[R-G] [BillTottenWeblog] But Governor, You Can Create Money!

Sun May 31 19:45:07 MDT 2009

Just Form Your Own Bank

by Ellen Brown

www.webofdebt.com (May 26 2009)

"I understand that these cuts are very painful and they affect real
lives. This is the harsh reality and the reality that we face.
Sacramento is not Washington - we cannot print our own money. We can
only spend what we have."  - Governor Arnold Schwarzenegger quoted in
Time (May 22 2009)

Christmas comes early, Governor. You CAN print your own money. Fiscally
solvent North Dakota is doing it ... and so can California. Now!!!

In a May 22 article in Time titled "Billions in the Red: Fiscal
Reckoning in California", Juliet Williams reports that since California
voters have now vetoed higher taxes and further state government
borrowing, Governor Arnold Schwarzenegger has indicated that he intends
to close the budget gap almost entirely through drastic spending cuts.
The cutbacks could include laying off thousands of state workers and
teachers, ending the state's main welfare program for the poor,
eliminating health coverage for about 1.5 million poor children, halting
cash grants for about 77,000 college students, slashing money for state
parks, and releasing thousands of prisoners before their sentences are
finished. Schwarzenegger bemoaned the fact that the state could not
print its own money but said it could only spend what it had.

But the state can create its own money. After all, banks do this every
day. Certified, card-carrying bankers are allowed to do something nobody
else can do: they can create "credit" with accounting entries on their
books. As the Federal Reserve Bank of Dallas explains on its website:

"Banks actually create money when they lend it. Here's how it works:
Most of a bank's loans are made to its own customers and are deposited
in their checking accounts. Because the loan becomes a new deposit, just
like a paycheck does, the bank ... holds a small percentage of that new
amount in reserve and again lends the remainder to someone else,
repeating the money-creation process many times."

President Obama has also acknowledged that banks create money, through
what he calls the "multiplier effect". In a speech at Georgetown
University on April 14, he said:

"[A]lthough there are a lot of Americans who understandably think that
government money would be better spent going directly to families and
businesses instead of banks - 'where's our bailout?', they ask - the
truth is that a dollar of capital in a bank can actually result in eight
or ten dollars of loans to families and businesses, a multiplier effect
that can ultimately lead to a faster pace of economic growth".

Money in a government-owned bank could give us the best of both worlds.
We could have all the credit-generating advantages of private banks,
without the baggage cluttering up the books of the Wall Street giants,
including bad derivatives bets, unmarketable collateralized debt
obligations, mark to market accounting issues, oversized CEO salaries
and bonuses, and shareholders expecting a sizeable cut of the profits. A
state could deposit its vast revenues in its own state-owned bank and
proceed to fan them into eight to ten times their face value in loans.
Not only would it have its own credit machine, but it would control the
loan terms. The state could lend at one-half percent interest to itself
and to municipal governments, rolling the loans over as needed until the
revenues had been generated to pay them off. According to Professor
Margrit Kennedy in her 1995 book Interest and Inflation-free Money,
interest composes, on average, fully half the cost of every public
project. Cutting costs by fifty percent could make
currently-unsustainable projects such as low-cost housing, alternative
energy development, and infrastructure construction not only sustainable
but actually profitable for the government.

If all this seems too radical and unprecedented to venture into,
consider that one state has had its own bank for ninety years; and it
has not only escaped the credit crunch but is doing remarkably well ...

The Innovative Bank of North Dakota

Only three of fifty states are now solvent, meaning they have the
revenues to meet their state budgets; and one of them is North Dakota.
It is an unlikely candidate for the distinction. It is a sparsely
populated state of less than 700,000 people, largely located in isolated
farming communities afflicted with cold weather. Yet since 2000, the
state's GNP has grown 56%, personal income has grown 43%, and wages have
grown 34%. The state not only has no funding issues, but this year it
actually has a budget surplus of $1.2 billion, the largest it has ever had.

North Dakota boasts the only state-owned bank in the nation. The Bank of
North Dakota (BND) was established by the state legislature in 1919
specifically to free farmers and small businessmen from the clutches of
out-of-state bankers and railroad men. The bank's stated mission is to
deliver sound financial services that promote agriculture, commerce and
industry in North Dakota. By law, the state must deposit all its funds
in the bank, which pays a competitive interest rate to the state
treasurer. The state rather than the FDIC guarantees the bank's
deposits, which are plowed back into the state in the form of loans. The
bank's return on equity is about 25%, and it pays a hefty dividend to
the state, which is expected to exceed $60 million this year. In the
last decade, the BND has turned back a third of a billion dollars to the
state's general fund, offsetting taxes. The former president of the BND
is now the state's governor.

The BND avoids rivalry with private banks by partnering with them. Most
lending is originated by a local bank. The BND then comes in to
participate in the loan, share risk, and buy down the interest rate. The
BND provides a secondary market for real estate loans, which it buys
from local banks. Its residential loan portfolio is now $500 billion to
$600 billion. Guarantees are also provided for entrepreneurial startups,
and the BND has ample money to lend to students (over 184,000
outstanding loans). It purchases municipal bonds from public
institutions, and it backs loans made to new farmers at one percent
interest. The BND also has a well-funded disaster loan program, which
helps explain how Fargo, when struck by a disastrous flood recently,
managed to avoid the devastation suffered by New Orleans in similar
circumstances.

North Dakota has also managed to avoid the credit freeze, through the
simple expedient of creating its own credit. It has led the nation in
establishing state economic sovereignty. In California and other states,
workers and factories are sitting idle because the private credit system
has failed. An injection of new money from a system of publicly-owned
banks on the model of the Bank of North Dakota could thaw the credit
freeze and bring spring to the markets once again.

_____

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.

http://www.webofdebt.com/articles/but_governor.php

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