FROM AUSTERITY TO PROSPERITY WITH PUBLICLY OWNED BANKS Ellen Brown, J.D. Public Banking in America Conference Philadelphia April 27-28, 2012.

FROM AUSTERITY TO PROSPERITY WITH

PUBLICLY OWNED BANKS

Ellen Brown, J.D. Public Banking in America Conference

PhiladelphiaApril 27-28, 2012

Returning to our roots: the Declaration of Independence,

the Constitution, and public banking

Representation without taxation: the public land bank

• Precious metals were scarce, and the colonists resisted taxation.

• Government-issued money solved that problem but created another: inflation.

• Government-issued credit, repaid at interest, solved both.

The Philadelphia Quakers didn’t invent public banking, but they proved the model.

Led by William Penn, the Quakers sought religious freedom in the New World.

Bills of credit were issued by the Philadelphia land bank and LENT to the farmers at interest, funding the government. The result:

Government prints $105

Lends $100 @ 5% interest

Spends $5 on budget, infrastructure

$105 circulates in economy; comes back to government as principal and interest

Government lends $100 @ 5% interest

Spends $5 on budget, infrastructure

• No taxes

• No inflation

• No government debt!

Would that work today? Yes!

• Total income taxes paid in 2011: $1,100 billion.

• Total interest collected by banks: $725 billion.

• Total interest paid on federal debt: $454 billion.

• Interest could replace income taxes, if banking were a public utility.

0

200

400

600

800

1000

1200

1400

total interest total inc tax

bank int.fed debt

Alternatively, keep the existing tax structure and use the new interest income to fund Roosevelt’s Economic Bill of Rights:

• The right to a job, food and clothing;• A decent home;• Adequate medical care;• Protection from the economic fears

of old age, sickness, accident, and unemployment;

• A good education.• Franklin D. Roosevelt, “State of the

Union Address,” January 11, 1944.

Benjamin Franklin popularized the PA model . . . and unwittingly killed it.

He let the cat out of the bag: government-issued money and credit were the road to prosperity and independence.

The British had developed another form of banking. Private banks issued banknotes on a “fractional reserve” model. They kept only a fraction of the gold represented by their notes in “reserve.” The rest of the notes were essentially counterfeit.

                       .

The Bank of Englandcirca 1740

Fractional reserve banking was institutionalized when the Bank of England was founded in 1694 . . .

. . . at a time when William III needed money to fund a war. The bank issued banknotes and lent them to the government. Only the interest had to be paid.

The colonists’ paper money allowed them to escape the bankers’ net. The Bank of England leaned on King George, who forbade new issues of scrip, precipitating a depression and the American Revolution.

The colonists won the Revolution but lost the power to issue their own money. Private banks issued banknotes at interest on the fractional reserve (counterfeit) model.

Abraham Lincoln restored the government-issued paper money of the American colonists but was assassinated.

In the 1890s, the Populists tried to restore government issued money and credit but failed.

The march of Coxey’s Army on Washington inspired the Wizard of Oz.

Public banking moved to another former British colony -- Australia.

The Commonwealth Bank of Australia was wildly successful . . .

Too successful. Like Franklin, Governor Denison Miller made the mistake of touting its virtues in London, killing the golden goose.

The birth of “central banking”

• The Bank of England, alarmed, devised a new plan: it would arrange for a system of “central banks” to take over the power to issue national currencies.

• This money would be LENT to the government and people.

• The apex of the system would be the Bank of England.

The apex moves to Switzerland.

• The B of E sent its emissary, Sir Otto Niemeyer, to rein in Australia and New Zealand.

• In 1937 he became chairman of the Bank for International Settlements.

Prof. Carroll Quigley of Georgetown University wrote in “Tragedy and Hope” in 1966:

“The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. . . .

“The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank . . . sought to dominate its government by its ability to control Treasury loans . . . .”

But C.H. Douglas got to NZ first . . .

• The Reserve Bank of New Zealand, set up by Niemeyer, was taken over by a monetary reform party and used to issue “national credit.”

• Again the experiment was wildly successful . . .

. . . until NZ was threatened with dire consequences.

It would be cut off from trade with the Commonwealth if it did not cease these “unsound practices.”

Japan adopts social credit.

• The City of London could do nothing, however, to rein in the Japanese, who had also adopted Douglas’ ideas. They used national credit to fund their economy.

• Japan -- and Germany -- thrived while the rest of the world suffered a major depression . . . until they were stopped by war.

Japan gets universal electrical

power, 1935.

Then there was Canada . . .

• In 1935, the Bank of Canada Act allowed the Canadian Central Bank to create the credit to finance federal and local projects.

• From 1939 to 1974, it did this, again to brilliant effect.

Major government projects were funded with national credit:

• aircraft production• education benefits for

returning soldiers• family allowances• old age pensions • the Trans-Canada Highway • the St. Lawrence Seaway

project• universal health care.

