Transcript 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
Philadelphia
April 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
• No taxes
• No inflation
• No
government
debt!
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
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.
1400
1200
1000
800
bank int.
fed debt
600
400
200
0
total interest total inc tax
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 England
circa 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 governmentissued 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.
Bank of
England
Central
bank
Treasury
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 farreaching 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.
500
461
450
400
350
Increase in Monetary Assets
300
248
250
GNP
200
146
150
Net Income in Wages and
Salaries
141
97
100
81
57
50
0
26 20
38
7
1950-1960
14
1960-1970
27
1970-1980
24
1980-1990
18
1991-1995
From Margrit Kennedy, http://www.monneta.org/upload/pdf/Pres_MK_CompC.pdf
10% of the people gain; 90% lose.
10 Groups of Households of 3.8 Million each - in the year
2000
In thousand €
90
80
Interest paid: 500 B € = 42% of payments
Interest gained: 420 B € from monetary and real assets
70
60
50
40
30
20
10
0
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.
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
100,000
Cumulative expansion in
deposits on basis of 10,000
of new reserves and reserve
requirement of 10%.
80,000
60,000
40,000
20,000
Initial
deposits
Expansion stages
Final
landru.i-link-2.net/monques/resexp2.gif
If we had no federal debt today, we might
have no money.
Federal debt 1940 to 2007 ($9T)
($10T)
Money supply 1959 to 2006
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.
$15 Trillion
Debt
Interest
$8.2 Trillion
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=P8fDLyXX
UxM&feature=player_embedded
1.4B Euros
$1 Trillion
$481.5 Billion
1.35B Euros
• Canada had a debt in 2006
of C$ 481.5 billion, and had
paid almost C$ 1 trillion in
interest since 1961.
http://www.enterstageright.com/archive/article
s/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%.
Drinking Water
Cost of interest on
capital 38%
Rent in Public Housing
Cost of interest on capital 77%
Garbage Collection Fees
Cost 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/
At 9.5%, cost triples in 12 years.
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
Cutting the cost by 2/3 would make wind
power cheaper than hydroelectric is now.
Without interest, California might be $70
billion richer.
CA Gen. Obligation & Revenue Bonds, Nov 2010
• Eliminating interest
would have cut the debt
by 44% -- nearly half.
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