A Nation of Owners.

• Author: BAILEY, NORMAN A.
• Position: United States - Brief Article

A plan for closing the growing U.S. knowledge and capital asset gaps.

Two developments in recent years have created dilemmas for the American polity. The first is the growing knowledge and capital asset disparities within the social structure of the United States, even as the economy has entered into its longest period of expansion in history.

The second is the conundrum of what to do if the budget surpluses continue, shrinking the sum total of the national debt. This is already creating one problem, namely the need to find a new benchmark security. At some point the shrinking national debt will create another problem: On what asset will the Federal Reserve currency and credit issuance be based? At the moment, it is based almost entirely on treasury obligations, leading to the reductio ad absurdum that if the quantum of treasury debt reached zero, there would be no money supply.

Additionally, the institutions that were established to promote home ownership among Americans -- Fannie Mae, Freddie Mac, and the home loan banks -- have come under much criticism lately as the increasingly saturated mortgage market has prompted them to attempt expanding their activities.

But a house lived in by the owner is not an income-producing asset. On the contrary, it is a substantial financial drain on the owner/occupant. There is, paradoxically, no lender of last resort and no liquidity backup for income-producing capital assets.

Suppose, however, that Congress established a Fannie Mae-type institution to assist Americans in building capital estates. Imagine a Federal National Capital Credit Association (FNCCA), supplemented perhaps with a Federal Capital Credit Insurance Corporation (FCCIC), both federally chartered with all the Fannie Mae characteristics as to taxes, bonds, and so on. Such an institution could purchase (discount) loans to all kinds of expanded capital asset associations, such as employee stock ownership trusts, consumer stock ownership trusts, community real estate investment trusts, and so on. These loans would reflect productive private sector investment rather than government debt. The FCCIC would insure (or reinsure) such loans, which would be repaid...