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Public Banking Is Key to Freeing America and the World from the Usurious,
Corrupt, and Corrupting Wall Street Private Banking System, PBI

Al-Jazeerah, CCUN, December 5, 2013

Stemming the Transfer of Wealth from Main Street to Wall Street with Publicly-Owned Banks

PBI Newsletter, November/December 2013

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Stemming the Transfer of Wealth from Main Street to Wall Street with Publicly-Owned Banks

From the Editor:

As 2013 draws to a close, state, local, and federal governments are battling debt and interest burdens that are greater than ever. Their receipts are down and their bills are up. The only alternative has been to borrow – at interest – creating an exponentially growing debt. While "conservatives" express alarm at the ever-increasing debt levels and "liberals" denounce calls for austerity and cuts in essential services, there is one concern that should be shared by the 99%: Borrowing at interest increases costs and debt and transfers wealth out of our communities and into the pockets of Wall Street financiers, unless we borrow from our own publicly-owned banks.

From 2000 to 2010, the total debt of state and local governments increased by a factor of 2.5 from $1.2 trillion to approximately $3 trillion. With burdening compound interest, this increased debt has put a strain on the budgets of states and local communities, which are required to balance their budgets, forcing states and communities to not only cut spending, but, in some cases, take on further debt. Some states, including California and New York, have worked to curb their debt spending as their debt burdens had become increasingly unmanageable.


In 2011, according to the US Census Report, revenues for all state and local governments totaled $3.2 trillion, taxes totaled $1.3 trillion, and interest payments on debt totaled $124 billion, or 9.2% of tax receipts and 3.9% of the total revenues. This is bad enough but it is slated to get worse; and the federal situation is already worse.

According to the federal fiscal year 2013 budget report, the total federal budget was $3.5 trillion, personal income tax receipts were $1.3 trillion, and the interest on the debt was $416 billion, or 31.6% of tax receipts. “Net interest” is often quoted, since some of the debt is held by Social Security and other government trust funds. For fiscal year 2013, the net interest payments on the debt totaled $223 billion, or 16.9% of personal income tax receipts, or 6.4% of the total budget.

Debt is an essential tool for financing public infrastructure, spreading the costs over several decades of use. The problem is interest. Interest, which is almost always compounded, results in exponentially increasing interest and debt, as well as exponentially increasing bank assets and financial profits. Even in times of economic stability, typical levels of debt, at interest, increase costs unnecessarily and transfer huge wealth over time out of our local states and communities, enriching and empowering the Wall Street financiers.

In the article, It's the Interest, Stupid! Why Bankers Rule the World, Ellen Brown explains how we can eliminate the burden of interest by recapturing it with our own publicly-owned banks, at the state/local and federal levels. 

Borrowing from its own central bank interest-free might even allow a government to eliminate its national debt altogether. In Money and Sustainability: The Missing Link (at page 126), Bernard Lietaer and Christian Asperger, et al., cite the example of France.  The Treasury borrowed interest-free from the nationalized Banque de France from 1946 to 1973.  The law then changed to forbid this practice, requiring the Treasury to borrow instead from the private sector.  The authors include a chart showing what would have happened if the French government had continued to borrow interest-free versus what did happen.  Rather than dropping from 21% to 8.6% of GDP, the debt shot up from 21% to 78% of GDP.
No ‘spendthrift government’ can be blamed in this case,” write the authors. “Compound interest explains it all!”

In fact, one state, North Dakota, has done just that. It has stemmed the transfer of wealth via interest from the state -- by owning its own bank. Under state law, the bank is the State of North Dakota doing business as the Bank of North Dakota. The Bank of North Dakota holds the state's deposits and provides financing for the state and local economy, cutting out out-of-state financiers. The North Dakota 2013-2015 approved state budget has no interest listed as an outlay, but includes interest income instead. 

Publicly-owned banks, as shown by the example of the state-owned Bank of North Dakota, can eliminate debt-servicing costs given to out-of-state financiers, and use those savings to finance public projects themselves. Further, publicly-owned banks can provide a source of revenue for state and local communities, keeping state and municipal deposits local, feeding the local economy rather than feeding off of it.

Public banking advocates in Vermont, so far unsuccessful in their quest to get the Vermont Legislature to study the feasibility of setting up a state-owned bank, have taken the task upon themselves and released their own preliminary study. It is expected that public banking advocates in other states and communities will follow the example of those in Vermont and others and perform their own studies.

Protectors of the status quo argue that business as usual is acceptable and prudent. However, we know that compound interest increases costs and transfers wealth out of our communities, creating power centers in Wall Street that make a charade of our democracy. As Glen Edens, former HP executive, states: “...a strong financial services industry is simply not good for society. Wall Street does not improve productivity, the model is parasitic, transferring huge resources out of the system...”

As we approach the 100th year anniversary of the Federal Reserve, established by the Federal Reserve Act of 1913, there are increasing calls to “federalize” the private Federal Reserve -- to create a publicly-owned central bank that operates in the public interest. As Canada did from 1939 to 1974, and France from 1946 to 1973, the US government could borrow essentially interest-free from its own “federalized” Fed, resulting in a sustainable economy and a manageably low (or no) federal debt. Even a Harvard professor at the very recent 2013 IMF conference has broached the idea of opening the Fed to accounts for the general public, leading others to take off with the idea of the Fed as a real people's bank.

Assessing the unnecessary interest burden that Main Street endures, the evidence is clear: We the People need public banking for a sustainable and shared prosperity.

Ann Tulintseff
Member of the Board, Public Banking Institute


How America Can Replace Wall Street Financing with
Public Banks

By Marc Armstrong
Executive Director, Public Banking Institute
This article was adapted from a speech Armstrong gave at the Progressive Festival in Petaluma, California, on Sept 15, 2013.
Many of you have likely heard about public banking and how it is central to many developed economies in the world, and the dominant model in others. Germany has public banks funding much of their manufacturing sector as well as their rapid installation of renewable and distributed energy production systems.

