No subject

$548 to $212, a staggering 61 percent drop. Interest payments continued to
bleed the farmers of cash, and taxes had increased. In 1935, Albertans
decided they wanted a change and swept the Alberta Social Credit Party
into power. In 1938, the system of Alberta Treasury Branches was set up
literally as a branch of the provincial government. The stated goal of the
ATB was to "provide the people with alternative facilities for gaining
access to their credit resources". Bankers initially scoffed at Alberta's
attempts to establish a competing economic system, but Albertans had high
hopes and rushed to deposit their meager savings in the Treasury Branches.
The government invested in the ATB only once, contributing $200,000 in
1938. That was all that was necessary, as the system was self-funding
after that. By 1946, the ATB was turning an annual profit of $65,000.
According to a booklet titled "Albertans Investing in Alberta 1938-1998",
by 1998 the ATB had remitted $68 million to the provincial government.  

In India, public sector banks also operate alongside private sector banks.
Privatization has made significant inroads into India's banking system,
but fully eighty percent of the country's banks are still
government-owned. Before the current crisis, neoliberals criticized
India's public banks for being oriented more toward serving the customer
than turning a profit; but studies showed that the public sector banks
were out-performing the private sector banks in terms of customer
satisfaction. Today, when the credit crisis has hit the aggressive private
international banks particularly hard, customers are fleeing into the
safety of India's public sector banks, which have emerged largely
unscathed from the credit debacle. The public banks have been credited
with keeping the country's financial industry robust at a time when the
private international banks are suffering their worst crisis since the
1930s.

In China, private-sector banking has also made some inroads; but
state-owned banks still predominate. In a June 2009 article titled "The
Chinese Puzzle: Why Is China Growing When Other Export Powerhouses
Aren't?", Brad Setser noted that nearly all countries relying heavily on
exports for growth have experienced major downturns and remain in the
doldrums - except for China. When China's external markets fell off, the
government turned its credit machine inward to domestic development. Its
state-owned banks engaged in a huge increase in lending, with local
governments and state enterprises borrowing on a large scale. The result
was to create a real fiscal stimulus that put workers to work and got
money circulating again in the economy.

In the United States, the trendsetter in public banking is the state of
North Dakota, which has owned its own bank for nearly a century. North
Dakota is one of only two states (along with Montana) that are currently
not facing budget shortfalls. Ever since 1919, North Dakota's revenues
have been deposited in the state-owned Bank of North Dakota (BND). Under
the "fractional reserve" lending scheme open to all banks, these deposits
are then available for leveraging many times over as loans. Other banks in
the state do not see the BND as a threat because it partners with them and
backstops them, serving as a sort of central bank for the state. BND's
loans are not insured by the Federal Deposit Insurance Corporation (FDIC)
but are guaranteed by the state. North Dakota has plenty of money for
student loans, makes one percent loans to startup farms, has the lowest
unemployment rate in the country, and is generally not feeling the pinch
of the credit crisis at all.


Theory and Practice: The Proof Is in the Pudding

A bank charter brings with it the privilege of creating "credit" simply as
an accounting entry on the bank's books. The flaw in the private banking
scheme is that banks create the principal portion of their loans but not
the interest, which is continually drawn off the top as profit. New
borrowers must continually be found to take out new loans to create this
extra profit, making private banking effectively a pyramid scheme; and
like any pyramid scheme, it has mathematical limits. Today, those limits
appear to have been reached. Personal and national debts have gotten so
large relative to incomes that it is no longer possible to maintain the
fiction of solvency. We soon won't have the money even to pay the interest
on our existing debts, let alone to incur new ones. Public banking does
not suffer from that flaw, because interest is not drawn out of the system
but is returned to the public coffers. Public banking is thus
mathematically sound and sustainable.

That is the theory, but there is nothing so persuasive as putting it to
the test. Like with the public option in health care, we need to pit the
public banking option against the private banking option and see which
works best. My money is on the public option.  

_____

Ellen Brown developed her research skills as an attorney practicing civil
litigation in Los Angeles. In Web of Debt (2007), her latest book, she
turns those skills to an analysis of the Federal Reserve and "the money
trust". She shows how this private cartel has usurped the power to create
money from the people themselves, and how we the people can get it back.
Her earlier books focused on the pharmaceutical cartel that gets its power
from "the money trust." Her eleven books include Forbidden Medicine
(1998), Nature's Pharmacy (1998), co-authored with Dr Lynne Walker, and
The Key to Ultimate Health (2000), co-authored with Dr Richard Hansen. Her
websites are www.webofdebt.com and www.ellenbrown.com.

(c) Copyright 2007 Ellen Brown. All Rights Reserved.

http://webofdebt.wordpress.com/2009/08/05/the-public-option-in-banking-how-we-can-beat-wall-street-at-its-own-game/


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