When states and municipalities set up public banks, money and hence energy is withdrawn from Wall Street creating the perfect revolution with the result that the husk of Wall Street shrivels up and dies like a plant deprived of nutrients … without a shot being fired.
By John Lawrence
Nothing could be less radical than a public bank because the state of North Dakota already has one and it has been working successfully for the citizens of North Dakota. No one would accuse North Dakotans of being socialists or would they? No new ground to break here!
Instead of money leaving the state and going to Wall Street, money stays in the state where it is lent out in the form of student and business loans with the profits being shared by the citizens of North Dakota instead of going into the pockets of private bankers in New York.
The Bank of North Dakota (BND) administers lending programs that promote agriculture, commerce and industry. Financing economic development is the thrust of Bank of North Dakota’s efforts. The Bank is authorized by the legislature to assist financial institutions in the state by providing lending programs with economic development opportunities. A portion of the Bank’s profits are returned to the citizens of North Dakota through legislative appropriation and economic development programs.
Alternatively, a public bank’s profits could be used to cover state budget deficits and even to reduce state income taxes, something that states like California could benefit from.
But some say public banking is socialism. Capitalism demands and even dictates that banking should be in the private sector. Ellen Brown responds in her book, “The Public Bank Solution, From Austerity to Prosperity” as follows:
Not at all. Socialism is government ownership of the means of production – factories, farms, businesses and land. Public banking is not about government ownership of property but about government oversight of the system of debits and credits that undergirds a functioning economy ensuring that the system operates efficiently, fairly, securely, and to the benefit of all. Banking, money and credit are not market goods but are economic infrastructure, just as roads and bridges are physical infrastructure. Banking and credit need to be public utilities for a capitalist market economy to run properly. By providing inexpensive, accessible financing to the free enterprise sector of the economy, public banks make commerce more vital and stable.
Exactly. Capitalism is nothing more than a set of rules, a set of rules that has been heavily lobbied to benefit the richest and most powerful. To purists capitalism is the laissez faire system of supply and demand with no interference from government. Well, when have we had that? Only in some libertarians’ wet dreams.
Was capitalism what we had before we had the Glass-Steagall rule separating commercial and investment banking or was it in the time period that Glass-Steagall was in effect (1933-1999) or was it after Glass-Steagall was abolished which produced the crash of 2008 or is it today with the new Dodd-Frank banking rules?
Basically capitalism is whatever the government says it is. Today the free enterprise system is rigged by central banks and other large institutions. One guy, Ben Bernanke at the Federal Reserve, sets interest rates. Other interest rates like the Libor rate are rigged by the banking system itself.
There is no pure price discovery by the law of supply and demand. For pure capitalism to be in effect interest rates would have to be set by the markets not government bureaucrats.
The fact that the US central bank, the Federal Reserve is printing money at the rate of $85 billion a month (quantitative easing) and giving it to the big Wall Street banks represents, if nothing else, a departure from pure capitalism. And that money doesn’t go to economic development the way money deposited in the Bank of North Dakota does. That money goes into the casino economy.
Ben Bernanke has no plans to “taper,” that is raise interest rates even modestly or stop giving $85 billion a month to Wall Street because the bond market would flip out bringing the whole unstable edifice of present day US and Western capitalism crashing down as it did in 2008.
Ellen Brown gives a fair description of the state of US capitalism circa 2013:
The Western banking system today has all the earmarks of a giant Ponzi scheme on the verge of collapse: a global credit crisis extorting massive bailouts from the taxpayers; a derivatives casino with a US notional (or nominal) exposure of $300 trillion; governments refusing further bank bailouts; “bail in” policies in which the largest banks are being instructed to confiscate their depositors’ funds if necessary [as happened in Cyprus], in a last-ditch effort to keep their doors open. “Systemically risky” hardly describes the condition of the giant derivative banks, which are like a house of cards waiting for a strong wind. Fortunately, there is a safer, more sustainable way to design a banking system.
The point is that public banking has been the salvage of other countries and jurisdictions when the Wall Street private banking system in collusion with the Federal Reserve has come crashing down. For instance, North Dakota with its public banking system survived the crash of 2008 quite nicely, thank you very much. North Dakota is the only state to escape the recent credit crisis with a budget surplus every year since 2008. It has the lowest unemployment rate in the country, the lowest credit card default rate and no state government debt at all.
But North Dakota is not the only example of a well functioning public banking system, one that evaded the stategems of Wall Street which caused municipal bankruptcies throughout the western world, for instance in Birmingham, AL and San Bernardino, CA, not to mention Milan, Italy.
Internationally, publicly owned banks are quite common and countries with strong public banking systems generally have strong, stable economies. According to an Inter-American Development Bank paper presented in 2005, the percentage of state ownership in the banking industry globally was over 40% by the mid-1990s.
As might be expected, these public banks are largely found in the BRIC countries – Brazil, Russia, India and China – which have made the greatest strides in the world economy in the last decade. Publicly owned banks comprise about 60% of the banks in Russia, 75% in India, more than 69% in China and 45% in Brazil. On a currency adjusted basis the economies of the BRICs are already larger than the US and the UK combined.
According to a May 2010 article in The Economist, the BRICs sailed through the banking crisis of 2008 largely because of their strong and stable publicly owned banks. And the BRICS are forming their own alliances challenging the International Monetary Fund and the World Bank as the dominant global financial institutions.
They had their first formal meeting in Yekaterinburg, Russia in 2009. They represent an alternative to western style financial institutions. They have asked South Africa to join with them forming “BRICS.” At their 2013 meeting in Durban, South Africa, they formally declared their intention to start a BRICS Development Bank to underwrite infrastructure projects within their own nations. This will soak up excess labor and keep unemployment low, something that the US dominated economic sphere has failed to do.
The BRICS are also calling for an alternative to the dollar as the world’s reserve currency. The BRICS account for around three quarters of the world’s currency reserves, have few serious fiscal issues and are net government creditors. They are coming on like gangbusters driven by their strong public banking sectors. While the US and the City of London are speculating in trillions of dollars worth of derivatives, the BRICS are engaging their public banking sectors in real economic growth and infrastructure development.
In Brazil, Lula da Silva (“Lula”) became President in 2003. He rescued his largely insolvent country by enlisting its public National Economic and Social Development Bank (BNDES) to direct a fire hose of credit towards a whole host of infrastructure development projects such as road construction, dam building, bridge building, museum refurbishing etc.
The BNDES was largely responsible for turning the economy around. It is the main source of long term loans in Brazil’s economy. In 2009 the BNDES gave out more than $57 billion in loans, more than the World Bank which totaled only $47 billion. And because of this extension of credit, Brazil was not that affected by the global economic downturn known as the Great Recession of 2008.
What Lula accomplished in Brazil was similar to and in fact modeled on the Reconstruction Finance Corporation, one of the New Deal entities put into effect by President Franklin D Roosevelt. While the central banks of the Western world are focused on backstopping the world’s private banks (the US Fed gave out over $7 trillion to them in 2008), development banks like the BNDES direct credit to the real producing economy.
Brazil has wisely put its pension fund in the BNDES where, rather than being invested on Wall Street in derivatives and other speculative ventures, it was invested in the infrastructure needed to rebuild Brazil.