New Zealand has a postal bank, which they use to provide convenient and low cost banking services to their people. China has the largest development bank in the world. Japan has the largest public bank by deposits in the world. India has the largest public bank, in terms of its number of branches, in the world. And Scotland has the largest public bank by assets.

And the United States? Our country is bereft of public banking and true public finance. Sure, we talk about public finance as if it serves the public, but the reality is that virtually all of our public finance has been co-opted by private banks. With the exception of North Dakota, all state treasurers deposit their state tax revenues and fees into private banks — usually the ones on Wall Street, setting the stage for endless dependency on the private banking cartel.

We've been led to believe there is no alternative. Take, for example, the California Infrastructure Bank, or I Bank. An I Bank is a public entity that uses private money to fund public projects. On the face it it, this seems like a good approach — not using taxes to fund public projects. But the reality is that the I Bank is another form of hidden taxation, in the form of interest payments, making wealthy people wealthier by teeing up safe, long-term investments in public projects like bridges and other infrastructure.

The San Francisco/Oakland Bay Bridge was initially funded with the I Bank. Ignoring the twists and turns of the planning process during the 90's and the last decade, the new bridge is a safe investment; the money will undoubtedly be paid back by tolls. The cost for this new bridge is $6.4 billion, a sum widely quoted in local papers. What is not said is that the interest and fees for this will be another $6 billion. $6 billion to be paid until the year 2049.

This is a good time to ask why we hold labor costs under the microscope and rarely do the same for debt servicing costs? Ask your local elected officials; do they know the debt servicing costs in their budget? I suspect that many of them know, to the penny, what the labor costs are.

This is now playing out in Detroit where pension plans are readily placed on the altar to be sacrificed, but what is due to the banks is sacrosanct. Yet North Dakota, the only state in our country with a public bank, does not have debt servicing costs because they "don't spend more than they take in," or so the locals like to say.

The reality is that North Dakota doesn't issue general obligation bonds because the state has its own bank to finance public infrastructure. Last year their public bank, the Bank of North Dakota, issued a $50 million loan to fund a new water pipeline. The paid interest on this loan is reported as profits to the bank and — guess what — it gets returned to the state general budget, benefiting the very same people who paid for the water.

Meanwhile, in California, public finance is being starved for funds. Earlier this year, California Watch published a study that showed that over the last six years over $9 billion in loans have been taken out as "capital appreciation bonds" by our school districts to fund school construction and improvements. The estimated cost in interest: over $26 billion. In other words, we are obligating future taxpayers, our sons and daughters, to pay $35 billion for our use of $9 billion today! What kind of legacy is that?

Elected officials cannot raise taxes; they've cut as much as they can cut, many districts are bonded out, they've reached their debt ceiling and are privatizing whatever they can for short-term gain. So, what options do they have other than to take out these toxic debt products peddled by Wall Street?

It does not have to be this way. Your treasurers at city, county and state levels can easily take public monies that are on deposit in Wall Street banks, deposit them in a public bank and use the bank credit for the public good.

If we had a state Bank of California, the state could have funded the entire $6.4 billion bridge construction cost simply with bank credit generated by state deposits. Think of that the next time you pay the $6 toll on the Bay Bridge — knowing that over 55% of that money is going toward decades of interest payments to the big Wall Street banks.

A state public bank means the state gives itself a license to issue credit through use of deposits. The "bank" is simply a few cubicles staffed by people who understand credit and interest rate risk. But the heart of it is the license, issued by the California State Department of Financial Institutions. This can be done at the county or city level and can effectively eliminate debt servicing costs, a major line item in the budget.

Public banking is all about economic sovereignty and self sufficiency. It is about sharing the exclusive privilege that we, as a people, have given banks to use bank credit, issuing loans simply by writing them into their books.

We recognize that in a free market there are essential public utilities that exist side by side with well-regulated products. Tap water at low cost exists side by side with more expensive bottled water. Electricity provided over the wires exists side by side with power generators. Mass transit exists as an alternative to using expensive cars, and are complimentary. 44-cent first class postage through the US Postal Service exists side by side, for now at least, with $17 overnight delivery through FedEx.

We are so used to banks being the exclusive provider of bank credit that many of us don't even recognize that we can create an alternative. Fortunately, most other countries,have not been snookered the way we have. They are not paying FedEx prices for public finance.

The Public Banking Institute's vision is to see a network of public banks — 50 state owned banks and scores of county and city owned banks, with the US Postal Service additionally providing core, low cost banking services to 10 million currently unbanked people and over 20 million who are underbanked — established throughout the United States.

Not only can this network provide low cost banking services and affordable credit for infrastructure financing and to create jobs, but it can also provide LIBOR-like interest rate benchmarks that can be used instead of relying upon the private banking cartel for this important index.

Even more important, our vision is for the self sufficiency of our communities. Do you want your county to reduce its carbon footprint? Start a loan program to improve the energy efficiency of homes. Sonoma County in northern California did this a few years ago, but did it with tax assessments on property bills. The costs for the Sonoma County Energy Independence Program (SCEIP) could have been much lower with a county owned bank. The Bank of North Dakota has 26 of these loan programs.

Do you want to see your county build or extend mass transit, clean water, clean energy, etc? Fund these projects with a county bank, and every one of these loans will be self liquidating — paid back with the fees generated from the service provided.

So, if you're looking for one cause to take on that truly changes the way our society works, pick up public banking in your city or county. Austerity, the fiscal cliff, the dominating headlines that scream “We're Broke!!” — these are all myths, and they are being steadily, increasingly revealed as such. Challenge the Wall Street cartel of private banks and you will be contesting with the most well financed lobby the world has ever known.

But you will be acting as a citizen in the interest of your community and your country. And the great thing about it is: We, the People, can win.


