Public Banking Conference: June 2-4, 2013 – Public mortgages, credit pays all state taxes

Public Banking Institute is having our 2013 conference in San Rafael (Northern California) on June 2, 3, 4 to publicly present solutions in banking and money worth tens of trillions of dollars to Americans.

You literally have nothing more valuable to attend to (registration info here).

Among public banking’s available benefits:

State taxes are entirely paid with ~5% public mortgages and credit: I took a quick look at California average household debt with mortgages (~$315,000) cars, college, and credit cards (here, here, here, and 15-year mortgages would also greatly save taxpayers). A 5% interest charge for California’s ~12 million households would generate ~$150 billion each year. California’s state budget is ~$100 billion/year.

This prima facie cost-benefit analysis seems to show state taxes could entirely be paid with public credit, and demands public consideration. Governor Brown knows of this option; he vetoed the bill to document the benefits of a state-owned bank. Therefore, public demand such as through our Public Banking Conference seems vital to create credit and money for the public’s good.

In context of the above bullet points:

  • Florida economist and Governor candidate Farid Khavari documents that 2% mortgages, 6% credit cards, and 3-4% commercial and vehicle loans would replace all state taxes. A floating interest rate could also cover state budget deficits.
  • California’s Comprehensive Annual Financial Report (CAFR) shows ~$100 billion in surplus taxpayer accounts that dwarf the $16 billion budget deficit. California also has ~$500 billion in claimed “investments” for pension costs. But the state received only $1 billion net from $500 billion “invested” (one-fifth of one percent) while Wall Street investors received over $2 billion in fees. The entire state has ~14,000 different government entities with CAFR taxpayer surplus totals conservatively data-sampled at the game-changing sum of $8 trillion ($650,000 surplus assets per California household). The idea of a state budget deficit in light of this sum is tragic-comic!
  • Monetary reform creates debt-free money to directly pay for public goods and services. Because infrastructure returns more economic benefits than costs, we have astounding triple benefits: government could become employer of last resort for infrastructure investment (creating full employment), falling prices because economic output increases more than infrastructure investment cost, and the best infrastructure we can imagine. Creating debt-free money is certainly another tool to end state budget deficits (documentation here, here, here).
  • Being on a roll for Truth also frees other money: unlawful US wars can end, poverty can end that also increases productivity, and trillions of more dollars returned in the broader economy from other areas of parasitic oligarchic behaviors “covered” from public understanding by corporate media.

Each of the bullet-point topics will have its own article to explain in detail within the context of public banking, along with an open letter to economics teachers/professors, and a final call to the public for their action. Those links will be added at my hub articles at Washington’s Blog and as I complete them.

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  • Bev

    Historical experience has taught us what we need to do:

    1. Put the Federal Reserve System into the U.S. Treasury.

    2. Stop the banking system creating any part of the money supply.

    3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

    Why Promoting States to do Banking is a Distraction and Diversion

    Dear Friends,

    As you know the states are in terrible financial condition, cutting back on necessary programs, laying off people and raising taxes. This has been the case for several years, and thanks to the banking crisis
    has reached horrific levels in some states. This is the time – an opportunity to push for real reform, such as the American Monetary Act. But instead, ill advised suggestions have recently been circulated on the internet that the states go into the banking business to solve or lessen this problem. The American Monetary Institute concludes that these suggestions, though they may be for well meaning purposes, are bad ideas for a lot of reasons as described below. People involved in real monetary reform understand that the private creation of money through what amounts to a fractional reserve accounting system is at the heart of the monetary problem which has plagued humanity and has now brought down the world economy. That vicious system by which money is created in our society must be reformed, not imitated. But there is no reform whatever in the proposal for states to enter the banking business.

    It would also distract lawmakers from facing the facts about the national reforms that are needed to solve this crisis and institute a money system grounded in justice, which will operate to promote the
    general welfare. It would even sanction and endorse the present fractional reserve banking system, the source of the problem. That system requires condemnation and structural reform, not endorsements! We now have a blog at the end of this article below, so that you may record and post your reactions to Mr. Walton’s research. To view an analysis of the flawed idea behind this fractional reserve system, see Jamie Walton’s review of the Web of Debt.

