Economic Democracy Act Quiz

Economic Democracy Act

• The Economic Democracy Act is a system that aims to broaden capital ownership and make everyone creditworthy
• It uses future savings to finance new capital, allowing anyone with access to future savings to own new capital
• The system uses Capital Credit Insurance to substitute for traditional collateral, making it easier for people to borrow money

Insured Credit Allocations

• Insured credit allocations are critical to the Economic Democracy Act system
• They allow ordinary people to borrow money and finance new capital
• Capital Credit Insurance is used to make people creditworthy and ensure that lenders are repaid

Capital Credit Insurance

• Capital Credit Insurance is a substitute for traditional collateral
• It provides a guarantee that the borrower will repay the loan
• Insurance companies provide the guarantee in exchange for a small fee based on the risk of the investment
• This system avoids inflationary pressure from bad loans

Commercial and Cooperative Banks

• Commercial banks are financial institutions that take deposits, make loans, and issue promissory notes
• Cooperative banks are owned by their customers
• Both types of banks can facilitate commerce and create money
• Commercial banks discount or accept bills of exchange from borrowers with feasible investments and creditworthy individuals
• They issue promissory notes backed by the accepted bill of exchange

Role of Commercial Banks

• Commercial banks create money and facilitate commerce
• They accept bills of exchange and issue promissory notes
• They provide financing for the private sector
• They use promissory notes to back the money they create

Role of Central Banks

• Central banks serve commercial banks
• They ensure that member banks have adequate reserves to cover obligations
• They maintain an elastic and uniform currency
• They provide adequate liquidity for the private sector
• They were originally formed to provide stable and asset-backed currency### Clearing House Operations
• A Clearing House is a central institution that banks use to settle their obligations with each other.
• Instead of individual banks dealing with each other, they present their obligations to the Clearing House, which offset the balances at the end of each day.
• This prevents the "dirty trick" of driving a rival bank out of business by collecting obligations and presenting them all at once for payment.

Elastic Currency

• An elastic currency is a currency that expands and contracts with the needs of the economy.
• This type of currency is designed to avoid both inflation and deflation problems.

Currency Principle vs. Banking Principle

• The currency principle is based on trying to second-guess how much money is needed in the economy and printing it accordingly.
• The banking principle links the creation of money directly to the need for money, with new money being created only for financially feasible projects or backed by existing wealth.
• Binary economics is the only school of economics that follows the banking principle.

Central Bank Functions

• A central bank provides money and liquidity through two operations: the discount window and open market operations.
• The discount window applies to future savings and accepts or rediscounts bills of exchange previously accepted or rediscounted by member banks.
• Open market operations are a past savings mechanism that breaks up large pieces of money into smaller ones for day-to-day transactions.

Money Creation

• Under the banking principle, money is created when there is a financially feasible project or existing wealth to back it.
• This approach ensures that the value of money is stable and asset-backed.

Central Bank Ownership

• The Federal Reserve is nominally owned by its member banks, but the federal government controls it through the president's appointment of the chairman and Senate approval.
• The Economic Democracy Act proposes that all citizens in a region should own the central bank instead of member banks.

Role and Powers of the State

• The Economic Democracy Act aims to reduce the state's role in the economy and give power to the people.
• The state's role is to eliminate special privileges, monopolies, and barriers to equal participation, enforce contracts, police abuses, and provide a level playing field.

Key Takeaways

• The economic democracy act seeks to establish a just social order and a justly structured state government.
• This is achieved through the four pillars of an economically just social order: a limited economic role for the state, free and open markets, restoration of private property rights, and expanded capital ownership.
• Ultimately, the choice is between owning or being owned.

Economic Democracy Act

• Aims to broaden capital ownership and make everyone creditworthy by using future savings to finance new capital
• Allows anyone with access to future savings to own new capital

Insured Credit Allocations

• Critical to the Economic Democracy Act system
• Enables ordinary people to borrow money and finance new capital
• Uses Capital Credit Insurance to make people creditworthy and ensure lenders are repaid

Capital Credit Insurance

• Substitutes for traditional collateral
• Provides a guarantee that the borrower will repay the loan
• Insurance companies provide the guarantee in exchange for a small fee based on the risk of the investment
• Avoids inflationary pressure from bad loans

Commercial and Cooperative Banks

• Commercial banks: financial institutions that take deposits, make loans, and issue promissory notes
• Cooperative banks: owned by their customers
• Both facilitate commerce and create money
• Commercial banks discount or accept bills of exchange from borrowers with feasible investments and creditworthy individuals
• Issue promissory notes backed by the accepted bill of exchange

Role of Commercial Banks

• Create money and facilitate commerce
• Accept bills of exchange and issue promissory notes
• Provide financing for the private sector
• Use promissory notes to back the money they create

Role of Central Banks

• Serve commercial banks
• Ensure member banks have adequate reserves to cover obligations
• Maintain an elastic and uniform currency
• Provide adequate liquidity for the private sector
• Originally formed to provide stable and asset-backed currency

Clearing House Operations

• Central institution where banks settle their obligations with each other
• Prevents the "dirty trick" of driving a rival bank out of business by collecting obligations and presenting them all at once for payment

Elastic Currency

• Currency that expands and contracts with the needs of the economy
• Designed to avoid both inflation and deflation problems

Currency Principle vs. Banking Principle

• Currency principle: tries to second-guess how much money is needed in the economy and prints it accordingly
• Banking principle: links money creation directly to the need for money, with new money created only for financially feasible projects or backed by existing wealth
• Binary economics is the only school of economics that follows the banking principle

Central Bank Functions

• Provides money and liquidity through two operations: discount window and open market operations
• Discount window applies to future savings and accepts or rediscounts bills of exchange previously accepted or rediscounted by member banks
• Open market operations: past savings mechanism that breaks up large pieces of money into smaller ones for day-to-day transactions

Money Creation

• Under the banking principle, money is created when there is a financially feasible project or existing wealth to back it
• Ensures the value of money is stable and asset-backed

Central Bank Ownership

• Federal Reserve is nominally owned by member banks, but the federal government controls it through the president's appointment of the chairman and Senate approval
• Economic Democracy Act proposes that all citizens in a region should own the central bank instead of member banks

Role and Powers of the State

• Economic Democracy Act aims to reduce the state's role in the economy and give power to the people
• State's role is to: eliminate special privileges, monopolies, and barriers to equal participation; enforce contracts; police abuses; and provide a level playing field