Why Economic Democracy Now? The Reasons Keep Piling Up

by Matt Stannard
Development Director, Public Banking Institute
What do a recent analysis of the Detroit bankruptcy crisis, and recent revelations of wide-scale corporate spying on citizen activists, have in common? They both suggest that we need to revitalize the public sphere, democratize economic policy, and dismantle the hierarchy created by material inequality.

New reasons for building community power and dismantling the power of private capital are manifest every day. Wallace Turbeville’s November 20 report on the Detroit bankruptcy concludes that the exacerbating factor in that city’s financial problems–what is literally holding Detroit back from addressing the crisis–are the risky financial instruments with which Wall Street stuck Detroit. The “complex financial deals Wall Street banks urged on the city over the last several years” included interest rate swaps containing provisions wildly favoring the banks, as well as devastating credit rating downgrades.

An important point in Turbeville’s conclusion is the contradiction in ethical duties present in private finance of public endeavors.

The banks and insurance companies were in a far better position to understand the magnitude of these risks and they had at least an ethical duty to forbear from providing the swaps under such precarious circumstances.

But, of course, as private corporations, the banks and insurance companies’ main ethical duty was to their shareholders, private investors who stood to benefit from Detroit’s risky deal. This is, above all, a reason for democratically-run, public finance.

Meanwhile, it’s looking like private corporations are (as Walter Brasch once called them in the context of consumer spying) the new “Big Brother.” Stuart Pfiefer covered this in the LA Times on November 20, and both Bill Moyers and Democracy Now! reported on it this morning as well. From Pfiefer’s article:

large companies employ former Central Intelligence Agency, National Security Agency, FBI, military and police officers to monitor and in some cases infiltrate groups that have been critical of them, according to the report by Essential Information, which was founded by Ralph Nader in the 1980s.
“Many different types of nonprofits have been targeted with espionage, including environmental, anti-war, public interest, consumer, food safety, pesticide reform, nursing-home reform, gun control, social justice, animal rights and arms control groups,” the report said…

The conclusion of the report’s author is serious:

“Corporate espionage against nonprofit organizations is an egregious abuse of corporate power that is subverting democracy,” said Gary Ruskin, the report’s author.

Revelations of corporate spying highlight the material powers possessed by economic entities: political powers, powers over people’s lives, “bio-power” as the Foucauldians call it. Fighting against state police power is hard enough. When corporate America practice police state tactics, that fight gets harder, because we can’t vote the violators out of office. We can subject them to tort actions, but not the kind of judicial review available when we’re fighting the oppressive arm of the state.

Building accountability into our political institutions is hard enough without the impunity and out-of-proportion power of our financial institutions. We need the same kinds of checks and balances in both.


Public Banks: Key to Freeing America From Wall Street?
Just one U.S. state currently has a public bank -- and it's trouncing the competition.

by Katie Rucke
MintPress News

In its continued fight for economic justice for the 99 percent, especially in the wake of the 2008 financial collapse, Occupy Wall Street recently shared a story detailing how America can replace Wall Street financing with public banks.

While the idea of a public bank may sound far too much like “socialism” to occur in the U.S., conservative North Dakota has a public banking system, and studies have found that in addition to being less corrupt, the state’s public banks are more efficient and profitable than private banks.

Created in 1919 in the midst of economic woes for many of the state’s farmers, the Non-Partisan League, a populist organization, voted to implement public banks in the Midwestern state to free farmers from “impoverishing debt dependence.”

Some 90 years later, the bank is still in existence in North Dakota and is reportedly thriving while it helps the state’s community banks, businesses, consumers and students obtain loans at a reasonable rate.

But it’s not just Occupy Wall Street advocates and “socialists” who view public banks as a smart investment for the nation’s economic future — some Wall Street economists also agree public banks are a better financial choice.

Take Michael Hudson for example. Hudson is a former Wall Street economist who says the private banking industry is “cannibalizing the economy,” since private banks “are supposed to make money” and engage in “parasitic” behavior in order to do so. Public banks, on the other hand, “would make loans for long-term purposes to serve the economy and help the economy grow.”

He said when the banks failed in 2008, the federal government should have taken over control of the banks and began to operate them as public banks:

“If the government would have taken over Citibank it would not have done the kind of things that Citibank did. The government would not have used depositors’ money and borrowed money to gamble. It wouldn’t have gone down the casino capitalism route. It wouldn’t have played the derivatives market. It wouldn’t have made corporate takeover loans.

“None of these are productive from the vantage point of economic growth and raising productive powers and living standards. They would not be the proper behavior of a public bank.”

Ellen Brown is the president of the Public Banking Institute, a group that argues there is a need for a public bank in every state and major city in the U.S. She agreed with Hudson and said that if California had public banks, the state’s economic outlook would look much different right now:

“At the end of 2010, [California] had general obligation and revenue bond debt of $158 billion. Of this, $70 billion, or 44 percent, was owed for interest. If the state had incurred that debt to its own bank — which then returned the profits to the state — California could be $70 billion richer today. Instead of slashing services, selling off public assets, and laying off employees, it could be adding services and repairing its decaying infrastructure.”

Land of financial socialism

Formed in January 2011, the Public Banking Institute was started by financial writers, public finance experts and former bankers to “further the understanding, explore the possibilities, and facilitate the implementation of public banking at all levels — local, regional, state, and national.”

Public banks differ from private banks in that instead of public revenue from sales taxes or property taxes being invested in a Wall Street endeavor, a public bank reinvests that money by investing in small businesses, public infrastructure projects and student loans, among other things.

PBI often points to the Bank of North Dakota as an example of how public solutions exist as a way to end Wall Street’s grip on the U.S. economy, since it’s the nation’s sole state to have a public bank and has been for quite some time.

Though most states have struggled to avoid a budget deficit, North Dakota is the only state in the U.S. that continues to have record-setting surpluses.