    Stephen Zarlenga
    Director, AMI

    Why States Going into the Banking Business Would be a Distraction, not a Solution to their Fiscal Problem

    by Jamie Walton, AMI researcher

    “We may not be able to stop them, but we can join them. We the people need to play the bankers’ game ourselves.”1
    – that was written by one of the promoters of the notion that the stategovernments should go into the fractional reserve banking business to beat Wall Street at its own game and solve their fiscal problems.

    What an insult to humanity! How about a dose of morality and common sense. Isn’t that like saying: “We’re victims of organized financial crime, so lets join the criminals!”

    Trying to beat Wall Street at its own game is obviously not the answer. As Albert Einstein once said, “We can’t solve problems by using the same kind of thinking we used when we created them.”

    Forty-eight States currently have budget deficits and many are sharply cutting services to try to close ‘fiscal’ gaps opening up to an average 24% by 2010.

    Some attention has recently been given to the idea that State governments can get out of their fiscal problems by setting up their own banks. This is mainly a distraction away from genuine reform of the
    system, as encapsulated in the proposed draft American Monetary Act (more about that below).

    The argument being put forward is that State governments can increase their revenues without increasing taxes by collecting profits from State-run banks. The proposal suggests that State governments go into the banking business and “fan” their deposits into 10 or 12 times as much in loans, using ‘fractional reserve’ or ‘capital adequacy’ rules, to cover fiscal gaps with bank profits.

    This is a foolish suggestion, for several reasons.

    1. You don’t solve a problem with more of the problem.

    This scheme for states to go into the banking business would only ‘serve to protect’ the status quo.
    The ‘proposal’ completely fails to confront the main problem identified by all serious monetary reforms: ‘fractional reserve’ banking. Instead, it actually endorses and sanctions this vicious and destructive process, by suggesting that State governments engage in it – it’s immoral!

    2. What the promoters describe is not how banking operates.

    No single bank can multiply its deposits by 10 or 12 times in loans, they can only make loans (or purchases of securities, e.g. bonds) up against 90-95% of their deposits; these loans create new deposits, which, when spent, are most likely transferred to other banks; then receiving banks can again make new loans up to 90-95% of their deposits, and so on. This ‘process’ is repeated indefinitely, in ever-decreasing increments, and the effect over time is that the banking system as a whole multiplies those initial deposits by 10 or 12 times. The only reason some progressives might be considering this proposal is they don’t understand how fractional reserves work.

    This process is carried on at great cost to the community as a whole, because every new loan (or new security purchase) is additional interest-bearing debt.

    As presently operated, banks can be viewed as debt factories; they primarily create debt and only create the bulk of our money supply as a debt byproduct. Banks make profits and stay in business by putting the community as a whole into more debt than it can repay in any given time. This results in a net claim against the community going into the future. While some profits are paid to shareholders as dividends, this is only a small percentage of the debt created. If a bank was State-owned, the ‘shareholders’ would nominally be the people of the community, but any profits would still be based on the indebtedness of the community. That’s the inevitable outcome, no matter who owns a bank, because the same rules apply to all banks in the banking system.

    But; the question is not who should be the beneficiaries of perpetual claims against the community, the question is should anyone be the beneficiaries of perpetual claims against the community – why place ourselves forever on a treadmill just to have what we’ve already got? It makes no sense.

    3. The problem is being misidentified as interest, when the problem is debt.

    Proponents of the scheme are alleging that interest collected by “private” banks is kept out of circulation and is therefore not available to repay loans the bank have made. But this is not true. Most, if not all, interest re-enters the system in some way at some time (e.g. as expenses, dividends, investments, etc.). This is not the problem. The problem is almost all of our money is created with a debt attached; it is ‘borrowed into existence’ from banks, who create it when we have to borrow it.

    As our economy grows, we need new money, but almost all of the new money is presently created with interest-bearing debt, so almost every new dollar has more than a dollar owing on it – so it has to ‘earn’ more than a dollar and pay it all back to banks (who never had it in the first place). Who owns and runs any particular bank makes little or no difference because the debt-based money-creating banking system will still own and run us, on a treadmill.

    Money doesn’t have to be created like this; coins aren’t, they’re just created as money, with no debt attached; when they’re issued, it’s revenue for the U.S. government, saving taxpayers $$$. All money can be created this way. And; if we don’t start with any debt, then we don’t start with any interest either.

    With that in mind, let’s look again at the States’ fiscal crisis.

