Let me preface this conversation with a major premise of mine.
Trade imbalances matter. Let me repeat that: Trade imbalances matter.
If you buy more goods than you sell on the international market, you will export your money to the international market. Some of this money gets used or ‘absorbed’ in the international market (it is used to purchase oil or as a ‘reserve currency’ in central banks or countries like China buy up our dollar to maintain their market share), but most of this money comes back to the United States, because it can’t earn more money anywhere else.
This money comes back to our financial markets, because it won’t earn money anywhere else, flooding them with excess cash, inflating asset prices and causing bubbles.
If you ship your money offshore, it will either come back as debt, or it will go into the stock market. As more money chases around fewer sound financial assets, that money will move to riskier and riskier asset types, until eventually you have bubbles that burst.
And now for the kicker, Government debt helps to alleviate some of these ‘asset bubbles’ because it takes money out of the capital markets and into the ‘consumption’ market.
So, if you want to eliminate Wall Street’s power, you take money away from it. We can start by reducing our foreign trade imbalances.
We might also want to regulate our financial markets more than we do. Consider financial regulation as the quality control department of the only thing we have left to sell our foreign trade partners; paper.
Put another way, if our trade partners lose faith in our financial markets, they will stop putting their money into it, and put their money into government debt, because they are loath to let money sit and earn nothing.
Third, we might want to look at how we ‘create money’. Right now bankers are borrowing money from the FED at 1% and then lending it to the Government at 2.5%. We talk about ‘redistributing wealth’ and income disparities, but when we ‘create money’ we give it to the financial sector (by definition: the rich) and let them make money off of it.
Right now we allow the FED to create money and charge interest for it. This interest is paid back to the government AFTER the FED skims about 7 to 9% off the top. The FED only loans this money to the financial sector, allowing the financial sector to do whatever they want with it.
Why not have the federal government lend this money directly to its citizens. We could lend money to start up companies producing solar fuel cells, and we could lend money to Americans who want to buy them and reduce our dependence on foreign oil. We could put scrubbers on every coal fired power plant we have, and lend money to people who are going to build factories and give our trade partners something else to buy besides financial assets.
The bankers will get their share, trust me, the money will always find its way into their hands. But let us let the money find it’s way to the bankers, instead of starting with the bankers.