Ellen Brown Public Bank Solution and How We Could All Be Public Bank Shareholders

In Web of Debt, Ellen Brown takes us down the yellow brick road of private sector economics, to seek out the great and powerful, who work the levers of society from behind the curtain. At the nexus between the financially powerful and our U.S. government (allegedly assigned to represent the people) sits the Federal Reserve. Arguably, no single entity wields more power and with less transparency than the ‘Fed’.

What is the FOMC?

The Federal Open Market Committee, or FOMC, is the Fed’s monetary policymaking body. It is responsible for formulation of a policy designed to promote stable prices and economic growth. Simply put, the FOMC manages the nation’s money supply.

Federal Reserve Education

The Federal Reserve, being our ‘Central Bank’, applies a strategy of buying up our National Debt with money they create, thus inflating the money supply in our real economy. This is either called ‘monetizing the debt’ or ‘Quantitative Easing’, depending on whether the money is given to the government or to other banks, in order to loan it out to the public. When loaned out by the banks, our national debt is turned into personal debt, which is the usual way banks create new money to circulate within the real economy. 

When more money is circulating around than is being naturally created through the real economy, it can cause ‘inflation’. At that point, the Fed attempts to sell off this purchased debt to whoever will buy it on the open market, in the form of ‘treasury’ notes, bills or bonds, thus removing money from the economy; this process shrinks the overall money supply, until inflation is again under control. Interests rates will rise, however, making homes harder to sell and harder to buy, and harder to ‘pay off’, if you decided to accept an ‘adjustable interest rate’ on your home mortgage. When the Fed raises interest rates, real Americans lose real property due to foreclosures. 

In the world of ‘high finance’, small fluctuations at the top of the pile can crush the financial life out those down on the bottom.

The truth is that homeowners are the ‘collateral damage’ in this “Ponzi-like” scheme, where “new loans must always be issued to create the money to pay the interest on the previous loans” (This from the Public Banking Institute). When our government goes over-budget, we procure the extra money needed to ‘pay the bills’ by selling treasury securities to investors. These typically mature in 20 or 30 years, and pay out interest every six months. The American taxpayer covers the interest payments (about 8% of our taxes goes to this each year), but when the full amount finally comes due, we simply sell this debt off again, to someone else. Make no mistake, this debt is real. We made it real, when we allowed someone else to pick up the tab for our government going over-budget (which it has done for the past twenty years). Now we have to pay it back, unless the United States decides to declare bankruptcy at some point, and just give Minnesota to the Japanese (we owe them $1.25 Trillion) , Hawaii to the Chinese (we owe them $1.1 Trillion), and so forth, until we are ‘all square’ with our creditors.

THIRD OPTION SOLUTION

If we had a National Public Bank as our Central Bank (instead of the Federal Reserve), every time we went over budget, we would simply borrow the money from ourselves, and pay ourselves back with interest each year.

Although U.S. President Woodrow Wilson was actually the one who signed the Federal Reserve Act into law, he still knew that “we have…one of the most completely controlled governments in the civilized world – no longer a government by…a vote of the majority, but a government by the opinion and duress of a small group of dominant men.”. Later, Franklin D. Roosevelt acquiesced that “a financial element in the large centers has owned the government since the days of Andrew Jackson, [and his] fight with the Bank of the United States.”

It was Andrew Jackson who wiped our National Public Bank off the map in 1832, after it had served the country well for 40 years (two 20-year stints). Why did he do it?

Andrew Jackson has to be at the top when ranking the most truly oppressive tyrants ever to wield power in the United States; he paved the road toward many of the troubles we now face. As Dylan Matthews of Vox recalls, “Andrew Jackson was an executioner, a slaver, an ethnic cleanser, and an economic illiterate.” He ordered the removal of the Indians from the South in order to expand the overall slave plantation business model – basically a Tyrant two-for-one. This, of course, put him at odds with civilized people, who sought to deprive him of his liberty to own slaves and exterminate all people of color (actually he exterminated several of his own people as well, so was not just your run-of-the-mill racist tyrant, but a true Tyrant’s tyrant).