In 1974, it quit borrowing from its own bank and borrowed instead from the international bankers. Result: by 2000, the federal debt had shot up to $585 billion.

What changed in 1974?

• The Basel Committee was established by the central-bank Governors of the Group of Ten countries of the BIS. Canada joined the BIS and the Basel Committee the same year.

• One of the key objectives of the Committee was to “maintain the stability of the currency.”

• That meant no more printing money or borrowing from the nation’s own central bank. Borrowing had to be private.

The debt trap was set in stages.

• 1971 – The U.S. dollar went off the gold standard.• 1973 – A group of bankers and politicians met at a

Bilderberger conference in Sweden and determined to “back” the dollar with oil.

• 1974 -- US Secretary of State Henry Kissinger entered into a secret deal with the OPEC countries to sell oil only in dollars. The price of oil was then suddenly quadrupled. Countries lacking oil had to borrow dollars from U.S. banks.

• 1981 – Fed Chairman Paul Volcker raised interest rates to 20%. In Canada, they went to 22%.

At 20% compound interest, debt doubles in under four years.

That explains the widening gap in economic indicators.

From Margrit Kennedy, http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf

10% of the people gain; 90% lose.

http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf

When debtor nations could not pay the banks, the International Monetary Fund stepped in with loans – with strings attached . . .

The debtor nation had to agree to “austerity measures,” including:

• cutting social services,• privatizing banks and

public utilities, • opening markets to

foreign investors,• letting currencies

“float.”

By 2000, developing nations were trapped in debt. in debt.

The bankers’ sleight of hand –The presumption was that borrowing privately meant borrowing existing money. But most money is now created privately by banks.

How banks create money– the textbook model

Chicago Federal Reserve, Modern Money Mechanics

landru.i-link-2.net/monques/resexp2.gif

Cumulative expansion in deposits on basis of 10,000 of new reserves and reserve requirement of 10%.

Expansion stagesFinal

100,000

60,000

20,000

80,000

40,000

Initial deposits

If we had no federal debt today, we might have no money.

Federal debt 1940 to 2007 ($9T) Money supply 1959 to 2006 ($10T)

The snag in the scheme: banks create only the principal, not the interest.

paulgrignon.netfirms.com

.

B

That explains why debt grows exponentially.

Exponential growth is unsustainable.

•www.answers.com

Without interest, even a large federal debt might be sustainable.

Without interest, there might not be a national debt.

• U.S. debt is $15T. $8.2T has been paid in interest in 24 years. http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

• France’s debt increased 1.35 Euros since 1973. 1.4B Euros paid in interest since then. https://www.youtube.com/watch?v=P8fDLyXXUxM&feature=player_embedded

• Canada had a debt in 2006 of C$ 481.5 billion, and had paid almost C$ 1 trillion in interest since 1961. http://www.enterstageright.com/archive/articles/1006/1006cdndebt.htm

How to escape the debt trap? Return to the system of the American colonists, using:

• Money issued directly by the Treasury, or

• Credit issued interest-free to the government by government-owned banks.

Cutting out interest cuts the average cost of public projects by 40%.

Rent in Public HousingCost of interest on capital 77%

Drinking WaterCost of interest on

capital 38%

Garbage Collection FeesCost of interest on capital 12%

From Margrit Kennedy, http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf

Example: Rhode Island wind power plant

5 cents per kilowatt hour when financed by a private developer at 9.5% over 12 years.

http://www.smallwindtips.com/2009/11/what-factors-lead-to-wind-power-electricity-cost/

Interest Rate

Time to Triple

(Years)Rule of 114

Time to Triple

(Years)Actual

5% 22.8 22.5

10% 11.4 11.5

15% 7.6 7.9

20% 5.7 6.0

At 9.5%, cost triples in 12 years.

Cutting the cost by 2/3 would make wind power cheaper than hydroelectric is now.

•Eliminating interest would have cut the debt by 44% -- nearly half.

Without interest, California might be $70 billion richer. CA Gen. Obligation & Revenue Bonds, Nov 2010

http://www.treasurer.ca.gov/bonds/debt/201011/summary.pdf

How local governments can cut out interest: borrow from their own publicly-owned banks.

Only one U.S. state actually owns its own bank – North Dakota.

• It is also the only state to escape the credit crisis, sporting a budget surplus every year since 2008.

• It has the lowest unemployment rate, foreclosure rate, and default rate in the country.

• 17 U.S. states have introduced bills for publicly-owned banks.

Globally, too, some countries escaped the credit crisis. These are the BRIC countries, in which public sector banks dominate.

When a government borrows from its own publicly-owned bank, the interest returns to the public, making banking sustainable.

For more information – PublicBankingInstitute.org

WebofDebt.com