ACT OF CONGRESS

Why It Shouldn't Be IMPOSSIBLE to Take Care Of Ourselves

Let’s visit the Equivalency Doctrine one more time, keeping things as simple and concrete as possible:

Our monetary system has a very odd structure that we seem to take for granted but, perhaps, should not. This odd structure enables private Reserve Banking, on its own initiative, to create new money for private enterprises that generate profits—but requires an ACT OF CONGRESS to generate new money for NOT-profit-making initiatives that clearly benefit the public good.

The first observation to make about this peculiar condition is how badly it holds us back from undertaking many things we clearly need for our collective well-being—e.g. universal healthcare, preschool childcare, affordable housing, climate-change preparation and mitigation, student loan relief, and retirement subsistence. We are held back from providing these NOT-profit-making needs simply because the political consensus required to produce an Act of Congress that will generate the fiat money to pay for them is so monumentally difficult to achieve.

Reserve Bank-loan underwriting is simplified by the fact that the only determination to be made is whether a bank-loan is likely to generate a financial profit. In contrast, the “underwriting” for NOT-profit-making initiatives that require the government to issue new fiat dollars—the debate that leads (or doesn’t lead) to an Act of Congress—brings our not-profit-making needs into the arena of politics where even the simplest of necessities (for example, ensuring that our preschool children are properly nurtured and cared for) become the fodder for conflicting ideological beliefs, social and racial prejudices, and economic turf-battles.

Preschool childcare? Come on! Even TERMITES manage to cover that base without even thinking about it.

It should be noted that the Reserve Banking System—the mechanism that enables money to be created as needed by an aggregate, profit-making, system of private enterprise—was, itself, created by an Act of Congress: The Federal Reserve Act of 1913. This involved the compromise-resolution of many turf-battles between the various private banking interests across the country. It was, to put it mildly, “extremely difficult” to pull together. In the end, however, a consensus was reached that ensuring the monetization of business profits constitutes an overwhelming Public Benefit that could not be denied.

And now, because of that effort, the Reserve Banking System—as directed by Congress in 1913—operates virtually on autopilot creating new fiat dollars, as necessary, in support of the initiatives private enterprise, in aggregate, can demonstrate will generate financial profits.

Which leads me to ask my very simple question:

Isn’t it possible for “Free Preschool Childcare” to be evaluated on whether it is “profitable”? And if—even though it is not-profit-making, it is “profitable”—why shouldn’t the Federal Reserve Banking system generate new fiat dollars to pay for the doing of it? Why, instead, should it be dragged into the three-ring circus of Congressional politics? To answer, let’s first ask:

Are Public Benefits “Profitable”?

Public Benefits come in basically two flavors: First are benefits that eliminate costs that must otherwise be paid out of public coffers. Second is an actual increase in aggregate private wealth which, otherwise, would not be realized.

Again, preschool childcare can illustrate: Statistically it can be demonstrated that providing a 3 and 4 year-old child with preschool care and early-learning assistance (a) will eliminate, down the road, the costs of X number of hours of remedial instruction, X number of hours of counseling, X number of months of incarceration, and X number of emergency room treatments for drug overdosing; and (b) that same child will also, over the course of his or her lifetime, earn X number of dollars more than would have been the case if the childcare and early-learning assistance had not been provided.

In each case, these “X numbers” can be calculated in US fiat dollars and compared to the cost—also in US fiat dollars—of providing that child with the childcare and early-learning assistance. If the former is larger than the latter, the Public Benefit is “profitable,” right? This very calculation, in fact, was made by the Biden Administration in support of its proposed “American Families Plan,” a calculation that found that the “profit” generated over a period of 35 years was $36.2 billion.

If this “business plan” were presented to, say, Citibank by a private enterprise (whose shareholders would earn $36.2 billion in profits—and who could then afford to pay Citi-Bank a hefty interest rate) there would be no problem at all issuing the bank-dollars necessary to provide the preschool childcare services. And the Federal Reserve, down the road, in response to any subsequent increase in the claims on Citibank’s fiat dollar Reserves would issue new Reserves in exchange for Treasury securities to meet the claims. Ho-hum. All in a day’s business for Citibank and the Federal Reserve.

Compare that to the virtual IMPOSSIBILITY of achieving an Act of Congress that creates fiat money for universal preschool childcare. Obama tried—and failed. Biden tried even harder—and failed again. What’s wrong here? How can our monetary system be so useless in the moments when we really, really need it?

Avoiding the Minefield

The question raised by the Equivalency Doctrine is very simple: Why don’t we create fiat money for NOT-profit-making initiatives using the same Reserve Banking mechanism that creates fiat money for profits—and thereby AVOID the political minefields which surround an Act of Congress like a war-zone?

To be specific with our childcare example, what is the argument against a federally chartered Public Bank issuing the bank-dollars necessary to provide preschool childcare services—and the Federal Reserve subsequently issuing new fiat dollar Reserves to meet the claims of those bank-dollars? And the “Public”—comprised of the aggregate Private Beneficiaries—shares the equivalent of $36.2 billion in profits? Or, to put it another way, consumes the equivalent of $36.2 billion in profits by sharing in the benefits.

What is the objection to that? In the case of profit-making enterprise, the aggregate new Reserves are created by the FED in a bookkeeping trade for the future fiat dollars contained in Treasury securities; in the case of the childcare services, the aggregate new Reserves are created by the FED in a bookkeeping trade for “Public Benefit Certificates” which represent the public benefits the new fiat money will buy. Money-wise, the two are equivalent: money = money, on the one hand, money = what money can buy, on the other.

Ho-hum. We’ve suddenly created universal preschool childcare in America, and nobody has whispered an objection. Nobody has complained that taxpayer dollars are paying to provide childcare for immigrants! Nobody has claimed that new taxes must be levied to avoid increasing the “deficit”! Not a single alarm has been sounded about America needing “to borrow” more dollars from China! And, perhaps most interesting of all, the “National Debt Clock” in New York City did not even budge! Can you figure that out? Think about it.