Broadcast 5/13/2015 at 18:27:53 (38 Listens, 51 Downloads, 1868 Itunes)
The Rob Kall Bottom Up Radio Show Podcast
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Scott Baker is one of the managing editors and the economics editor for OpEdNews, a lecturer at the New York Henry George School, and the New York coordinator for the Public Banking institute. And he's the author of a new book, America Is Not Broke-- Four Multi-trillion Dollar Paths to a Thriving America
Rob: what's the basic concept of the book
Basically I'm challenging the concept that America's out of money"
I'm doing it in a different way. There are four macro-solutions that people don't know about that would put trillions into the economy.
Rob: Trillions into the economy. Why isn't this being done?
For example, money creation is the province of the banks, and they don't want to let go of it. We did it before, under Lincoln, when we created sovereign money. They US can produce money as it needs to.
land value taxation
Government asset hoarding.
Rob: What do you think would be the easiest one to free up? I'm thinking along the lines of the lowest hanging fruit.
Government asset hoarding could work with public banking.
The land value issue is more local.
Debt free money would be a national.
Rob: So let's start with government asset hoarding.
For example we (NYC and also NY State) have about $160 billion invested in wall street. We could take ten percent of that and put it in a public bank, like the the bank of North Dakota has done since the 1930s. The bank of North Dakota is not competing with small local banks. FDIC studies show that the banks with the most community banks have more small businesses.
Community banks are disappearing. Part of it is Dodd-Frank and regulations and part is consolidation. A Bank of N. Dakota can back-stop a small bank when it has a big.
Rob: What do you mean by government hoarding?
The big pension funds keep about 95% of the fund and dole out about 5% a year. So take net and you add to the pension fund, they only give out about 4% a year. IN exchange for that they're saying that they have to keep 94% invested to pay out.
We're talking about billions of dollars and it's not invested in the community. it's invested in Wall Street.
Rob: They collect money and save it for their pensioners. Why do you call that hoarding. The vast majority of the money is not benefiting the pensioners.
They're taking an enormous asset and t hey are not putting it into the benefit of the people. instead they're investing it in stocks and bonds or even international currencies, not into the community.
Rob: Are there third parties who are benefiting when they shouldn't be?
Pension fund managers are making hundreds of millions. There's a lot of pay to play-- some controllers have been arrested for that but it's not technically illegal.
If we had some of the money invested in the community the risk would be less and you'd be supporting the community and supporting a network of community banks.
Rob: So you're talking about government pension funds and rainy day funds for cities, states, etc.
Trillions-- there are about 200,000 of these-- the agencies all have theses funds-- police, firemen's teacher's funds-- counties-- there are a lot of enterprise agencies-- water, sewage, parking-- and they have to invest those.
The question is, where is the money invested. Is it doing best for the community? There's risk of a crash if the money's invested in the stock market. The State of N. Dakota was the only one that didn't have trouble during the 2008 Crash.
Rob: so you're basically saying that you put the hoarded money into pubic banking.
Another solution is a citizen's dividend, like Alaska does.
Rob: You said, NYC and NY State could take 10% of their assets. Why 10%?
Philly is looking at doing something and they are looking at taking out 2.5%. They have about $12 billion.
I've been told that 10% is too high.
Rob: Why is it too high?
You're asking them to change the way they operate. They have to go against the trend, against entrenched interests. We're saying peel off some funds and put it in a public bank. First they have to set up a public bank and then they have to fund it.
Rob: What's a public bank and why is it good.
I'm going to model it on the bank of N. Dakota-- That bank started in 1919. it takes all the tax proceeds in the state and then doles them out as needed. it backstops a lot of community banks. It doesn't make loans on its own. But a community bank can partner with the bank of N. Dakota and partner on loans. They've had an 18% return on equity for 10 years -- it's a $6.9 billion asset bank. It was original funded with a bond issue.
Rob: So, a public bank is owned by a government entity-- city, state, county
It's DBA - Doing Business As.
The bank of ND has returned about $300 million to the state over ten years. That's with 700,000 citizens.
Rob: But just because it's owned by the government it doesn't mean it's run by the government.
It's run by bankers. It has a charter that prevents it from securitizing loans and selling them to other parties. That keeps the loans on the books and skin in the game. Everything is focused inward to the state and the city. This puts more responsibility on the bank itself to have good loans.
There's oversight by a board consisting of the Governor, Attorney General and Secretary of Agriculture.
It's a self sustaining enterprise.
Rob: Some people would say that this would be more government and we don't need more of that.
You have to look at the corporate banks and ask whether they've done a good job.
40% of the world's banks are public banks. They have a pretty good record without scandals. Most people think that the banking industry is getting away with a lot of scandals, like monopolizing commodities markets.
Rob: Can you give examples of first world countries with public banks?
Germany, state bank of India, Brazil has several public banks, China has a public banking system, Japan has a postal bank. If we owe money to a private bank, the private can recall loans, but if we own the loans the money can recirculate-- the money gets recycled back for the public.
