Share on Google Plus Share on Twitter 1 Share on Facebook Share on LinkedIn Share on PInterest Share on Fark! Share on Reddit Share on StumbleUpon Tell A Friend (1 Shares)  
Printer Friendly Page Save As Favorite View Favorites (# of views)   7 comments

General News

CUTTING OUT THE MIDDLEMAN: The Government Is Now in the Banking Business

By   Follow Me on Twitter     Message Ellen Brown     Permalink
      (Page 2 of 2 pages) Become a premium member to see this article as one long page.
Related Topic(s): ; ; ; ; ; ; , Add Tags Add to My Group(s)

Must Read 3   Well Said 3   News 2  
View Ratings | Rate It Headlined to H2 4/2/10

Author 7471
Become a Fan
  (198 fans)
- Advertisement -

The answer is no not if the program is set up properly. In fact, it could be a significant source of income for the government.

The SAFRA doesn't mention setting up a government-owned bank, but the Energy Bill that is now pending before the Senate does. Funding for the energy program is to be through a Green Bank, which can multiply its funds by leveraging its capital base into loans, as all banks are permitted to do. According to an article in American Progress:

"Funding for the Green Bank should be on the order of an initial $10 billion, with additional capital provided of up to $50 billion over five years. This capital could be leveraged at a conservative 10-to-1 ratio to provide loans, guarantees, and credit enhancement to support up to $500 billion in private-sector investment in clean-energy and energy-efficiency projects."

Banks can create all the credit they can find creditworthy borrowers for, limited only by the capital requirement. But when the loan money leaves the bank as cash or checks, banking rules require the bank's reserves to be replenished either with deposits coming in or with interbank loans. The proposed Green Bank, however, is apparently not going to be a deposit-taking institution. Presumably, then, it will be relying on interbank loans to provide the reserves to clear its checks.

The federal funds rate the rate at which banks borrow from each other has been maintained by the Federal Reserve at between zero and .25% ever since December 2008, when the credit crisis threatened to collapse the economy. A Green Bank qualified to borrow in the interbank market could acquire funds at that very low rate as well, and so could a Student Bank. The spread could give the Education Department more than 6.5% gross profit annually on student loans.

The Treasury, by contrast, paid an average interest rate for marketable securities in February 2010 of 2.55%, which explains the 2.8% interest at which the Education Department must now borrow from the Treasury. The interbank rate is obviously a better deal, but it could go up. The cheapest and most reliable alternative would be for the Treasury itself to become the "lender of last resort," as William Jennings Bryan urged in 1896.

The Treasury Department and the Education Department are arms of the same federal government. If the government were to set up a government-owned bank that simply lent "national credit" directly, without borrowing the money first, it could afford to lend to students at much lower rates than 6.8%. In fact, it could afford free higher education for all. Such a program could actually pay for itself, as was demonstrated by the G.I. Bill, considered one of the government's most successful programs. Under the Servicemen's Readjustment Act of 1944, the government sent seven million Americans to school for free after World War II. A 1988 Congressional committee found that for every dollar invested in the program, $6.90 came back to the U.S. economy. Better-educated young people got better-paying jobs, resulting in substantially higher tax revenues year after year for the next forty-plus years.

Taking Back the Credit Power

Winston Churchill once wryly remarked, "America will always do the right thing, but only after exhausting all other options." More than a century has passed since William Jennings Bryan insisted that issuing and lending the credit of the nation should be the business of the government rather than of private bankers, but it has taken that long to exhaust all the other options. With student loans, at least, government officials have finally come around to agreeing that underwriting private lenders with public funds doesn't work.

- Advertisement -

We are increasingly seeing that underwriting banks considered "too big to fail" doesn't work either. Banks are borrowing at near-zero interest rates and speculating with the money, knowing they can't lose because the government will pick up the losses on any bad bets. This is called "moral hazard," and it is destroying the economy.

Issuing the national credit directly, through a federally-owned central bank, may be the only real solution to this dilemma. Today the government borrows the national currency from the privately-owned Federal Reserve, which issues Federal Reserve Notes and lends them to the government and to other banks. These notes, however, are backed by nothing but "the full faith and credit of the United States." Lending the credit of the United States should be the business of the United States, as William Jennings Bryan maintained. The dollar is credit (or debt), just as a bond is. Both a dollar bond and a dollar bill represent a claim on a dollar's worth of goods and services. As Thomas Edison said in the 1920s:

"If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People."

- Advertisement -

Next Page  1  |  2


- Advertisement -

Must Read 3   Well Said 3   News 2  
View Ratings | Rate It

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon

Go To Commenting

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Follow Me on Twitter

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

It's the Derivatives, Stupid! Why Fannie, Freddie and AIG Had to Be Bailed Out

Mysterious Prison Buses in the Desert


Libya: All About Oil, or All About Central Banking?

Borrowing from Peter to Pay Paul: The Wall Street Ponzi Scheme Called Fractional Reserve Banking

"Oops, We Meant $7 TRILLION!" What Hank and Ben Are Up to and How They Plan to Pay for It All