This, of course, was yet another reason for the financial collapse of 2007-2008, as our own government chose to save investment banks over U.S. homeowners. Ironically, it was really the fault of commercial banks, who made these risky home loans because they had the financial backing of the investment banks, who in turn thought they had reduced the risk by packaging all these ‘subprime’ loans into Collateralized Debt Obligations (CDOs), which are financial products designed to spread out the risk of mortgage-backed securities. They were so confident with CDOs, they even placed a financial ‘side bet’ with other traders (in a derivative credit default swap) that these CDOs were bullet-proof; the smartest guys in the room, allegedly.

Where was the Fed in all this? Apparently fearing potential inflation from high oil prices, it ran the only defensive play it knows, and blitzed its own people with high interest rates throughout 2007. Millions of homeowners were forced to punt on these already questionable loans, which nudged this whole house of cards right where it was most vulnerable.

In the end, though, the financial sector made out okay; only the American people got hurt, which is how this system was designed; another successful failure.

In the Public Banking Solution, Brown wastes no time in addressing the “systemic dysfunction” in our financial system: as gains get “privatized”, and losses are “socialized” (meaning government absorbs them in the form of National Debt or taxpayer subsidies), banks become empowered to engage in riskier and riskier behavior, knowing they are “too big to fail” and “too big to regulate”. Behold the “casino economy” of Wall Street – a high-wire circus act of derivatives and hedge funds – and We the People hold our giant safety net under them, to absorb any risk, should they fall (as they did most recently in 2008).

Brown would like to see the people, who provide all the labor, and incur all the risk, finally reap some of the benefits; if we were to “socialize” the gains, as well as the losses, issues like poverty and unemployment would surely dissipate.

The private sector might know what they are doing; then again, they might not. With the National Debt at $27 Trillion and climbing, they clearly think that debt (like age) is just a number; still, most people will croak before they reach 100, so the burning question becomes: what amount of debt can America incur before it goes six feet under? Currently, states also have accumulated $1.5 Trillion in debt; 40 of them have no way to pay it back. American’s personal debt stands at $14 Trillion. 

Brown thoroughly lays out the history of Public Banking, which started with the Sumerians and Babylonians, and is currently employed in countries like Brazil, Russia, India, China, Canada, Germany, Japan, Australia, New Zealand, and Switzerland. 

America’s first Bank of the United States was a Public Bank as well, founded by the first Secretary of the Treasury, Alexander Hamilton, and it helped stabilize the country after the American Revolution left us in debt. Private banking soon overran our country, but public banking was always brought back whenever the country was in need (as private banking was only designed to enrich itself). A Second Bank of the United States was brought back to fund western expansion. Lincoln used public money to stabilize our nation during Civil War. Franklin Roosevelt brought it back, in the form of the Reconstruction Finance Company (RFC), to move us out of the Great Depression. The RFC funded the New Deal, rebuilt the country’s infrastructure, and even funded World War II.

This RFC is a curious story, as it is arguably the most important public financial institution that America never heard of; this is because books about it have been removed from print, and the media rarely mentions it.

The fact is, Public banking has been a success every time it has been tried. The Bank of North Dakota (BND), the only U.S. Public Bank that remained in operation these past 100 years, has kept the state of North Dakota debt-free throughout its operation, and even operated at a profit during the whole of the 2007-2008 financial crisis.

All theories and conjecture aside, people create the world around them to extract the most benefit they can derive, and in our current system of private ownership, a handful of people have been allowed control of the money supply, in order to extract benefit from everyone who, by their nature, also seek to maximize benefit. Should a system be designed so the many are forced to go through the few in order to extract a  sliver of life, liberty, and happiness for themselves? Or should the system be designed to amplify our collective desire to improve the human condition?

People are the building blocks of Societies, and as people seek to improve their condition, they slowly eliminate what doesn’t work, and keep what does. The only reason societies fail to do this is because some form of Oppression stands in its way, usurping power over the many, and bending society to serve only its selfish and narrow interests. 

In Banking on the People, Brown continues to hammer home her main message: that banks create the new money in our economy when they make loans. She also continues to reiterate her concerns about the Federal Reserve, and the ‘casino economy’ of Wall Street investment banking. Here we will try to explain a little about the “repo” and derivatives markets, and how they connect to the real economy of goods and services, through the commercial banking industry. 

