By Austin Hill
Are U.S. federal government policy
makers planning for an economic meltdown? Fiscal and financial news isn’t a
particularly sexy topic for broad audiences, even under normal circumstances.
And over the Thanksgiving national holiday weekend, about the only news people
care to consume are football scores.
But as we enjoyed turkey dinners,
shopping, and hopefully some quality time with friends and family – and even in
the recent days leading up to the holiday weekend – some major policy ideas and
changes have emerged that could keep you away from your personal finances in the
face of another meltdown. Americans are rightly angered right now by the
disastrous impacts of the Obamacare implementation, but consider what else may
lie ahead for our lives, our households, and our livelihoods.
For one, there was the November 25th
report in the Financial Times indicating that the U.S. Federal Reserve is
considering the possibility of arbitrarily cutting the amount of interest it
pays on money that it borrows from private commercial banks. The interest that
the government pays when it borrows money from private banks is, understandably,
a big revenue stream for those banks. If the Federal Reserve makes this move,
banks say they will in turn need to make up for the lost revenue by charging
private individuals, households and businesses for depositing money in their
accounts.
Let’s be clear about what is under
consideration here. Customarily when an individual or an organization puts its
money in a bank account, the bank will pay their customer at least some nominal
level of interest in exchange for the privilege of possessing the customer’s
money for a period of time. In the scenario that the Financial Times reported,
some banks would completely reverse this historic bank-customer relationship and
charge private individuals and businesses for the privilege of “parking” their
money in an account for a time.
Could that create a bit of a backlash
against banks? Recall that in March of this year, the dreadfully overspent
government of Cyprus arbitrarily chose to impose a tax on all private bank
deposits as a means of feeding the government’s never-ending hunger for money.
This created a “run” on banks with private citizens rushing to clear out their
accounts, which in turn led the government to force private banks to close for
about ten days. When the banks re-opened, citizens were only permitted to
withdrawal about $383 of their own money each day – a quick-fix that Nobel laureate economist Christopher Pissarides said was
“extremely unfair to the little guy.”
The Cyprus
crisis – as well as the meltdown of financial systems in Spain and Greece, among
other places – may be what led one of President Obama’s appointees to the U.S.
Federal Reserve’s board of Governors to propose a means of stopping “bank runs”
here in America. According to a November report from Reuters news agency, Dan
Tarullo, whose specialty is “financial regulation,” has proposed that banking
regulators (like him) need to “supplement prudential banking regulation” with
more “policy tools” – i.e., the ability to order banks closed. Tarullo and the
other fed Governors are working on a new set of such “policy tools” to be
unveiled in 2014.
So is the
American financial system a safe place to keep one’s private assets? Bloomberg
news reported one year ago that the U.S. Federal Reserve was weighing the
possibility of trying to force foreign banking institutions to play by the U.S.
government’s rules. Today that process has already begun, with Federal Reserve
authorities notifying foreign banking institutions that they must report all
American-owned assets and enforce American banking rules.
In economic
terms, this is called “capital controls” – an effort by the U.S. federal
government to control private peoples’ money as much as possible, and prevent it
from leaving the country. Over the past six months private banks in Canada and
New Zealand have become increasingly stringent with their willingness to hold
deposits from Americans, and within the last two days the British territory of
the Cayman Islands acquiesced to U.S. pressure and signed a controversial
agreement that, for the first time, will require banks there to report all
deposits from American citizens to American governmental
authorities.
Why is this
happening? Officials from the Federal Reserve and the U.S. Department of the
Treasury it’s all precautionary. In case another 2008 type financial “meltdown”
ever occurs again, so the reasoning goes, the U.S. will have as much control as
possible over the global financial system.
But
fundamentally, and philosophically, there is an undercurrent to all of these
policies and proposals: it is the belief that the well-being of the institutions
of government is more important that the well-being of individual persons, and an
individual’s right to possess their own money.
Here’s hoping
your team won this weekend. Now let’s figure out how to enable the American
citizen to be a winner, once again.
Comments are invited!
Send feedback to: WatchDog
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