According to a press release from May 2013, PBI reported that the BND had reported a record $81.6 million in profits in 2012, which is the bank’s 40th continuous year of profitability.

“Even though its Lending Services Portfolio balance increased from $2,996 million in 2011 to $3,274 million in 2012, credit losses shrunk from $52.9 million in 2011 to $52.3 million in 2012, indicating a healthy portfolio,” the release said.

“The commercial loan portfolio grew from 36 percent to 40 percent of the Lending Services portfolio, representing $1.273 billion in loans. Student loans and residential loans decreased proportionally from 35 percent and 19 percent, respectively, to 32 percent and 18 percent. Agriculture loans remained at the same relative percentage year-to-year at 10 percent, growing to $343 million in 2012 from $289 million in 2011.”

That’s not surprising for supporters of public banks, such as those at PBI. They said that if the some $1 trillion that is invested in Wall Street was instead given back to the public to support infrastructure projects, small businesses and education, about 10 million new jobs could be created throughout the U.S., which “would effectively end our destructive unemployment crisis.”

“Public banks don’t speculate or gamble on high risk,’financial products,’” Brown said. “They don’t pay outrageous salaries and bonuses to their management, who are instead salaried civil servants. The profits of the bank are all returned to the only shareholder — the people.

“North Dakota is a small state,” she added. “Imagine the returns to the people of larger states, with larger populations and a larger volume of economic activity.”

Coming soon: End of Wall Street?

Though North Dakota has been the sole state in the U.S. thus far to have public banks, about 20 states are currently considering legislation to create state banks. If more and more states start to implement such a financial structure, Sam Knight says Wall Street may fire back by filing a lawsuit against the banks — and Wall Street may win.

Knight said that the activities of the BND and other state banks may be ruled illegal because “foreign bankers could claim the BND stops them from lending to commercial banks throughout the state.”

But as Les Leopold wrote in an article for Salon, since the financial collapse activism against Wall Street has slowly been replaced by fatalism as many advocates began to feel Wall Street was too big and too powerful to change. However, “this new public banking movement could have legs,” since most Americans are still furious about how much bigwigs in the financial industry profited from the crisis.

Brown agrees that the more people know about the public banks, the more likely it is they will begin to appear throughout the U.S. “We need to get more information out there and develop a groundswell of popular support,” she said.

Ideally, Brown said PBI would like to see 50 state-owned banks and scores of county- and city-owned banks providing low-cost banking services to 10 million currently unbanked people and over 20 million who are underbanked throughout the United States.


Public Banking in Costa Rica: A Remarkable Little-Known Model
by Ellen Brown
President, Public Banking Institute

Web of Debt Blog

In Costa Rica, publicly-owned banks have been available for so long and work so well that people take for granted that any country that knows how to run an economy has a public banking option. Costa Ricans are amazed to hear there is only one public depository bank in the United States (the Bank of North Dakota), and few people have private access to it.

So says political activist Scott Bidstrup, who writes:

For the last decade, I have resided in Costa Rica, where we have had a “Public Option” for the last 64 years.

There are 29 licensed banks, mutual associations and credit unions in Costa Rica, of which four were established as national, publicly-owned banks in 1949. They have remained open and in public hands ever since—in spite of enormous pressure by the I.M.F. [International Monetary Fund] and the U.S. to privatize them along with other public assets. The Costa Ricans have resisted that pressure—because the value of a public banking option has become abundantly clear to everyone in this country.

During the last three decades, countless private banks, mutual associations (a kind of Savings and Loan) and credit unions have come and gone, and depositors in them have inevitably lost most of the value of their accounts.

But the four state banks, which compete fiercely with each other, just go on and on. Because they are stable and none have failed in 31 years, most Costa Ricans have moved the bulk of their money into them.  Those four banks now account for fully 80% of all retail deposits in Costa Rica, and the 25 private institutions share among themselves the rest.

According to a 2003 report by the World Bank, the public sector banks dominating Costa Rica’s onshore banking system include three state-owned commercial banks (Banco Nacional, Banco de Costa Rica, and Banco Crédito Agrícola de Cartago) and a special-charter bank called Banco Popular,  which in principle is owned by all Costa Rican workers. These banks accounted for 75 percent of total banking deposits in 2003.

In Competition Policies in Emerging Economies: Lessons and Challenges from Central America and Mexico (2008), Claudia Schatan writes that Costa Rica nationalized all of its banks and imposed a monopoly on deposits in 1949. Effectively, only state-owned banks existed in the country after that.  The monopoly was loosened in the 1980s and was eliminated in 1995. But the extensive network of branches developed by the public banks and the existence of an unlimited state guarantee on their deposits has made Costa Rica the only country in the region in which public banking clearly predominates.

Scott Bidstrup comments:

By 1980, the Costa Rican economy had grown to the point where it was by far the richest nation in Latin America in per-capita terms. It was so much richer than its neighbors that Latin American economic statistics were routinely quoted with and without Costa Rica included. Growth rates were in the double digits for a generation and a half.  And the prosperity was broadly shared. Costa Rica’s middle class – nonexistent before 1949 – became the dominant part of the economy during this period.  Poverty was all but abolished, favelas [shanty towns] disappeared, and the economy was booming.

This was not because Costa Rica had natural resources or other natural advantages over its neighbors. To the contrary, says Bidstrup:

At the conclusion of the civil war of 1948 (which was brought on by the desperate social conditions of the masses), Costa Rica was desperately poor, the poorest nation in the hemisphere, as it had been since the Spanish Conquest.

The winner of the 1948 civil war, José “Pepe” Figueres, now a national hero, realized that it would happen again if nothing was done to relieve the crushing poverty and deprivation of the rural population.  He formulated a plan in which the public sector would be financed by profits from state-owned enterprises, and the private sector would be financed by state banking.

