. Of course, this would only work if the only bank in existence is the government one as it would be the only place to put your money away. Though, some version of this government bank can be made in our current system of fiancé to keep the least honest recipients more honest.

Banks new role: Private banks would have a new role in this system. They would offer ATM's like they do now as a service for people to take out money. People can allow these banks access to a certain percentage of their federal account to loan out to people. Basically what they do now when they make a loan, but the difference is that rather than just interest as a reward for allowing them to do this, you would get a percentage of the profit. (Again, something that can be done independently of this idea). Banks can offer all their usual services, the only difference is that they don't have to worry about storing your money for you, the government does.

The negative: While this idea would take a major burden off of traditional banks and give the federal government an easy way to collect taxes and keep an eye on certain citizens, there is one major problem. The major problem is that the government has control of all of our money. This means they can lock us out of our money at will. If they want to get into the loan business, they can do it without permission. No they don't have to give us interest for keeping money in the bank. Also, let us not forget our history back when we had a national bank (the one President Andrew Jackson killed off because of corruption). What you think it cannot happen? Well did you forget that the federal government borrows from Social Security and Medicare to help fund their pet projects. They already owe the people more than $4 trillion do to their borrowing from those beloved programs. What makes you think they won’t do it again (by the way, the one that Jackson killed off acted in the same way). So all the benefits of this idea are fundamentally mute.

Conclusion: Even if the government can do something, it does not mean they should. While it becomes easier for the government to track our money, punish welfare cheats and eliminate some rules and regulations on some businesses, it does not mean things will be batter. New rules and regulations would replace the old ones, and all that money in one place would be a tempting target to politicians. So while I present this idea as an alternative, I do not find it to be any better than the current system. In fact I find the current system superior and flexible because the current one will be able to innovate as commerce progresses. Yes, this idea was mine, or at the very least I came up with this centralized approach just to evaluate its merits in comparison to our system now (if any one came up with similar separately then it is just that, we came up with it separately). At the end of my comparison, I prefer the private business whom I can take my business away from, than a government whose inevitable power and greed will corrupt them and thus steal my money.