Electronic Currencies and Banks

I was unable to sleep last night and began watching some videos about the economy and such. That alone should have put me to sleep; but, alas it did not. As I was watching the videos a thought began developing, something I wrote about a long time ago.

Firstly, the United States Postal Service is seeking to become a sort of overnight bank for those who do not have bank accounts. Personally, I think this is fine and with the elimination of physical cash could provide a real service for a minimal rate. In England payday loans have a yearly interest rate in the thousands, in the United States the payday loan services charge interest in the hundreds and these fees are charged to the poorest, those who need payday loans. Combine this with the fact that our financial system is completely rigged and dishonest and you start having a big problems as we have been miss-allocating capital from productive use (creating jobs and businesses) into non-productive inflation in asset bubbles.

Let me put this in more easy to understand terms. If you own a home and the re-sale value of the house increases you would probably be pretty happy. The truth is that when housing prices rise quicker than incomes, you are worse off. Perhaps not immediately; but, you and future generations will pay a price as we are seeing now as it causes housing as a percentage of your income to skyrocket and take back all the increases that you saw in your house value.

I am going to move on and discuss what I see coming. Most people see banks as a place where they keep their money until they need it. Traditionally, these banks would then lend out some of your deposits to your neighbors and friends so that they could buy houses and cars and as they paid the bank back it would give you interest on your deposit. Banks acted like the stock exchange for the small guy, a way to invest in small things and get a return on that investment. It was in everyone's best interest to see a relatively stable economy and community.

In the 1980's worldwide the traditional banking system completely changed. During this time banks stopped being regulated and were allowed to do whatever they wanted with your deposit. In addition, you ceased getting a return on your savings while the banks were making more money than ever before and keeping it for themselves. All the risk was on the average depositor but he received nothing in exchange for it.

I don't know that most people will understand what I am talking about; but, it is one of the most important things I have ever written if you want to understand what happened and where we are headed and most importantly out options for the future. We are headed to a cashless society and one that will allow you, the average person, to make your deposits where you want and have them treated as investments rather than free capital for someone else to profit off of.

If we go to an all electronic banking system, why would I need a building with a safe to hold my money? The value banks still provide to the average person is that they process payments across the nation for you. Could you imagine having to go to New York every month, in person, just to hand cash to your mortgage company. We created checks to avoid that situation; but, prior to that you just walked into your local bank and paid your mortgage in cash each month. Banking was local for most people.

With electronic payments, you don't even need a check and can do the transaction on your own, it requires little if any effort from the bank as the payment is automated. Bitcoin is a good example of the future, though Bitcoin itself is unsustainable. Bitcoin does not require there to be banks. An electronic currency that self regulates. Electronic currencies do not require banks and in the future all countries will be going electronic.

If we have an all electronic currency, why would we need banks? The reason is because sometimes we have to pool together our savings so that investments in our future and one another can be done. Lets say you want to start a plumbing company, you need to have enough to buy a truck or van, purchase supplies and possibly even rent some office space. If you don't have the money, you need to borrow it and then pay people or banks back and give them some return to make it worth their while. Without banks who would be lending out sufficient funds to allow entrepreneurs to invest in the nation, in productive business?

Some are attempting to go to "Crowd Sourcing" where you go begging for money on the internet and it is an interesting approach though I am not aware of people being able to get a return on their investments. The "Veronica Mars" movie was crowdsourced and raised like $5 million dollars; but, the "investors" could not be promised to profit from their investment if the movie does well, it was really just a gift.

Imagine if you could invest directly in a movie. You favorite actor comes out and says that he is going to make the next great Western if everyone gives him $10. If I thought the movie made sense, I would give them $10 just to see it made. If the movie then made a profit, you would get your $10 back plus profit. True capitalism. Can you imagine the effect that would have on the movies that got made? Imagine that the same movie made no profit and lost money because the movie was horrible and cost to much, would you invest in that actor again? The problem with all of this is that you don't see a return on your investment fast enough to pay your bills when you live paycheck to paycheck. I need liquidity, the ability to pay bills regularly and not wait to cash out investments.

So what am I saying? With an all electronic currency, I can invest my money in business rather than bank accounts that don't pay me for using my money. I can get a return on my capital; but, I still need to keep enough in readily assessable cash to pay my ongoing costs as they arise. The highest valued stock, in history, is Berkshire Hathaway. One share of that stock has gone for as much as $150,000, it has also increased in value at roughly 25% for 40 years straight. It is a great investment; but, if you have all your money in it, you have no money to pay your monthly bills and it would make no sense to sell a share each month to pay your rent.

Now lets go back to the United States Postal Service, if they facilitated the electronic payments and were not holding your savings, where would you want to risk you excess capital? What if your neighbor could come to you and all the other neighbors and say, "Look, you all know me, I take care of my house, my kids don't get in trouble and I think we need a grocery store in the neighborhood. If you lend me the money, I will build one and I will pay you back plus let you share in my profits." If you trusted and liked the person, you might invest in his idea. That was the concept of traditional banking with local banks. We pooled our money together and lent it to people who we thought were good investments and would pay us back. It promoted community and responsibility. Foreclosure was unheard of and if it did happen everyone in town knew why you couldn't pay your bills, they knew your wife died and you were fired because you had come apart over it.

In capitalism, investment, risk should be tied to getting a return and responsibility by all parties involved. We got away from that and completely annihilated it with elimination of some very simple banking laws. That happened in the 1980's and has led to the downfall of the world's economy. At it's most fundamental, what I have just written is the most important truth fundamental to our current situation.

What if when I bought a car, I was investing in that car company? What if the car company had an interest in making sure I got a good return on my investment? What if when I bought a $20,000 car, $5,000 of it was a stock purchase and the manufacturer knew that, how would it change how they build and made cars? That is capitalism.

Investment and commitment have to go hand in hand for their to be self-regulation. With an all electronic currency, how would this best be achieved? Who holds the savings, who would be best to hold them? You certainly don't need the type of banks we have now and they will be gone soon enough. If the type of banks we have today held your money and invested it in whatever and kept all the profits then with an all electronic currency, why not just invest it yourself and get a return on your investment? Why have a savings account when you can invest your capital directly and actually get a return on it?

I watched a video of George Soros and Paul Krugman, an investor and an economist, both participants in the Council on Foreign Relations, a globalist foundation. Mr. Krugman is an economist and argues for helping the poor; but, limited government control over finances. He has been called a leftist for this. Mr. Soros takes a different approach, he believes that there should be international control over finances so that all can benefit and believes that the poor should benefit too.

We are going into a future of globalism and they are arguing over whether or not there should be regulation over it. That is the essence of the discussion. The alternative is to eliminate banks, you don't have to regulate what does not exist. I think the bankers know this and they certainly know electronic currencies are coming. Electronic currencies don't need to be created by banks, nations can do it and then central banks go bye bye.

Lets go back to my car example. What if for every car you bought, 25% of your cost was in buying stock in the manufacturer. Would you buy more or fewer foreign cars and what would you expect from them? True capitalism is connecting risk with responsibility and with return. Communism is defined as "take what you need and give what you can". Sounds good but it destroys the concept of investment, of risk and responsibility. True capitalism is based on benefiting to the degree that you have contributed.