Derivatives

Former derivatives broker Brett Scott, author of The Heretic’s Guide to Global Finance, offers this analogy about derivatives: if you go to the race track and bet on a horse that you do not own, you are entering into a “horse-racing derivative”, and ‘speculating’ on the future outcome of this race. If you actually own one of the horses, but bet against it anyway, you are ‘hedging’ your bet –  you basically would win something either way (or perhaps more correctly, you wouldn’t lose out completely, no matter what happened). In this way, derivatives are basically gambling on the outcome of real events, where one can choose to take on risk (to speculate), hoping to win, or to protect against risk (to hedge), in order not to lose too much. If you were a baseball player (like Pete Rose, for example), derivative ‘hedging’ would get you banned for life; in the world of Wall Street, however, it is just another day at the office. Ironically, you’d even be seen as more ‘ethical’ than the ‘speculative’ crowd. (For the definition of ethical, go here.)

The ‘repo’ (repurchase agreements) market is like a pawn shop for debt: hand over your debt and get cash for it. In commercial banking, money is created through debt, as banks put a deficit on their balance sheet in order to hand out large sums of cash to home buyers, who slowly pay this deficit back (with interest) until the deficit is wiped clean from the bank’s accounting books. Because of ‘capital requirements’ imposed on commercial banks (in order to keep them from over-extending themselves), these banks are typically quite stable. 

However, with a repo market around, commercial banks can sell their debt off, wipe it from their books, and be free to make even more loans. The problem is that ‘loan risk’ is not actually averted, only passed onto someone else – the repo market – which has little to no regulation.

Perhaps this is because they are so crucial to the success of every one involved in the high-stakes casino economy; whatever the reason, they are extended ‘immunity’ should any deals go south.

Then-Fed chairman Alan Greenspan somehow believed removing the risk from commercial banks and passing it on up to investment banks, then de-regulating them, so they had no risk either, would somehow protect the American people, meaning that:

Politicians, who have always depended on the kindness of (wealthy) strangers, are paid to tell you that a Public Bank is run by ‘the government’, and they wouldn’t be lying. Public Banks are owned by the citizens of a particular jurisdiction, and those citizens usually organize themselves through the instrument of ‘government’ – either locally, state-wide, or even as an entire nation. In fact, because of our U.S. Constitution, most people would pretty much insist on it. The irony is that people do not trust government because it gets infiltrated (then sabotaged) by the very same people who are telling you not to trust government (or “If I were you, I wouldn’t trust any government who would have me as a member”).

Yes, it is true: Private investors bought seats in Congress and in the judicial system, filled them with people who represent their interests, who further gerrymandered voting districts, and changed campaign finance laws, so that money is speech – speech is still free, but unfortunately money is not free, so now only people with the money are free in this country.

IF there was a mechanism by which government could disperse the money power more fairly, so that no one entity could ever hold a position of power

In the end, we must make the public bank national, then tie it into local and state-owned branches, otherwise we risk increasing wealth disparity, not curbing it. The state bank worked for North Dakota because no private investors wanted to go into a sparsely populated rural area – the same will not be true in urban centers. With a National Public Bank as the umbrella, to cover the entire money supply, rural and urban centers alike would all have access to money equally; there is no other way to guarantee this, and we have 250 years of history to prove that argument. We appreciate that activists have no choice at this time but to build momentum for Public Banking at the grassroots level (as the federal rules have been manipulated to block the return of a National Public Bank), but all the various Public Banking Alliances need to eventually speak with one voice on this matter, and declare that the ultimate goal is to give control of the money supply over to every one equally, as a National Bank ‘shareholder’. We can no longer allow individual Liberty to be a condition of ethnicity, geography or socioeconomic status.

The Web of Debt – Ellen Brown

Ellen Brown attempts to show how our continued servitude is accomplished, through private control of the money system; as a few are able to profit from the labor, taxation, consumerism, and ensuing debt of the many, the only way out is for citizens to re-take control of the money supply.

Public Banking Solution: From Austerity to Posterity – Ellen Brown

Ellen Brown outlines the way out of national and personal debt, through a system of public banking that turns debt into credit; when banks are once again ‘publicly-owned’, money can flow within a closed circular economy, rather than being constantly syphoned off by private interests.

Banking on the People: Democratizing Money in the Digital Age – Ellen Brown

Ellen Brown questions whether Democracy is being served when a handful of elites hold all the financial leverage in the world, making money from money, while the real economy labors in order to fund this inequitable arrangement.