A large number of state-owned capitalist enterprises were founded. Their profits were returned to the national treasury, and they financed dozens of major infrastructure projects.  At one point, more than 240 state-owned corporations were providing so much money that Costa Rica was building infrastructure like mad and financing it largely with cash. Yet it still had the lowest taxes in the region, and it could still afford to spend 30% of its national income on health and education.

A provision of the Figueres constitution guaranteed a job to anyone who wanted one. At one point, 42% of the working population of Costa Rica was working for the government directly or in one of the state-owned corporations.  Most of the rest of the economy not involved in the coffee trade was working for small mom-and-pop companies that were suppliers to the larger state-owned firms—and it was state banking, offering credit on favorable terms, that made the founding and growth of those small firms possible.  Had they been forced to rely on private-sector banking, few of them would have been able to obtain the financing needed to become established and prosperous.  State banking was key to the private sector growth. Lending policy was government policy and was designed to facilitate national development, not bankers’ wallets.  Virtually everything the country needed was locally produced.  Toilets, window glass, cement, rebar, roofing materials, window and door joinery, wire and cable, all were made by state-owned capitalist enterprises, most of them quite profitable. Costa Rica was the dominant player regionally in most consumer products and was on the move internationally.

Needless to say, this good example did not sit well with foreign business interests. It earned Figueres two coup attempts and one attempted assassination.  He responded by abolishing the military (except for the Coast Guard), leaving even more revenues for social services and infrastructure.

When attempted coups and assassination failed, says Bidstrup, Costa Rica was brought down with a form of economic warfare called the “currency crisis” of 1982. Over just a few months, the cost of financing its external debt went from 3% to extremely high variable rates (27% at one point).  As a result, along with every other Latin American country, Costa Rica was facing default. Bidstrup writes:

That’s when the IMF and World Bank came to town.

Privatize everything in sight, we were told.  We had little choice, so we did.  End your employment guarantee, we were told.  So we did.  Open your markets to foreign competition, we were told.  So we did.  Most of the former state-owned firms were sold off, mostly to foreign corporations.  Many ended up shut down in a short time by foreigners who didn’t know how to run them, and unemployment appeared (and with it, poverty and crime) for the first time in a decade.  Many of the local firms went broke or sold out quickly in the face of ruinous foreign competition.  Very little of Costa Rica’s manufacturing economy is still locally owned. And so now, instead of earning forex [foreign exchange] through exporting locally produced goods and retaining profits locally, these firms are now forex liabilities, expatriating their profits and earning relatively little through exports.  Costa Ricans now darkly joke that their economy is a wholly-owned subsidiary of the United States.

The dire effects of the IMF’s austerity measures were confirmed in a 1993 book excerpt by Karen Hansen-Kuhn  titled “Structural Adjustment in Costa Rica: Sapping the Economy.” She noted that Costa Rica stood out in Central America because of its near half-century history of stable democracy and well-functioning government, featuring the region’s largest middle class and the absence of both an army and a guerrilla movement. Eliminating the military allowed the government to support a Scandinavian-type social-welfare system that still provides free health care and education, and has helped produce the lowest infant mortality rate and highest average life expectancy in all of Central America.

In the 1970s, however, the country fell into debt when coffee and other commodity prices suddenly fell, and oil prices shot up. To get the dollars to buy oil, Costa Rica had to resort to foreign borrowing; and in 1980, the U.S. Federal Reserve under Paul Volcker raised interest rates to unprecedented levels.

In The Gods of Money (2009), William Engdahl fills in the back story. In 1971, Richard Nixon took the U.S. dollar off the gold standard, causing it to drop precipitously in international markets. In 1972, US Secretary of State Henry Kissinger and President Nixon had a clandestine meeting with the Shah of Iran. In 1973, a group of powerful financiers and politicians met secretly in Sweden and discussed effectively “backing” the dollar with oil. An arrangement was then finalized in which the oil-producing countries of OPEC would sell their oil only in U.S. dollars.  The quid pro quo was military protection and a strategic boost in oil prices.  The dollars would wind up in Wall Street and London banks, where they would fund the burgeoning U.S. debt. In 1974, an oil embargo conveniently caused the price of oil to quadruple.  Countries without sufficient dollar reserves had to borrow from Wall Street and London banks to buy the oil they needed.  Increased costs then drove up prices worldwide.

By late 1981, says Hansen-Kuhn, Costa Rica had one of the world’s highest levels of debt per capita, with debt-service payments amounting to 60 percent of export earnings. When the government had to choose between defending its stellar social-service system or bowing to its creditors, it chose the social services. It suspended debt payments to nearly all its creditors, predominately commercial banks. But that left it without foreign exchange. That was when it resorted to borrowing from the World Bank and IMF, which imposed “austerity measures” as a required condition. The result was to increase poverty levels dramatically.

Bidstrup writes of subsequent developments:

Indebted to the IMF, the Costa Rican government had to sell off its state-owned enterprises, depriving it of most of its revenue, and the country has since been forced to eat its seed corn. No major infrastructure projects have been conceived and built to completion out of tax revenues, and maintenance of existing infrastructure built during that era must wait in line for funding, with predictable results.

About every year, there has been a closure of one of the private banks or major savings coöps.  In every case, there has been a corruption or embezzlement scandal, proving the old saying that the best way to rob a bank is to own one.  This is why about 80% of retail deposits in Costa Rica are now held by the four state banks.  They’re trusted.

Costa Rica still has a robust economy, and is much less affected by the vicissitudes of rising and falling international economic tides than enterprises in neighboring countries, because local businesses can get money when they need it.  During the credit freezeup of 2009, things went on in Costa Rica pretty much as normal. Yes, there was a contraction in the economy, mostly as a result of a huge drop in foreign tourism, but it would have been far worse if local business had not been able to obtain financing when it was needed.  It was available because most lending activity is set by government policy, not by a local banker’s fear index.

