Can the Fed Fix, or Even Address, the Real Problems without Real Islamic Banking
by Dr. Robert D. Crane
According to Joshua Holland’s article, “Bank of America Is in Deep Trouble there May Be Financial Disaster on the Horizon”, distributed on November 12, 2010, on Alternet, America’s largest bank, Bank of America, turns out to be in deep trouble because its accounting fraud can no longer be hidden, and because the incentives for fraud are inherent in the system. Fortunately, there are alternatives to bailing it out at tax-payer expense.
One alternative is shown by the Bank of North Dakota. Ellen Brown, author of Web of Debt, points to the success of the nation’s only government-owned bank, the Bank of North Dakota. “Last year,” she wrote, “North Dakota had the largest budget surplus it had ever had…and it was the only state that was actually adding jobs when others were losing them.”
Perhaps citizen-owned banks at the state level could take over after the big Wall Street banks must declare bankruptcy as a penalty for ignoring the laws of free enterprise and the free market. After such a bankruptcy the same banks would rise again rapidly, as they have in other countries that dared to bite the bullet, but this would merely cause more of the same problems. We do not need such banks. Citizen ownership of state banks would be better able to align the interests of banks with the interests of the public.
The job of the fed would be two-fold:
1) issue interest-free money for state banks to invest in productive industries based on the credit of future income reliability, with the bank’s return on the investment based on a percentage of the profits, as would be the case also for the Fed itself, which could set the percentage of profit as a means to control the money supply; and
2) Administer the Capital Homestead Act for every citizen through the state banks, whereby an equal amount of interest-free money would be given annually to every citizen for investment through state banks in productive enterprises and real goods, so that the government would not have to take care of them except for such things as catastrophic illness, and they could build their own funds for retirement and education without government interference. This would not cost the government or the taxpayer a dime.
The first job of the fed is classical Islamic economic theory and has been spelled out in entire books, including my own of 120 pages for the U.S. Department of State in 1982 when the U.S. ambassador to Pakistan sent an urgent cable that Pakistan was going to self-destruct because its government had just announced that it was going to institute compulsory Islamic banking. As a footnote, it never did so in practice because the accounting systems of the enterprises that were to receive the money were so corrupt that there would rarely be any profits. In America moving the watchdog from the federal to the state level out of the control of banks that are to big to fail should help curb the kind of criminal corruption that reigns in Wall Street.
The second job of the Fed, administering the Capital Homestead Act, has never been tried before anywhere. The two jobs should be mutually reinforcing, because they would rapidly create a balance between production and consumption (since the consumers would be capital owners). This would also resolve the job crisis, prevent booms and busts, avoid the need constantly to inflate the currency, and help free trade internationally, especially if other countries did the same. It’s all spelled out in the books available at http://www.cesj.org.