Cancellation of principal in banking: Four radical ideas emerge from deep examination of double entry bookkeeping in banking

TL;DR

This paper proposes four innovative ideas to modify banking practices, including non-cancellation of loan principal and crediting government and at-risk loans, aiming to create a virtuous monetary circuit and address issues in modern monetary theory.

Contribution

It introduces four radical banking concepts that challenge traditional practices and propose a new monetary circuit linking government and commercial activity.

Findings

Modifying principal cancellation can improve banking stability.

Non-cancellation of loan principal may support positive equity.

Creating a direct monetary circuit can address inequality.

Abstract

Four radical ideas are presented. First, that the rationale for cancellation of principal can be modified in modern banking. Second, that non-cancellation of loan principal upon payment may cure an old problem of maintenance of positive equity in the non-governmental sector. Third and fourth, that crediting this money to local/state government, and crediting to at-risk loans that create new utility value, creates an additional virtuous monetary circuit that ties finances of government directly to commercial activity. Taking these steps can cure a problem I have identified with modern monetary theory, which is that breaking the monetary circuit of taxation in the minds of politicians will free them from centuries of restraint, optimizing their opportunities for implementing tyranny. It maintains and strengthens the current circuit, creating a new, more direct monetary circuit that in some respects combats inequality.