Stability of the local economy is one of the reasons that Costa Rica has never had much difficulty in attracting direct foreign investment, and is still the leader in the region in that regard.  And it is clear to me that state banking is one of the principal reasons why.

The value and importance of a public banking sector to the overall stability and health of an economy has been well proven by the Costa Rican experience.  Meanwhile, our neighbors, with their fully privatized banking systems have, de facto, encouraged people to keep their money in Mattress First National, and as a result, the financial sectors in neighboring countries have not prospered.  Here, they have—because most money is kept in banks that carry the full faith and credit of the Republic of Costa Rica, so the money is in the banks and available for lending.  While our neighbors’ financial systems lurch from crisis to crisis, and suffer frequent resulting bank failures, the Costa Rican public system just keeps chugging along.  And so does the Costa Rican economy.

He concludes:

My dream scenario for any third world country wishing to develop, is to do exactly what Costa Rica did so successfully for so many years. Invest in the Holy Trinity of national development—health, education and infrastructure.  Pay for it with the earnings of state capitalist enterprises that are profitable because they are protected from ruinous foreign competition; and help out local private enterprise get started and grow, and become major exporters, with stable state-owned banks that prioritize national development over making bankers rich.  It worked well for Costa Rica for a generation and a half.  It can work for any other country as well.  Including the United States.

The new Happy Planet Index, which rates countries based on how many long and happy lives they produce per unit of environmental output, has ranked Costa Rica #1 globally.  The Costa Rican model is particularly instructive at a time when US citizens are groaning under the twin burdens of taxes and increased health insurance costs. Like the Costa Ricans, we could reduce taxes while increasing social services and rebuilding infrastructure, if we were to allow the government to make some money itself; and a giant first step would be for it to establish some publicly-owned banks.


The Bank Guarantee That Bankrupted Ireland
by Ellen Brown
President, Public Banking Institute

Web of Debt Blog

The Irish have a long history of being tyrannized, exploited, and oppressed—from the forced conversion to Christianity in the Dark Ages, to slave trading of the natives in the 15th and 16th centuries, to the mid-nineteenth century “potato famine” that was really a holocaust. The British got Ireland’s food exports, while at least one million Irish died from starvation and related diseases, and another million or more emigrated.

Today, Ireland is under a different sort of tyranny, one imposed by the banks and the troika—the EU, ECB and IMF. The oppressors have demanded austerity and more austerity, forcing the public to pick up the tab for bills incurred by profligate private bankers.

The official unemployment rate is 13.5%—up from 5% in 2006—and this figure does not take into account the mass emigration of Ireland’s young people in search of better opportunities abroad. Job loss and a flood of foreclosures are leading to suicides. A raft of new taxes and charges has been sold as necessary to reduce the deficit, but they are simply a backdoor bailout of the banks.

At first, the Irish accepted the media explanation: these draconian measures were necessary to “balance the budget” and were in their best interests. But after five years of belt-tightening in which unemployment and living conditions have not improved, the people are slowly waking up. They are realizing that their assets are being grabbed simply to pay for the mistakes of the financial sector.

Five years of austerity has not restored confidence in Ireland’s banks. In fact the banks themselves are packing up and leaving. On October 31st, reported that Danske Bank Ireland was closing its personal and business banking, only days after ACCBank announced it was handing back its banking license; and Ulster Bank’s future in Ireland remains unclear.

The field is ripe for some publicly-owned banks. Banks that have a mandate to serve the people, return the profits to the people, and refrain from speculating. Banks guaranteed by the state because they are the state, without resort to bailouts or bail-ins. Banks that aren’t going anywhere, because they are locally owned by the people themselves.

The Folly of Absorbing the Gambling Losses of the Banks

Ireland was the first European country to watch its entire banking system fail.  Unlike the Icelanders, who refused to bail out their bankrupt banks, in September 2008 the Irish government gave a blanket guarantee to all Irish banks, covering all their loans, deposits, bonds and other liabilities.

At the time, no one was aware of the huge scale of the banks’ liabilities, or just how far the Irish property market would fall.

Within two years, the state bank guarantee had bankrupted Ireland.  The international money markets would no longer lend to the Irish government.

Before the bailout, the Irish budget was in surplus. By 2011, its deficit was 32% of the country’s GDP, the highest by far in the Eurozone. At that rate, bank losses would take every penny of Irish taxes for at least the next three years.

“This debt would probably be manageable,” wrote Morgan Kelly, Professor of Economics at University College Dublin, “had the Irish government not casually committed itself to absorb all the gambling losses of its banking system.”

To avoid collapse, the government had to sign up for an €85 billion bailout from the EU-IMF and enter a four year program of economic austerity, monitored every three months by an EU/IMF team sent to Dublin.

Public assets have also been put on the auction block. Assets currently under consideration include parts of Ireland’s power and gas companies and its 25% stake in the airline Aer Lingus.

At one time, Ireland could have followed the lead of Iceland and refused to bail out its bondholders or to bow to the demands for austerity. But that was before the Irish government used ECB money to pay off the foreign bondholders of Irish banks. Now its debt is to the troika, and the troika are tightening the screws.  In September 2013, they demanded another 3.1 billion euro reduction in spending.

Some ministers, however, are resisting such cuts, which they say are politically undeliverable.

In The Irish Times on October 31, 2013, a former IMF official warned that the austerity imposed on Ireland is self-defeating. Ashoka Mody, former IMF chief of mission to Ireland, said it had become “orthodoxy that the only way to establish market credibility” was to pursue austerity policies. But five years of crisis and two recent years of no growth needed “deep thinking” on whether this was the right course of action. He said there was “not one single historical instance” where austerity policies have led to an exit from a heavy debt burden.

Austerity has not fixed Ireland’s debt problems. Belying the rosy picture painted by the media, in September 2013 Antonio Garcia Pascual, chief euro-zone economist at Barclays Investment Bank, warned that Ireland may soon need a second bailout.