Rob: So, what is Sovereign money?
We had the Continental during the revolutionary war. People say it was inflated, but it was because the British were counterfeiting the Continental and drove down the value.
Then we had the Greenback under Lincoln, which was the first national money. We had state chartered banks, We had the United States bank which was decommissioned by Andrew Jackson in 1835. Then Lincoln created paper money in 1862-- which came out of the Civil war when there was not enough to pay the troops and private banks wanted 24-36% interest.
This is money that doesn't have to be borrowed from a central bank, with interest. We had a transpiration secretary, Ray LaHood, who tried to bring back interest-free money-- the greenback-- a way of putting back United States notes-- $350 billion. Lincoln did $450 million, about 40% of the US (budget). There's even speculation that the banks were behind the assassination of Lincoln...
Rob: You're saying these were European bankers that wanted this?
Yes, they wanted the US to split in two, weakening the country. They were very much against Greenbacks. They didn't want competition for money creation. Testimony pointed to a conspiracy that there was money to pay the John Wilkes gang to assassinate the president.
Sovereign money could be used to pay for many things, even taxes.
Rob: So, Lincoln was assassinated, Kennedy pissed people off and was assassinated. Who would creation of Sovereign money piss off?
Banks. Modern monetary theory folks say the debt is not a problem because in their view, we already have sovereign money because the FED is part of the government. But a lot of people, including me, would disagree. So even though the FED board of governors has seven nominees coming from the President, you can't say that the central bank is a creature of Congress and subject to its will when the banks themselves have so much influence over Congress.
Rob: You said that only 18% of the treasuries are owned by the central bank. Our treasury department can't issue currency on its on currently. So what they need to do to get more money into the system is to sell treasury bonds. So they get more money back into circulation. This is a kind of klugey mechanism instead of issuing money directly itself.
If China buys our treasury bonds, they strengthen our currency and weaken theirs, so they are able to sell their exports more cheaply. This kind of currency manipulation goes on all the time and it's one of the reasons for the trade imbalance we have with China now. The real way to stop this is to stop selling the treasuries. One way is to issue our own currency.
Rob: Who is opposed to that?
We have institutions make a pretty good living off of that.
China and pension funds and banks are buying a lot of them. Large ones are legally required to in order to stay a part of the federal reserve system. They would oppose sovereign money because they would be cut out of the loop. Broker dealers, on Wall Street would oppose. People opposing reducing the wealth gap would oppose. We could do away with the payroll tax and fund that with sovereign money-- a 12% savings right away-- 6% for employees and 6% from employers.
Rob: Tell us about how land value taxation is a multi-trillion possibility.
Georgists say that all taxes come out of rent. If you were to untax wages or sales, that money would be collected from the person who owns the land. There's about $5.3 trillion in money in the US that could be collected as rent that's currently not, because it's either taxed differently or privatized.
Rob: Is that money that could be collected every year?
That's about a third of GDP.
Rob: How would this change things for someone who owned a house, if this was put into effect.
It depends on how efficiently the land was being used. Now you pay a tax on the house and a tax on the land. Georgists only support a tax on the land. It discourages land hoarding. People with more land would be taxed more. People who put up a big apartment building on a small patch of land would be taxed less. In urban areas this becomes important, where you have huge buildings on small parcels of land.
What happens is the price goes up because there's a 95% abatement on the rent on the land.
Rob: So, the property is untaxed and the building is untaxed
No-- the entire tax is not collected except for 5%.
Rob; why do they get away with that?
Because the real estate lobby is one of the most powerful in the state.
Gov. Cuomo's largest donation to his campaign is the real estate lobby.
Rob: are you basically saying that the government would own all the land and it would be paid rent.
Rob: Why does the government get to collect the rent instead of the owner?
How much would a skyscraper be worth in the middle of the NY State, in farmland? It's the location that makes it worth so much. There's a synergy. We don't want to tax the location and if that location was properly taxed, you would not see $100 million apartments that were basically vacant.
As the value of the neighborhood goes up the rent goes up.
Rob: can you differentiate between the kinds of rent. Does the tenant pay the rent or does the building owner pay the rent?
Rob: It sounds to me that this is the most radical of all the changes.
Rob: How much rental value is there in NYC?
It could be a trillion dollars-- the land value. The total value for the US, I've seen would be $28 trillion... certainly in the trillions.
Rob: That sounds kind of low.
Land is not just physical terra firma -- it's any resource from nature -- radio spectrum, air, water -- really meaning all natural resources of the world.
Rob: So what would be the rental value every year for NYC?
We essentially collect about 4% of the full locational value of the property.
The point is we're basically letting private developers pocket the money that they haven't created. That's what the land value tax has to collect.
Rob: Let's wrap with this. If your book is successful, what will it have done?
It will energize people and make them realize that we're not broke, that we're being hoodwinked, and that politicians are being slippery with the numbers and not talking about what's really going on. And hopefully it will get them angry so they reach out to their representatives.
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