Misunderstanding money is dangerous, part 4: what comes next?

In previous posts, I pointed out that we have time to think about how to improve our monetary system because there's no crisis except the manufactured one caused by a general lack of understanding. This time, I'll talk about those improvements.

Action one: Fix dysfunction on the dollar creation/issuance/distribution front.
First, repeal the debt ceiling. Kill it off and let's never speak of it again.

Second, amend the 1935 banking act to allow direct sales of bonds by the treasury to the fed, cutting out the primary dealers. Eventually (see below) we shouldn't need to sell treasury bonds at all, but that's a more invasive change.

Third, open the discount window to all banks and eliminate bank reserve requirements. Primary dealers get cut out again but cry me a river. They can go back to making money doing regular bank things. This income was all pork for them in the first place.

Action two: Fix dysfunction on the taxation/dollar destruction front.
Eliminate payroll taxes on the grounds that they're regressive (don't scale with income) and it'd cause people to take home more money each month immediately, like an instant stimulus. Not an original idea of mine, lots of people have suggested this. For that matter, eliminate all the itemized taxes and just adjust the single big one, federal income tax, up or down as needed to achieve the desired amount of money in circulation. It would almost certainly turn out that even after the other ones were done away with, we'd need to lower it significantly as well (until some day after years of growth, we actually have high inflation on top of full-employment).

Action three: Full employment, and funding for all the social programs you could want.
Full employment means nobody who wants a job to do should have trouble finding one. It doesn't mean finding any old BS for people to work on, it means if the private job market isn't hiring the whole workforce then we need to take stock of what things we'd like to have if only we had someone to build, make or do them, and then pay our jobless to work on that. Rinse and repeat forever.

Social programs include things like my previous post about auto liability protection, as well as more commonly discussed things like establishing a national health service, light rail in all cities and high speed rail between them, making higher education free and not wrecking social security.

Action four: Finish the transition from indirect to direct issuance of the public currency.
Thomas Edison famously said in 1921, "If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good." His idea was not original, and I rather doubt he even thought it was. The US has a long history of different monetary systems, including two periods of direct issuance, which is what he was suggesting.

During the revolutionary war, the government issued "continental scrip" which was non-convertible fiat currency. Alexander Hamilton came up with the idea, and then once the war was over did an about-face and set up the first national bank, which was a source of great contention at the time.

Lots of changes went on in the early decades, including Jackson's well-intentioned but misled battle with the second national bank of the US and retiring of the national debt of his day. After the bank's charter was not renewed, Jackson didn't go on to replace it with anything and a recession followed.

During the civil war, Lincoln took the good advice to issue the famous "greenbacks" or United States Notes.
http://en.wikipedia.org/wiki/United_States_Note

There's a lot of precedent for money directly issued by the treasury and it drastically simplifies operations, all the way back down to that summary that spending creates dollars, taxes destroy dollars. The remaining useful functions of a central bank could be performed electronically by the treasury itself.

Action five: phase out treasury bonds for good.
We've established that these are not the scary "debt" that everyone thinks they are, but perhaps just as bad they create a situation ripe for misunderstanding. Since their only remaining function after the switch to direct issuance is to act as a guide for lenders to reference when setting the interest rates on loans, which is hardly a critical function, the safest way to avoid future mass confusion is to get rid of them.

Action six: cement all these improvements in a constitutional amendment.
Virtually all of the mess we're addressing in this series could be prevented from ever happening again by amending the constitution to clarify that the US government:
- is the sole issuer of the nation's currency
- is forbidden to outsource this power to any other entity
- is forbidden to issue bonds, and must spend directly
- is forbidden to place any arbitrary or artificial caps on either spending or taxation, and must set the overall levels of each appropriately to prevent both deflation and excessive inflation. Exactly what it chooses to spend on, and who and what it chooses to tax, are decisions best made on an as-needed basis as these serve to encourage some activities and discourage others.