According to John Spain, writing in Irish Central in September 2013:

The anger among ordinary Irish people about all this has been immense. . . . There has been great pressure here for answers. . . . Why is the ordinary Irish taxpayer left carrying the can for all the debts piled up by banks, developers and speculators? How come no one has been jailed for what happened? . . . [D]espite all the public anger, there has been no public inquiry into the disaster.

Bail-in by Super-tax or Economic Sovereignty?

 In many ways, Ireland is ground zero for the austerity-driven asset grab now sweeping the world. All Eurozone countries are mired in debt. The problem is systemic.

In October 2013, an IMF report discussed balancing the books of the Eurozone governments through a super-tax of 10% on all households in the Eurozone with positive net wealth. That would mean the confiscation of 10% of private savings to feed the insatiable banking casino.

The authors said the proposal was only theoretical, but that it appeared to be “an efficient solution” for the debt problem. For a group of 15 European countries, the measure would bring the debt ratio to “acceptable” levels, i.e. comparable to levels before the 2008 crisis.

A review posted on Gold Silver Worlds observed:

[T]he report right away debunks the myth that politicians and main stream media try to sell, i.e. the crisis is contained and the positive economic outlook for 2014.

. . . Prepare yourself, the reality is that more bail-ins, confiscation and financial repression is coming, contrary to what the good news propaganda tries to tell.

A more sustainable solution was proposed by Dr Fadhel Kaboub, Assistant Professor of Economics at Denison University in Ohio. In a letter posted in The Financial Times titled “What the Eurozone Needs Is Functional Finance,” he wrote:

The eurozone’s obsession with “sound finance” is the root cause of today’s sovereign debt crisis. Austerity measures are not only incapable of solving the sovereign debt problem, but also a major obstacle to increasing aggregate demand in the eurozone. The Maastricht treaty’s “no bail-out, no exit, no default” clauses essentially amount to a joint economic suicide pact for the eurozone countries.

. . . Unfortunately, the likelihood of a swift political solution to amend the EU treaty is highly improbable. Therefore, the most likely and least painful scenario for [the insolvent countries] is an exit from the eurozone combined with partial default and devaluation of a new national currency. . . .

The takeaway lesson is that financial sovereignty and adequate policy co-ordination between fiscal and monetary authorities are the prerequisites for economic prosperity.

Standing Up to Goliath

 Ireland could fix its budget problems by leaving the Eurozone, repudiating its blanket bank guarantee as “odious” (obtained by fraud and under duress), and issuing its own national currency. The currency could then be used to fund infrastructure and restore social services, putting the Irish back to work.

Short of leaving the Eurozone, Ireland could reduce its interest burden and expand local credit by forming publicly-owned banks, on the model of the Bank of North Dakota. The newly-formed Public Banking Forum of Ireland is pursuing that option. In Wales, which has also been exploited for its coal, mobilizing for a public bank is being organized by the Arian Cymru ‘BERW’ (Banking and Economic Regeneration Wales).

Irish writer Barry Fitzgerald, author of Building Cities of Gold, casts the challenge to his homeland in archetypal terms:

The Irish are mobilising and they are awakening. They hold the DNA memory of vastly ancient times, when all men and women obeyed the Golden rule of honouring themselves, one another and the planet. They recognize the value of this harmony as it relates to banking. They instantly intuit that public banking free from the soiled hands of usurious debt tyranny is part of the natural order.

In many ways they could lead the way in this unfolding, as their small country is so easily traversed to mobilise local communities.  They possess vast potential renewable energy generation and indeed could easily use a combination of public banking and bond issuance backed by the people to gain energy independence in a very short time.

When the indomitable Irish spirit is awakened, organized and mobilized, the country could become the poster child not for austerity, but for economic prosperity through financial sovereignty.


The Money Monopoly

by Mike Krauss
Member of the Board of Directors, Public Banking Institute
Chair, Pennsylvania Public Banking Project

In a masterful study of the Federal Reserve, Secrets of the Temple , William Greider observed that the average American farmer in 1880 knew more about banking and money than most U.S. college graduates today.

Let me prove that.

Take a bill from your wallet or purse. Read the side with the portrait. It says very clearly at the top, "Federal Reserve Note."

The Federal Reserve is not a part of the federal government. It receives no appropriation from Congress. It is a private corporation and its stock is privately traded. The stockholders are the member banks of the regional Federal Reserve Banks, so its major stockholders are the largest banks and their owners.

Historically these have been the powerful Wall Street and European banking families: think Rothschild, Warburg, Morgan, Rockefeller.

All the bills and coins in circulation today are a tiny fraction of the supply of money in the American economy. All the rest is credit, created on the books of the banks "ex nilo" -- out of nothing.

This money comes into circulation at interest paid to the banks that create it. A central bank like the Federal Reserve creates the money supply of the United States, at interest.

The Bank of England was the first privately owned central bank to control a nation's currency. One of its owners, of the Rothschild family well understood what that meant and said: "Give me control of a nation's money, and I care not who makes the laws."

Big money.

The colony of Pennsylvania escaped the clutches of the Bank of England and its tax on money by printing its own. It was pure genius.

Writing in The Wealth of Nations in 1776, Adam Smith noted: "The government of Pennsylvania, without amassing any treasure [gold or silver] invented a method of lending, not money indeed, but what is equivalent to money. By advancing to private people at interest " paper bills of credit " legal tender in all payments " it raised a moderate revenue which went a considerable distance toward defraying the whole ordinary expense of that frugal and orderly government."

Until the mid 1750s there was broad prosperity in Pennsylvania. On a trip to London, Ben Franklin let the cat out of the bag. He noted the widespread poverty he saw there and explained how by printing their own money and avoiding the need for the notes of the Bank of England to conduct their commerce, the people of Pennsylvania insured their own prosperity.

