Writing in The Wall Street Journal, highly respected economist Martin Feldstein proposes that the government provide low-interest loans to consumers in return for mortgage debt.The narrower focus of Martin's idea notwithstanding, notice the similarities to the decentralized money supply I recently proposed.
These government loans would not be secured by the borrower’s home. The loan would need to be paid back even if the home goes into foreclosure and would not be eligible for relief in bankruptcy.
I wrote recently how a true solution to the smaller and bigger banking crises we experience every decade requires us to turn the economy on its head. We need to keep the good parts of the economy which drive our progress: most importantly, capitalism and a limited role of the state. However, we need to replace the parts that are dysfunctional: banks and the monetary supply, which facilitate bubbles, wasteful boom and bust cycles, and dangerous depressions.
The fragility and volatility brought on by banks and bank-like institutions can be done away with by prohibiting interest-bearing loans (see discussion under Without banks). All investment would need to be driven by equity, as in the Berkshire Hathaway model. Meanwhile, people would still need to be able to get financing for emergencies and important personal investments. By decentralizing the money supply, everyone would be able to borrow against their future income - and the system would make people repay.
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