CC: The Fed, Council of Economic Advisors, Credit Union Nat’l Assoc, Center on Budget and Policy Priorities, Nat’l Bureau of Economic Research, AFL-CIO, Urban Institute, MIT Econ. Dept

The Federal Reserve (the Fed) is charged with maintaining full employment and stable prices in the US economy. These two outcomes are generally deemed to be sufficient to keep the economy growing to meet our needs. The actual allocation of money to meet those objectives, however, has been acquired by commercial banks. As a result 10 major inefficiencies and undesired outcomes are overwhelming both Monetary and Fiscal Policy efforts to stabilize the economy to the benefit of 330 million residents here, and for countless others around the world. This outline sets forth the issues, the underlying causation, and how to implement the needed changes to restore our economy’s health and to create more prosperity for all.

The Problem: The Fed does not have unlimited monetary authority. It makes money available to our banking system to achieve growth, full employment, and stable prices. Member banks, in turn, allocate that same money first, for their own purposes; second, for the benefit of corporations and wealthy individuals, and lastly, for the benefit of the general public. Indeed, 70 percent of all new money flows into wealth accounts (via M2 - M1), while only 30 percent of new money gets into circulation where GDP, jobs, new profits, personal incomes, new tax revenues, and prosperity are created. This misallocation of many trillions of dollars is the fundamental cause of all our economic woes.

The preceding overview means the US economy is 1) producing well-below its optimal level; 2) bankers and their favorite customers are enriched by incomes that are 400 or more times that of workers; 3) incomes are artificially suppressed by an average of $25,000 for 48 percent of households 4) GDP is grossly sub-optimal; 5) security prices are hugely over-valued; 6) enormous inequalities of wealth and income are pervasive throughout our economy; 7) workers are paid far below a Living Wage; 8) poverty is much too high throughout the land; 9) federal tax revenues are much too low for the US government to fulfill its obligations; and 10) we are rapidly becoming a plutocracy with virtually no possibility of ever reaching our founding principles stated so eloquently in the Preamble to our Constitution:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

Still, it is not too late. We start by reversing the order of commercial bank lending; namely, put individuals first, corporations second, and bankers last in their money lending activities.

The Fix: We can correct all these imbalances and injustices by making two simple economic changes: The first is to mandate that the Fed monitor money flows to assure that 70 percent of all new money enters the economy (via M1), and second, bring the 5,000+ credit unions into the mix of allocating significantly larger amounts of new money into M1 via loans to small businesses and individuals—where 70 percent of all jobs are created. The math supports these changes as do-able.

Further elaboration is superfluous.