Public Banking
Description
Anthony Migchels:
"Ellen Brown is famous for her brilliant book ‘Web of Debt’. But she has not stopped there. Her Public Banking initiative is a direct assault on the Money Power’s control of the money supply. Her approach is fully in the Populist spirit and although it does not solve all problems, it is eminently practical and ready for immediate implementation.
The idea couldn’t be more simple: American States and Counties can open banks for themselves, capitalize them with taxpayer money and finance both the State and businesses with interest free (or low interest rate) credit. This saves them massive amounts of interest. It also secures both Government and the Commonwealth of continued financing, making them independent from unstable and often unwilling international financial markets. The little interest that is raked in by Public Banks is used to finance the bank’s operations and thus it is spent directly back into the community. In this way there is no drain of purchasing power for the community, which is a major problem in our current system.
Clearly, society’s independence from punitive monopoly interest rates by the International (Central) Banking Cartel is a great boon to society.
Credit is the modern way of creating money. Interest free credit is superior to debt free money in many respects. It is easier to take out of circulation, because the debt will be payed off. Credit can be given out several times, debt free money just keeps on circulating. A flexible money supply is in many ways attractive.
The key point to understand is, that the problem is not debt, it’s interest.
So Public Banking addresses both interest slavery and lack of access to capital. To boot, it decentralizes power from tightly controlled international financial power to local government, which is much closer to the population.
Another major advantage is that its main points are easy to communicate because they fully fit within existing paradigms. It can be immediately implemented by any State, which is especially important in this time of crisis." (http://realcurrencies.wordpress.com/2012/02/02/ellen-browns-public-banking-2/)
Interview
Ellen Brown interviewed by Shareable's Robert Raymond:
* Robert Raymond: Can you give a brief overview of how our current banking system works and why it’s problematic?
Ellen Brown: The first problem is banks are privately owned and ultimately direct credit where their big clients want it go. Their mandate is to make the most money possible for their shareholders; they always go for the big hedge fund loan, for example, over the small $50,000 local business loan, which is not going to be as lucrative as their big international clients. Today only 15 percent of credit actually goes to businesses — the other 85 percent goes into the speculative economy or things like derivatives, the stock market, and [real estate] for houses that are already built where they’re basically just bidding up asset [valuations] against each other. So, it’s not going into productivity; it’s not going back to our local communities.
The current banking system is also very expensive because our cities and states are paying very high fees to these Wall Street banks to manage our money, and the interest is going to them and not back to us. Right now, local governments deposit their money in Wall Street banks and that money is not lent back into our local communities for the most part. It goes abroad, it goes into big corporations, and it goes into other Wall Street investments.
* And why do you believe that public banking is a better alternative to the current Wall Street-run banking system?
With public banks we’re actually talking about government-owned banks — we’re talking about what local governments themselves can do with their money. If we owned the banks we would get interest back, for example. We could also direct the money into our local communities, and we would actually be expanding the money supply in these communities. It would increase productivity, allow small businesses to expand and do more hiring and ultimately create more jobs.
* In many ways you spurred the modern public banking movement when you started writing about public banking after the 2008 crisis; specifically about the country’s only public bank, the Bank of North Dakota. What drew you to that example?
The Bank of North Dakota was formed in 1919 as a result of a farmers’ movement. Farmers in North Dakota were losing their farms to the big out-of-state banks and when they realized that, they got together and formed something called the Nonpartisan League. North Dakota is a very conservative state, but their name indicated that it wasn’t a right or left thing. It wasn’t about socialism necessarily, but about keeping their money in their own state and leveraging it for their own purposes.
...
* At this point, what are some of the biggest barriers that Public Banking Institute is facing as a movement?
The system is much more geared towards private banks and it’s slowing us up from getting municipal public banks established. In California, for example, eight different public banking advocacy groups have formed a coalition called the California Public Banking Alliance (CPBA) which has been pushing for a bill that would carve out a special charter for public banking. The bill, AB 857, just passed in the California State Assembly and most of the state senate committees. It would make it much easier for publicly owned banks to be created, because there’s currently no public banking charter available in the state.
