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April 29, 2012
A Cure-all for the Financial Ills of our time?
By Josh Mitteldorf
There were 2 visions expressed at this weekend's first convention of the Public Banking Inst. The 1st is the very practical idea that states and cities around America could be rescued from insolvency if they had their own banks, instead of relying on commercial banks to borrow money through bonds. The 2nd is the radically subversive idea that our present system for creating money could be replaced by one that serves the people
An alien lands in New Orleans and asks an Earthling about the devastation. "So -- is there no building material for repairing the damage?"
"Actually," says the Earthling, "there are building materials stockpiled just out of town."
" So, there are no workers to do the job?"
"Actually, there are hordes of unemployed workers who would love to have the work."
" So -- what's the problem?"
" Well, the way things work here, we need these pieces of green paper before we can get started..."
Philadelphia -- There were two visions expressed at this weekend's first (annual?) convention of the Public Banking Institute. The first is the very practical idea that states and cities around America could be rescued from insolvency if they had their own banks, instead of relying on commercial banks to borrow money through bonds. Tax-exempt bond issues supply money to states and municipal governments typically at 5 or 6% interest, while banks these days are able to borrow from the Fed at 1/4% per year.
The second vision is hinted in the joke (above) that Board President Ellen Brown told as she opened her address to the group. It is the radically-subversive idea that the system we have for introducing money into the economy is a boon for the banks, but perhaps a major drag on our economy. Perhaps a simple, direct system of money creation by the Treasury Dept instead of the Fed would put an end to cycles of recession, and create a foundation for long-term prosperity.
Banking is a huge leech on our economy. 40% of every dollar we spend on goods and services -- 40% of all that we create and all we consume -- is siphoned off the top as bank interest in one form or another. (Calculations of Margrit Kennedy) The US Government is in the absurd position of paying interest to a private bank for every dollar that is put into circulation. The Federal Reserve system has privatized the power to create money, which, according to the Constitution, ought to belong to Congress alone. Presently, interest on the national debt costs the Federal government $500 billion in 2011, and (because of structural deficit spending) it is the fastest-growing portion of the Federal budget.
The problem is that an expanding economy needs an expanding money supply. But since 1913, the Federal Reserve (a private consortium of banks) creates the money, backed by new Treasury Notes (bonds) which the Federal Government issues. In essence, every dollar in the money supply represents a dollar of Federal debt. Interest on this debt grows exponentially -- which means it's not much of a problem until suddenly it is. It's a ticking time bomb.
We need another system.
It has not always been thus. Colonial America had paper money created separately by each colony -- a system promoted by young Benjamin Franklin in the 1730s. British King George put an end to the colonies' power, one of the inflammatory actions leading up to the Revolutionary War.
Fourscore and seven years later, President Lincoln financed the Civil War by printing "greenbacks" -- direct money creation by the Federal Government, a sound and simple and publicly-accountable system for regulating the money supply. The greenback system died with Lincoln.
Some say it's not an accident that the present monetary system is so dysfunctional that it is stifling economic activity, and so complicated that "only economists can understand it". The system has many victims, but there are a few who benefit. Carroll Quigley was a professor of history and Washington insider who wrote, in 1966:
[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations . (from Tragedy and Hope: A History of the World in Our Time (cited by Brown)
A venerable voice at the conference was Bill Still, who has been educating the public on this issue for over 20 years. His video from the 1980s is available now on Youtube .
12-year-old Victoria Grant attended the conference with her Dad, and talked about the Canadian national bank that worked in the public interest for 30 years after its creation in 1939. Since 1974, however, Canada, like the US, has depended on private banks for its own currency, and the result has been an exponential spiral of debt. You can hear Victoria telling the emperor that he has no clothes on here.
How to restore sanity to our monetary system? A direct assault on the Fed and the Wall St banks that own it pits us against a wall of opposition from some of the richest and most powerful organizations in the world. Let's start at a smaller scale, in the states and cities where American democracy still has some life and some room to move. States (with the exception of North Dakota) are all in trouble, slashing services and increasing taxes in response to the financial crisis of 2008, as the recession cuts into tax revenues just as more people are in need of public services.
There are bills introduced in legislatures of 17 states to create state-owned banks. Many of these are modeled on the example of North Dakota, the only state at present that has a state bank. North Dakota was insulated from the bank crisis of 2008, and the state is prospering recently, with the lowest unemployment rate, the lowest default rate on credit card debt, and lowest foreclosure rate in the 50 states. Economic historian Rozanne Ederson told us that North Dakotans love their bank now, but in 1919, its original implementation required a farm foreclosure crisis and a hotly-charged legislative battle.
The farmers who pushed through North Dakota's bank in 1919 were the radicals of their day. In Philadelphia this weekend are the people who aspire to carry their torch in a new century. They're up against The Bankers -- a rich and powerful force in opposition to change. But states are so desperate for cash these days, and the State Banks could potentially relieve so many ills that who knows -- it just might work!
Submitters Website: http://daily-inspiration.org
Josh Mitteldorf, an editor at OpEdNews, is a scientist specializing in the biology of aging and the evolution of cooperation. Educated to be an astrophysicist, he has branched out from there to mathematical modeling in a variety of areas, including evolutionary ecology and economics. He has taught mathematics, statistics, and physics at several universities. He is an avid amateur pianist, and father of two adopted Chinese girls. This year, his affiliation is with MIT, where he studies the evolution of aging. His book on the subject is "Suicide Genes", http://SuicideGenes.org .