Cowboy, this is a post from today by Ellen Brown at Daily Bell.
Posted by Ellen Brown on 12/27/2010 5:00:32 PM
Dear Daily Bell, thanks for your interest in these issues.
My concern is that you seem to have misconstrued what we mean by "public banking." We're not proposing a state-issued currency or some sort of "sovereign money" for the state.
We're just proposing to get the state's money back from Wall Street and into the state's own coffers, by depositing state and municipal revenues into a state-owned bank. The bank could then expand the local money supply by advancing loans as "bank credit," just as all banks are allowed to do.
Loans to the government itself would be interest free, allowing the government to embark on productive infrastructure projects that the bankrupt states cannot now afford because they can't afford the interest on new bond issues. Politicians would not be running the bank; bankers would be running it.
Politicians would not be deciding who gets the money; creditworthy borrowers would get loans, just as they do now. If the borrowers were buying a house, the loan would be backed by real estate; if the borrowers were proposing to build a factory, the loan would be backed by future productivity, on the "real bills" model.
The Wall Street banking scheme has proven itself to be unsustainable, because the profits are creamed off by private owners, who spend very little of this money back into the economy. Rather, it is largely reinvested, either in more loans that must be paid back with additional interest, or in other forms of investments that amount to "money making money."
More and more borrowers must be found to support the additional money creamed off by the profiteers, until the pyramid reaches its mathematical limits and collapses, as all "bubbles" do. To keep the bubble afloat in the meantime, the scheme must be underwritten by the FDIC, government bailouts, and the Federal Reserve as lender of last resort.
That means we the people are bearing the costs to keep private bankers rich. A public banking system -- on the model of the land bank of colonial Pennsylvania, the Bank of North Dakota, and the Commonwealth Bank of Australia -- IS mathematically sustainable, because the profits are returned to the commons, alleviating the burden of funding government that would otherwise fall on the taxpayers.
The AMI proposal differs from the state-owned bank model in that it eliminates all bank-created credit from the system. All money would be created at the federal level and delivered to Congress to spend into the economy as it saw fit. Even if Congress were not corrupt, as most people now suspect it is, this trickle-down model seems to me to be a very unpredictable way of getting credit to where it is needed when it is needed.
A more natural, sustainable way to get money into the system is to respond organically to the credit needs of people themselves. That is what the private banking system does now. The flaw in the current banking system, as I see it, is not that it creates credit. In fact the invention of credit may be the most productive advance bankers ever made.
The flaw in the scheme is that bankers are playing a shell game in which they are lending money they don't really have. They periodically get caught in this ruse, leading to economic collapse and bailouts to prop up a mathematically unsustainable model. If we just acknowledged that all we're talking about here is CREDIT ' the full faith and credit of the people, advanced by the people for the people ' the scheme would be sound and sustainable.
Note too that we're not talking about nationalizing the whole banking industry. That may, one day, be perceived to be the most functional solution, but for now, we're just proposing a way for state and local governments to fund themselves interest-free, replacing the money that was lost when the debt-based money supply collapsed in 2007-08. We're talking about getting the wheels of industry turning again, by bringing the money supply back up to a level matching potential productivity.
As for using gold as a currency, gold currencies are freely available now. Currencies such as GoldMoney are up and operating, and anybody who wants to can join. But your grocer or your landlord isn't likely to accept them, because most people don't want to be bothered joining a new and unknown system; and even if they understood the mechanism, they wouldn't want to jump in today because they would think the price of gold is too high.
They'd be risking getting in at the top and having the value of their money collapse when the price of gold dropped again, as it's very prone to do. The only way you could force your grocer or your landlord to take your GoldMoney is through legislation, and that is the very thing you say you don't believe in and are trying to avoid.
Happy New Year, Ellen
I don't post things because I believe that they are the absolute truth. I post them because I believe that they should be considered.