Another issue on the national level is that currently new [de novo] banks are supposed to have FDIC insurance, but FDIC insurance only covers $250,000 per depositor and — if we’re talking about a public bank which only takes municipal bank deposits, for example like in North Dakota — you’re going to have far more than $250,000 per depositor [i.e. the state or city] to insure. So FDIC insurance wouldn’t do the state or city much good [since a single depositor would have millions, or in the case of the state of California billions, to deposit]. They would have to pay for the insurance and it would put them under the supervision of the FDIC, which chiefly underwrites and serves the biggest Wall Street banks. The Bank of North Dakota is not a member of the FDIC and was grandfathered in so they aren’t required to be a member, but the new rules for forming a de novo bank are that you must have FDIC insurance. One thing that we want to do is carve out an exception for a public bank. The bank would need some sort of collateralization to protect the deposits, but FDIC insurance isn’t the most functional solution.
So now, by law, all of the state’s revenues are deposited in the Bank of North Dakota, which gives it a massive deposit base. They’ve built up their capital over many years and now have a $7 billion bank, which is a lot considering the population is only 760,000.
There was an article in The Wall Street Journal in 2014 that said the Bank of North Dakota was more profitable than Goldman Sachs and JP Morgan Chase. The question is, how did they do that? Well, they just have very low costs. They cut out the middleman — they don’t have shareholders bleeding their profits out, no $20 million CEOs, so they’re able to use their profit to make below-market loans into the local community.
North Dakota was the only state that had their own bank and, after 2008, it was the only state that escaped the credit crisis. It never went in the red. It had the lowest unemployment rate in the country, the lowest default rate, the lowest foreclosure rate, the most local banks per capita — six times as many banks as other states — and actually didn’t lose any banks to the crisis.
* How should the movement evolve to be successful?
Massive unrest and revolutionary fervor are happening globally, but activist groups tend to be limited to their own circumscribed silos. If we could manage to bring all those groups together under one umbrella, we could be a seriously effective force. Public banking advocates feel that public banking could be such a unifying force. Ideally, we could form a political party or at least a political action group.
My own sense, though, is that to make significant headway, we really need to get the federal government and the Federal Reserve involved. A continual question raised by opponents is whether cities and states will be liable if their public banks wind up with more bad loans than they have capital. We need to do as China does, and support our local public banks with the deep pocket of the central bank. Rather than putting either the insolvent enterprises or the insolvent banks into bankruptcy, China just writes off the bad debts. Another alternative would be to move bad debts onto the books of the central bank, just as the toxic mortgage-backed securities of Wall Street banks were bought by the Fed after the 2008 crisis." (https://www.shareable.net/author-ellen-brown-discusses-how-public-banking-can-create-shared-prosperity/)
Discussion
Limitation of the proposal
Anthony Migchels:
"Public Banking does not address the insanity of Fractional Reserve Banking. It does solve the Interest issue associated with it and that is of course by far the most important thing. But FRB is a very inefficient, expensive, unstable and fundamentally unsound way of creating credit. Eventually it will have to go.
Another issue is that there is a risk that Governments would abuse easily available credit, creating inflationary pressures. It must be said though, that an interest bearing money supply like we have today is inherently inflationary, because not only the principal, but also the interest to payed must be created. Otherwise people would have to go bust, because there is not enough money to pay off all the debt + the interest.
This is a key reason that our monetary system is so unstable: because the debt must grow eternally, the interest payed over it must also become more and more. This is why we must have economic growth, or face declining income. But it is easy to see it is unsustainable: the exponential growth can go only so far before the numbers become astronomical.
These pressures would not be a part of Public Banking so risk of inflation is limited.
All in all Public Banking is an amazingly powerful concept. It clearly decentralizes financial power to local and regional communities. It eats away at the horrible interest drain to the Plutocracy. It prevents deflation and the turmoil associated with that criminal enterprise." (http://realcurrencies.wordpress.com/2012/02/02/ellen-browns-public-banking-2/)
More Information
The Book
- Banking on the People: Democratizing Money in the Digital Age. By Ellen Brown.
"What is your vision of the future — what would life be like if every city had their own bank?
I envision a national public banking system in which banks [are] the local arms of a nationalized central bank; one that [is] transparent and accountable to the public. I elaborate on this in my latest book, “Banking on the People: Democratizing Money in the Digital Age.”
With a national public banking system, governments, local businesses and individuals could get below-market loans; bank profits could return to federal and local governments for public needs; the economy would be stimulated; jobs would be created; infrastructure and social programs could be funded; corruption and the financialization of the economy could be minimized; and income equality could return." (https://www.shareable.net/author-ellen-brown-discusses-how-public-banking-can-create-shared-prosperity/)