    State governments receive money from the community for the provision of public services and the support of volunteer services. These are generally things that are needed in the community which aren’t commercial in nature, they’re not the types of things that it’s either possible or desirable to make a profit on (e.g. rape crisis centers, battered women’s refuges, assisted housing for people with physical/mental impairments, respite care for caregivers, etc.).

    Non-commercial services needed in the community couldn’t exist without being paid for straight out, because providers can’t borrow and then generate income to repay loans, that’s not how they work (if they could do that, they’d be doing it already) – they need money that doesn’t have to be paid back.

    Diverting public resources away from desperately needed services toward a commercial venture would only make things worse. The effect onthe ground could lead to the commercialization of services intended for the relief of poverty, disability, pain, suffering and misery; by forcing service providers to also be profit makers (e.g. commercialized prisons); or reverting to relying on the whims of charity. If neither of these ‘choices’ worked-out (which history shows, they generally don’t), the community services essential for any viably functioning civil society might disappear altogether, and then “there goes the neighborhood” – social disintegration is a slippery slope, for everyone.

    This is a very serious situation – it’s no time to be playing games.

    In addition to these defining moral questions, there are also some more technical reasons why they won’t automatically work as suggested.

    1. No bank’s an island – they’re all in it together.

    A bank can only lend out what it can expect to receive back, not onlyfrom its borrowers in the long term, but also from all other banks through the clearing process in the very short term, i.e. usually overnight. Even if a State-run bank could attract other banks to have accounts with it and/or require its employees and suppliers to have accounts with it, the other banks would have to call in their loans by 10 or 12 times the amounts transferred (so there’d be no net gain in loans available). Of course, at some stage, all of its depositors would need to spend their money with people having accounts at other banks, so sooner or later its reserves would drain back to other banks and it would then have to call in its loans by 10 or 12 times as much. In any case, no bank can lend more than the prevailing level of lending of all other banks; every bank has to move in step with every other bank, otherwise it would soon sustain an adverse net balance through the clearing process and drain all its reserves to the other banks. It’s a complete error that any bank can just go ahead and multiply it’s ‘reserves’ or ‘capital’ by 10 or 12 times in loans. If the other banks aren’t lending, a State-run bank wouldn’t be able to lend either.

    2. Don’t be fooled by what’s happening in a low-population State.

    North Dakota has about 700,000 people, a strong community spirit based on farming in difficult conditions, and significant oil revenues. The model being presented is the Bank of North Dakota, which provides support services to some other banks in its area.2 But this arrangement won’t automatically translate to other States, as the banks in other States may not wish to engage in it, and requiring them to could be very unpopular. This could lead to significant
    risks to taxpayers. In 1931, the Government Savings Bank of New South Wales (a federated State of Australia), at that time the 2nd largest savings bank in the British Empire, was closed down by a run
    caused by a series of ‘scare’ stories put out in the media as part of a ‘political’ attack.3 If a similar action were possible against a State-run bank today, taxpayers might be called upon to pay for the aftermath (e.g. the Bank of North Dakota is not FDIC-insured(!), and is instead guaranteed by the State Government itself).

    3. The promised golden goose may prove to be a noose.

    What may look like a boost for taxpayers could end up being a ball-and-chain. For instance; where are States already in deficit goingto get the money to set up a bank? As the President of the Bank of North Dakota, Eric Hardmeyer, explains (in the article cited above), to avoid a drain on existing deposits from other banks, and the consequent contraction in loans, a State government would probably have to issue bonds to raise the capital needed to set up a State-run bank.4Yet more debt bondage at a time like this may be more than the State’s taxpayers can bear. In any case, a new bank would be as much of a burden on the community as any other bank. We would have the ridiculous situation of the people, as taxpayers, being put further into debt to build a debt factory to put the people, as the community, even further into debt.