The private owners of the Bank of England went the 1700s version of ballistic and lobbied King and Parliament (Sound familiar?) to outlaw this colonial "script." The depression that followed was the cause of the American Revolution.

Franklin wrote, "In one year the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed."

He concluded, "The Colonies would gladly have borne the little tax on tea and other matters, had it not been the poverty caused by the bad influence of the English bankers on the Parliament [Again, sound familiar?]: which has caused in the Colonies hatred of England, and the Revolutionary War."

The bankers got control. Hamilton fronted for them in the young United States. Jefferson and Jackson fought them. Lincoln fought them. Lincoln was assassinated, the bankers once again had control and the war for control of the nation's supply of money raged on.

After decades of planning and massive PR and propaganda, having bought up the support of Ivy League scholars, journalists and the requisite number of votes in Congress, the Wall Street cartel and their foreign allies pushed creation of the Federal Reserve through Congress and got complete control of the nation's money and credit.

Before you pay your taxes, the money you pay with has already been taxed by the owners of the Federal Reserve, which for over 100 years have diverted trillions of dollars of interest payments on our money from the American people into their own pockets.

That is what "central banks" are designed to do: extract wealth from nations by monopolizing the supply and cost of money and credit.

The debt ceiling, sequestration, austerity and budget deficit are a diversion. The U.S. Congress can slash the debt by taking back control of our money from the Federal Reserve monopoly and returning it to the U.S. Treasury and the American people, as the Constitution (Article I, Section 8) wisely provided.

The global credit and debt system is, indeed, a trap. Photo credit: bitzcelt / Foter / CC BY-NC-ND. Used under Creative Commons license. - See more at:

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Public Banking is the Answer
In this Newsletter

  • Upcoming Events (sidebar)
  • Public Banking in the News (sidebar)
  • Public Banking in Videos (sidebar)
  • Upcoming Interviews with Ellen Brown


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Public Banking Coalition Update:

Join in on the new Public Banking Coalition monthly conference call series, Friday, December 6th, at 9am Pacific, and every second Friday of each month. This is a new series, so simply register here and you'll be sent the information.  If you live in the San Francisco Bay Area and wish to be a part of getting a public bank started in any of the many chartered cities and counties, join the San Francisco Bay Area Public Banking Working Group for a 30-45 minute call at noon pacific on the 1st and 3rd Tuesday of every month.  We'll be giving each other updates and coordinating as we work to create the first public bank in the SF Bay Area.  Register here.


Upcoming Events

  • Dec 5, 11:30am PDT (every Thursday) -- Virginia Coalition call -- Register here.
  • Dec 13, 9am PDT (Friday, monthly) -- Public Banking Coalition monthly conference call -- Register here.
  • Dec 3, noon PDT (1st and 3rd Tuesdays of every month) -- San Francisco Bay Area Public Banking Working Group call -- Register here.

For Ellen's schedule, please see her blog.

Public Banking in the News

Common Dreams, Why Cities Should Use Public Banks Instead of Big Banks, Matt Stannard, June 21, 2013

The People's Voice, Public Banking Avoids Today's Debacle, Stephen Lendman, October 4, 2013

VTDigger, Public banking campaign sparks controversy at Montpelier City Hall, Hilary Niles, October 24, 2013

VTDigger, Public banking advocates press for study, Hilary Niles, October 7, 2013

Oneness of Humanity, Wall Street Predators And Con Men... Or Public Banking, Jerry Alatalo, October 25, 2013

VTDigger, Public banking advocates release economic study, Hilary Niles, November 5, 2013

The Bridge, Public Banks and Public Accountabililty, Gwendolyn Hallsmith, November 7, 2013

Web of Debt Blog, Monsanto, the TPP, and Global Food Dominance, Ellen Brown, November 26, 2013
Costa Rica Star, Fiscal Observer Praises Banking System of Costa Rica, Jaime Lopez, November 26, 2013

The Progressive, Public Banking is the Answer, Ruth Conniff, December, 2013

Public Banking in Videos & Audio 

Positive Money, 10 year old explains the truth about where money comes from..., September 4, 2013

Al-Jazeerah: Cross-Cultural Understanding, Ellen Brown Re-Thinks Banking, Kevin Barrett's Truth Jihad Radio, September 30, 2013

Athlone Community TV, “The Irish Debt Crisis: Time to Think Outside the Box”, Ellen Brown, October 25, 2013

Between the Lines, Struggle to Hold Big Banks Accountable Leads Group to Advocate for Public Banking, Ellen Brown, November 13, 2013

RT News, The trash trade economic indicator and the case for public banks, Ellen Brown, November 23, 2013

Interviews with Ellen Brown

Dec. 2, interview with Val Muchowski, Women's Voices, KZYX, 7 p.m. PST

Dec. 13, interview on All About Money, KZYX radio, 9 a.m. PST

Dec. 15, interview with Stephen Lendman, The Progressive Newshour, 10 a.m. PST

Dec. 26, interview Dr. Rima Truth Reports, with Dr. Rima Laibow and Ralph Fucetola, 10 pm EST

More about the Public Banking Institute

The Public Banking Institute (PBI) was formed in January 2011 and is a national educational non-profit organization working to achieve the implementation of public banking at all levels of the American economy and government: local, regional, state, and national. 

We are part of the New Economy movement and are steadily advancing innovative short and long-term solutions to the damage caused by the Wall Street cartel and a dysfunctional banking system; and are regularly called on to provide expertise in subjects as diverse as bank capitalization, applicable banking regulation, governance, loan portfolio makeup, risk management and the newly proposed U.S. Postal Savings Bank.  

Our vision is a national network of public banks, administered as public utilities that serve the public interest, run by public servants, providing transparency and accountability to the public. 

Affordable and sustainable credit, locally generated and locally directed is the key to rebuilding a lasting and broadly shared prosperity for the American people.

For more information on how BND operates, and how it partners with community banks instead of competing with them:

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• Public Banking Institute,
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