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The Consumption Banking System

Of all the achievements of Lovellian economics, the Consumption Banking System is perhaps the greatest leap made in Lovellian Economics and is part of the core program of key macroeconomic institutions that supports the totality of the omnibus organizational approach to free-market capitalism The Fix defines.  This proposed omnibus structure for our economy includes:

• A complete system of fiscal appropriations for all units of government that provides unlimited funding for fiscal policies without any taxation being used (indeed, taxation is phased out as a result of this element's adoption); and

• A complete system of currency inflation that replaces the Federal Reserve System that ends the nightmare of ex nihilo currency inflation and worries about the foreign exchange value and purchasing power of the dollar - forever; and

• A complete capital market exchange platform that cannot crash, expose investors to investment fraud risk or program trading loss risk that supports the fiscal appropriations program and allows currency inflation to also take place on a self-regulating basis.

The Consumption Banking System (or "Consumption Banking") takes these principles and moves them into reality by creating a basis for a commercial banking system that is completely disconnected from the failures of the fractional-reserve banking system we currently use today.  Indeed, one could say that fractional-reserve banking is the socialist banking model, because:

• Like socialism, fractional-reserve banking has failed in every country where it has been tried; and

• Like socialism, fractional-reserve banking is inherently designed to concentrate ownership of wealth in the ruling-class and stakeholders in the allied banking industry at the sole risk and expense of all the other stakeholders in the private-sector economy; and

• Like socialism, fractional-reserve banking has no underlying principles of operation that are self-sustaining in nature.  This means that fractional-reserve banking always comes at an increasing cost to the economy (just like socialism - you eventually run out of other people's money and the whole thing crashes); and

• Like socialism, fractional-reserve banking can only be sustained by government power as it has no self-regulating features embedded within it for its own self-preservation or the support of the society that must somehow endure it.

Consumption Banking

Now that we know what we don't like about banking, it is time to look at a banking system that avoids all of these pitfalls.

Consumption Banking is based upon the idea that credit should be bartered like any other consumable item in our economy; the only limitations to this kind of credit allocation system would be those owing solely to supply-and-demand which is the true price of the service (as it should be now but isn't).  Consumption banking is completely different in this regard because financial investment leverage is being bartered to the public in exchange for money paid today - you "buy" a loan for a cash price today that is every bit as affordable as any other installment loan contract.  The only limitation is that consumption banking does not allow you to use credit to fuel simple consumption; you won't ever use it to buy clothes, food, gasoline, airline tickets or obtain still more credit.  This is intentional to the overall design of the omnibus macroeconomic structure of The Fix, because; the "credit card lifestyle" that has contributed so heavily to the destruction of the American economy and family has to go by the wayside, but you won't miss it due to the other benefits that Capitalism Version 2.0 routinely provides for your benefit (those being enhanced purchasing power for housing, retirement insurance, health care, education and the elimination of taxation to name a few).  Your preoccupation with credit cards is due to your need to extend the purchasing power your family income does not otherwise provide and The Fix provides you an even greater level of extended purchasing power without credit cards and all the problems that go with them.

Indeed, consumption banking gives you the benefits of more credit without the headaches and drawbacks that credit transactions have historically saddled us with for thousands of years.

Consumption banking does not make you "qualify" for the receipt of credit by using various subjective measurements by which the banking system uses today to discriminate against the public (and thereby allows wealth to remain concentrated within the ruling-class as we routinely observe in our society now).  There is no qualifying credit score, income, credit history or anything else other than the price of the transaction.  This system of banking is called consumption banking precisely because credit becomes a commodity that is bartered and consumed like anything else in the economy - thus being completely consistent with the Principle of Inherent Economic Stability, because; consumption banking is self-sustaining and self-regulating in design and in actual operation.

Making Banking Self-Sustaining & Self-Regulating

How did Clint Lovell accomplish this seemingly impossible outcome in a way that demonstrates its efficacy beyond any reasonable doubt?

They key to understanding consumption banking lies within an understanding of a broader measure - that real wealth is not created by either increasing liabilities or increasing equities, but only by increasing equities.  The fulfillment of this realization states that the price/yield relationship between equity securities and debt securities has to be, more or less, homogenized over the long-term in order for any commercial banking system to truly be viable.  In other words, Lovellian economics could not be made to work until the risks and rewards of being an investor who owns debt securities are made to be equal to the risks and rewards for owning equity securities.  Security yield and risk equalization is what makes consumption banking self-sustaining and self-regulating in nature.  

The self-regulating portion pertains to the preferences of investors (and we are all investors) to hold equity investments or hold debt investments.  Since the yields and risks are designed to be homogenized, the system is always seeking to balance itself and that means liabilities and equities inflate at a rate that is equal and beneficial, so we never end up with the issues we see today where there is all of this debt owed (more than $107 trillion in our economy today) and there are no means by which it can be repaid, so wealth creation slows and then halts altogether (as evidenced by an economic recession).  This "seesaw" system is at the heart of Lovellian economics and creates a constant credit marketplace for our benefit that does not use deposit multiplication - the core problem that prevents fractional-reserve banking from being self-regulating.  This means the propensity for the economy to act in a cyclical manner (cycling from boom periods to recessions and back again) - as a result of banking system "bubbles" - is drastically inhibited and the economy is left with a "bias" that forces it to just grow and grow and grow.

The self-sustaining portion of the program was due to the structure of the repayment system and the best possible repayment system (if you are a lender) is making a loan to a borrower who provides the means to pay off the loan at the end of the loan term when that loan is made to the borrower.  This requirement completely sidesteps the credit repayment issue, the ability of the borrower to "service the debt" and the doubts about character or willingness to perform, because; the means of repayment is provided at the time the loan is made.  This is called "defeasance" and has been around for more than 25 years in Corporate America, but the government generally frowns upon the use of defeasance, because; defeasance-based transactions eliminate the banking industry's ability to monopolize credit and that is not something bankers and the stakeholders in government are willing to allow to happen - for you, that is to say.  Consumption banking is self-sustaining, because; the condition predicate to the creation of credit is the creation of wealth (the actual expansion of equities) because; defeasance means the loan has to have a source of repayment and that source of repayment (in consumption banking) is an investment in a specific kind/class of equity securities that, over the term of the credit instrument, would be reasonably expected to rollover into more equity investments until the totality of these investments is sufficient to retire the loan at term.  This means real wealth is always created to pay off credit and this simple premise is why fractional-reserve banking is not self-sustaining in nature as no real wealth is ever created in fractional-reserve banking.  What this means is that there are no monthly payments or payment books under the consumption banking system.  You pay an amount and that amount is invested in securities that have a much higher yield than the interest rate owed on the loan.  Over time, the equity security investment "catches up" to the amount owed on the credit contract and pays it off before the end of the loan's term.  By paying off the loan ahead of schedule, the yield received by the lender is "equalized" - made to be essentially the same as the yield received by equity investors and that is why consumption banking works beyond any reasonable doubt.

To learn more about consumption banking read the white paper on it.

Consumption Banking is described in detail in Something Out Of Nothing (Book II in The Fix series).