    4. States shouldn’t gamble taxpayer’s money on risky business.

    The actual balances of State government bank accounts aren’t huge, and they don’t grow, because they’re always being spent – that’s what they’re for. The actual profit margins banks make on their funds under management are generally modest, so any returns from a relatively small loan portfolio, after deducting operating expenses and re-investment in the business, wouldn’t be anywhere near the amount required to fix the current fiscal shortfalls of the State governments. For example, in recent years the Bank of North Dakota has transferred between about a third to a half of its net income to the State coffers; ~$25 million in 2007, ~$20 million in 2008.5 The total budget for the State Government for the 2007-2009 fiscal period is $6.5 billion.6 A State law requires the bank to pay $60 million to the general fund over the same period – a contribution of less than 1% to the State budget. Meanwhile, State governments face average budget shortfalls of 24% for 2010 – so the numbers just don’t stack up.7 Weighing the pros and cons; relatively low potential returns compared to potential high risks (e.g. the concerted aggressive actions of other banks); it’s not a very good bet.

    5. States would be better-off using their clout with the banks.

    A more prudent course of action would be for State governments to negotiate more favorable contracts for their banking business with one or more banks. This would involve much less cost and trouble (e.g. recruiting competent staff and administering a new enterprise) than trying to set up a bank, especially when public services are being cut. The banks need those deposits – they’ll do anything to keep them (even if they don’t like to admit it).

    6. We don’t need any more diversions.

    We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.

    So what is the solution?

    It’s the monetary system which must be changed to end the fiscal crisis, and State governments cannot do this – it’s a matter for the Federal Government.

    Under present constitutional and legal conventions, the only institutions that can create money without debt are national treasuries and/or central banks. State governments within a federal nation cannot
    do this – the problem can only be solved at the national level.

    Proposals promoting anything else would require a constitutional amendment, which is not necessary.

    There are some additional specious arguments being made within these promotions claiming that the U.S. Constitution (Article I, Section 8, Clause 5) does not authorize the U.S. Congress to issue non-coin money, so implying that it authorizes the States (or the people) to issue non-coin money.8 It most certainly does not. As Robert G. Natelson, in the Harvard Journal of Law and Public Policy, exhaustively and authoritatively determined, the term “coin” (with a lower-case “c”) means to create money in any form, whereas the term “Coin” (with an upper-case “C”) means coins.9

    There’s also a lot of misinterpretations in these same arguments regarding the term “Bills of Credit” in the U.S. Constitution (Article I, Section 10, Clause 1) and “bills of credit” in other contexts, and the terms “Tender” and “Coin”(again). These misinterpretations lead to some ridiculous assertions
    like stating that: “The States violate the [U.S.] Constitution every day… to pay their debts … since gold and silver coins are no longer in general circulation.”10

    All of these spurious ‘ideas’ only serve as distractions during a time of crisis.

    We have a big problem in our economy and society today: too much debt. Banking cannot solve this problem because banking produces debt, which is the problem. It’s incredible that even now the delusion of borrowing ourselves out of debt is still seen as a solution, by anyone,let alone so-called reformers. We’re in a deep hole because we listened to cheerleaders yelling “keep on digging” without thinking. We cannot afford to keep doing this any more.

    Proposing to get governments involved in banking is the complete opposite of a solution, because it keeps the problem in place.

    As American Monetary Institute Chapter Leader, Dick Distelhorst, says:

    “We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!”

    The correct solution to the crisis was presented in Stephen Zarlenga’s speech at the U.S. Treasury in December, 2003, titled “Solution to the States’ fiscal crisis” (read it at


    Historical experience has taught us what we need to do:

    1. Put the Federal Reserve System into the U.S. Treasury.

    2. Stop the banking system creating any part of the money supply.

    3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

    These 3 elements must all be done together, and are all in draft legislative form as the proposed American Monetary Act [In September 2011, Congressman Dennis Kucinich introduced the National
    Emergency Employment Defense (NEED) Act, HR 2990, into Congress. View details here].

    The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.

    The correct action for the States is to insist on this Federal action!

    Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.

    (update on next AMI Conference)

    The American Monetary Institute is pleased to announce its

    9th Annual AMI Monetary Reform Conference

    September 19-22, 2013, at University Center, Chicago

    $110 discount ($285 instead of $395) until June 21!

    Register by phone at (224) 805-2200

    The American Monetary Institute proudly announces its 9th annual Monetary Reform Conference in Chicago. Our conferences launched the modern grass roots movement for U.S. monetary reform and thereby World reform. You are invited to attend this important meeting in beautiful downtown Chicago. Our money system clearly needs a serious overhaul to secure economic justice, peace and prosperity as we enter the 3rd Millennium. True reform, not mere regulation, is necessary to move humanity away from a World dominated by fraud, warfare and ugliness and toward a World of justice and beauty. You can avoid discouragement and join with us in this adventure to achieve positive money results for America and the world.

