Santa Barbaran to Move to L.A. if Charter Amendment B Passes
What would compel someone from Santa Barbara to move to Los Angeles, based on the passing of Charter Amendment B on the November ballot? This measure, supported by the Los Angeles City Council, would make Angelenos rich! Some people think that Santa Barbara is rich -- but that is a preconceived notion, just as objections to Charter Amendment B are preconceived notions.
What is Charter Amendment B, and how will it make us rich? The amendment opens the way for the city to establish a "public bank", owned by the people of Los Angeles. Harold Meyerson wrote a great earlier op-ed piece for the L.A. Times about it and the great good it can do for the city. However, what has been written about it so far misses the truly revolutionary move the city wants to make. The amendment reaches down to the fundamental question: Why can't a city have the same privilege of creating money that commercial banks have? The answer is: it can! That's what a public bank is - a bank owned by the people of the community, whose goal and profits go to serve their needs. The Bank of North Dakota is an excellent example of a public bank doing just that.
I used the phrase "creating money" above. Popular belief about how banks work is that some people put money into a bank, and the bank lends it out to others. The reality is that banks actually create money whenever they make a loan! Banks must have only a fraction of the amount of the loan in deposits. The fraction, legislated by the Fed, is only 10% currently. But those 10% in deposits stay in the bank. If the bank makes a loan that takes it below the 10% requirement, the Fed will automatically lend the bank the amount it needs until the bank gets new deposits to meet the requirement, and they pay back the Fed. The interest the Fed charges banks is a lot less than the banks charge us.
I am not making this up. Here is a quote from The Bank of England - Quarterly Bulletin, Spring - 2014: "The reality of how money is created today differs from the description found in some economics textbooks. Rather than banks receiving deposits when households save, and then lending them out, bank lending creates deposits. . . . Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money."
What a deal! A bank creates money out of nothing by a few keystrokes on its computer! Why do banks do that? To make profits, of course. Where do the profits go? To the share-holders, of course. Why shouldn't the city have the same right -- to create a public bank that creates money out of nothing? But instead of profiting private individuals who own the banks, it would profit the citizens of Los Angeles. What could the city do with the money? Whatever the citizens decide, as expressed through the legislature: create new infrastructure, low income housing, clean energy, divestiture from the big banks who don't invest in the city, etc. That's why I would move there -- all of the citizens would become rich through the bank's investing in a better, safer, more powerful, more caring city. Those are the riches I am after.
There is a catch, though. Those loans to the city, just like loans now, have to be paid back to the bank. However, those loans can be made at perhaps half the cost of current city loans. Big banks now use city deposits as reserves to make big loans around the world. A public bank would have to invest only in the city. That's why big banks oppose Charter Amendment B. It would simply give the city the same privilege of money creation that all banks have now.
On second thought, maybe I won't move to L.A. if the Amendment B passes. I think I will stay here and work on getting a public bank for Santa Barbara!