    Don’t be discouraged because the villians who created the present crisis, have manipulated governments to bail them out. The media, which has made such “errors” possible, and the economic theories behind banker activities already stand accused in the public mind.

    Main Themes of the Conference: Implementing Monetary Reform now!

    The Monetary Reforms

    The main focus of the conference will be for researchers to describe and make the case for the kind of monetary reforms advocated, presenting both the logical and historical basis for them, and the mechanics of implementing them. Extensive question and answer periods and panel discussions can air doubts or concerns regarding the desirability of the reforms and suggest refinements. Included will be discussions of research and thinking methodology.

    Achieving the Reforms – What we can do now

    Selected political, social and monetary activists will give the benefit of their experience in educating, raising public awareness, organizing and motivating people and governmental bodies to influence public policy decisions.

    Using the Reforms

    Presentations on how a properly reconstituted money power within government will be effectively used to “promote the general welfare”. These will focus on Infrastructure Programs particularly how to pay for the $2.2 trillion the American Society of Civil Engineers tells us is needed to maintain our infrastructure over the next 5 years, through monetary reform. Understand that we include the “human infrastructure” of Health Care and Education within infrastructure! With proper monetary reform all these things become possible, including education and health, upgrading America’s crumbling infrastructure, towards futuristic energy efficient, eco-friendly designs well within the reach of today’s technology and economy. We can create hospitable, clean, cities of the future using 21st century solutions.

    This conference is open to the public*, and to properly organize it the AMI requires a minimum donation of $395 per attendee; $625 (to include significant other). For early registrations which are still available, the minimum donation is only $285. This includes substantial conference materials and aids, daily coffee breaks, a Get Acquainted Reception and a Celebration Dinner and beach barbecue. Hotel and travel costs are separate at group discounts. We say minimum donation because affluent attendees who want to help out with larger donations are encouraged to do so. It enables us to extend attendance scholarships to students. Looking forward very much to seeing you and advancing monetary reform to the next level.

    Jamie R. Walton

    • Hi Bev,
      The source of this article used to have many comments arguing for the possibility of both monetary reform to add debt-free money into an economy, and public credit as a possible way to remove money. Those comments, including from me, are no longer present.

      The main advantage that I see from public banking and credit is to turn-loose literally over a thousand state legislators to educate themselves on monetary and credit reform, as well as the broader public. Monetary reform depends on the greater miracle for Congress and both parties’ “leaderships” to act on a national level. We all see how likely that outcome is.

      Getting states to act within current law, or cities, to create public banking and credit are powerful acts to reclaim for the public what we use for money. I say to go for all the tracks I bullet-point in the article and then use professional economic tools for cost-benefit analyses to discover the best way to manage money and credit.

      Remember: Ben Franklin used credit, not money, to run Pennsylvania’s government tax-free. We could do the same today, and/or we could use money.

      I appreciate the public’s consideration of all solutions.

      • Bev

        I have had the same experience here at washingtonsblog where my comments have disappeared not once but twice.

        And, as to your statement about acting within current law, AMI response is:

        So what is the solution?

        It’s the monetary system which must be changed to end the fiscal crisis, and State governments cannot do this – it’s a matter for the Federal Government.

        Under present constitutional and legal conventions, the only institutions that can create money without debt are national treasuries and/or central banks. State governments within a federal nation cannot do this – the problem can only be solved at the national level.

        Proposals promoting anything else would require a constitutional amendment, which is not necessary.

        • Carl_Herman

          Hi Bev,
          The solution is debt-free money.

          And that said, the 1% in DC are much harder to stop in their criminal economic fraud than state, country, and city levels. So, I see the solution to allow people to lobby both national and local levels. The power of these ideas can work equally well because, I say, local laws for credit creation can make it just like money. For example, why not create a state bank that funds infrastructure with negative interest to self-pay the created credit????

          I’m challenging you and the public to solve these problems as each sees best, Bev. We don’t need to wait for the criminals in DC to act. We have the creative power to do the exact same thing under different names at the local level.

  • Washington76

    Here is what you need to know! 2012 FISA Orders Up, National Security Letters Down, No Surveillance Request Denied

  • great article with useful information