[B]anks do not lend "reserves". . . . Whether
commercial banks let the reserves they have acquired through QE sit
"idle" or lend them out in the internet bank market 10,000 times in
one day among themselves, the aggregate reserves at the central bank
at the end of that day will be the same.
Banks can't "do" anything with all the extra reserve
balances. Loans create deposits-reserve balances don't finance
lending or add any "fuel" to the economy. Banks don't lend
reserve balances except in the federal funds market, and in that case
the Fed always provides sufficient quantities to keep the federal
funds rate at its . . . interest rate target.
Reserves are used simply to clear checks between
banks. They move from one reserve account to another, but the total
money in bank reserve accounts remains unchanged. Banks can lend
their reserves to each other, but they cannot lend them to us.
QE as currently practiced is simply an asset swap.
The central bank swaps newly-created dollars for toxic assets clogging
the balance sheets of commercial banks. This ploy keeps the banks from
going bankrupt, but it does nothing for the balance sheets of federal
or local governments, consumers, or businesses.
Central Bank Ignorance or Intentional
Another Look at the Japanese
That brings us to the motive. Twenty years
is a long time to repeat a policy that isn't working.
UK Professor Richard Werner invented the
quantitative easing when he was advising the Japanese in
the 1990s. He says he had something quite different in mind from
the current practice. He intended for QE to increase the credit
available to the real economy. Today, he says:
[A]ll QE is doing is to help banks increase the liquidity of
their portfolios by getting rid of longer-dated slightly less liquid
assets and raising cash. . . . Reserve expansion is a standard
monetarist policy and required no new label.
Werner contends that the Bank of Japan (BOJ)
intentionally sabotaged his proposal, adopting his language but not
his policy; and other central banks have taken the same approach
In his book Princes of the
(2003), Werner maintains that in the 1990s, the BOJ
consistently foiled government attempts at creating a recovery. As
summarized in areview of the book
The post-war disappearance of the military triggered a power
struggle between the Ministry of Finance and the Bank of Japan for
control over the economy. While the Ministry strove to maintain
the controlled economic system that created Japan's post-war
economic miracle, the central bank plotted to break free from the
Ministry by reverting to the free markets of the 1920s.
. . . They reckoned that the wartime economic system and the
vast legal powers of the Ministry of Finance could only be overthrown
if there was a large crisis - one that would be blamed on the
ministry. While observers assumed that all policy-makers have
been trying their best to kick-start Japan's economy over the past
decade, the surprising truth is that one key institution did not try
hard at all.
Werner contends that the Bank of Japan not only
blocked the recovery but actually created the bubble that precipitated
[T]hose central bankers who were in charge of the policies
that prolonged the recession were the very same people who were
responsible for the creation of the bubble. . . . [They] ordered the
banks to expand their lending aggressively during the 1980s. In
1989, [they] suddenly tightened their credit controls, thus bringing
down the house of cards that they had built up before. . .
With banks paralysed by bad debts, the central bank held the
key to a recovery: only it could step in and create more credit.
It failed to do so, and hence the recession continued for years.
Thanks to the long recession, the Ministry of Finance was broken up
and lost its powers. The Bank of Japan became independent and its
power has now become legal.
In the US, too, the central bank holds the key to
recovery. Only it can create more credit for the broad economy. But
reversing recession has taken a backseat to resuscitating zombie
banks, maintaining the feudal dominion of a private financial
In Japan, interestingly, all that may be changing
with the election of a new administration. As reported in a January
2013 article in Business Week:
Shinzo Abe and the Liberal Democratic Party swept back into
power in mid-December by promising a high-octane mix of monetary and
fiscal policies to pull Japan out of its two-decade run of economic
misery. To get there, Prime Minister Abe is threatening a
hostile takeover of the Bank of Japan, the nation's central
bank. The terms of surrender may go something like this: Unless
the BOJ agrees to a 2 percent inflation target and expands its
current government bond-buying operation, the ruling LDP might push a
new central bank charter through the Japanese Diet. That charter would
greatly diminish the BOJ's independence to set monetary policy and
allow the prime minister to sack its governor.
From Bankers' Bank to Government
Making the central bank serve the interests of the
government and the people is not a new idea. Prof. Tim Canova points out
that central banks have
only recently been declared independent of government:
[I]ndependence has really come to mean a central bank that has
been captured by Wall Street interests, very large banking interests.
It might be independent of the politicians, but it doesn't mean it
is a neutral arbiter. During the Great Depression and coming out
of it, the Fed took its cues from Congress. Throughout the
entire 1940s, the Federal Reserve as a practical matter was not
independent. It took its marching orders from the White House and the
Treasury-and it was the most successful decade in American economic
To free the central bank from Wall Street capture,
Congress or the president could follow the lead of Shinzo Abe and
threaten a hostile takeover of the Fed unless it directs its credit
firehose into the real economy. The unlimited, near-zero-interest
credit line made available to banks needs to be made available to
federal and local governments.
When asimilar suggestion was made
to Ben Bernanke in
January 2011, however, he said he lacked the authority to comply. If
that was what Congress wanted, he said, it would have to change the
Federal Reserve Act.
And that is what may need to be done-rewrite the
Federal Reserve Act to serve the interests of the economy and the
Webster Tarpley observes
that the Fed advanced $27
trillion to financial institutions through the TAF (Term Asset
Facility), the TALF (Term Asset-backed Securities Loan Facility), and
similar facilities. He proposes an Infrastructure Facility extending
credit on the same terms to state and local governments. It might
offer to buy $3 trillion in 100-year, zero-coupon bonds, the minimum
currently needed to rebuild the nation's infrastructure. The
collateral backing these bonds would be sounder than the commercial
paper of zombie banks, since it would consist of the roads, bridges,
and other tangible infrastructure built with the loans. If the bond
issuers defaulted, the Fed would get the infrastructure.
Quantitative easing as practiced today is not
designed to serve the real economy. It is designed to serve bankers
who create money as debt and rent it out for a fee. The money power
needs to be restored to the people and the government, but we need an
executive and legislature willing to stand up to the banks. A popular
movement could give them the backbone. In the meantime, states could set up their own banks
, which could leverage
the state's massive capital and revenue base into credit for the
Ellen Brown is an attorney and president of the
Public Banking Institute. In Web of Debt, her latest of
eleven books, she shows how a private, privileged banking oligarchy
has usurped the power to create money from the people themselves, and
how we the people can get it back. Her websites are http://WebofDebt.com,http://EllenBrown.com, and http://PublicBankingInstitute.org. The Public
Banking Institute is hosting a conference June 2-4, 2013, in San
Rafael, CA; details here.
In this Newsletter
- Featured Article: How the Fed Could Fix the Economy --
and Why It Hasn't
- Upcoming Events (sidebar)
- Public Banking in the News (sidebar)
- End-Run the 1 Percent and the 'Grand Bargain'
Become a partner or sponsor of Public Banking 2013. Find out how.
Do you wish to attend but are short on cash? Well then, volunteer before and during the conference
and help make this a success!
We have a high quality hotel at excellent rates.
Reserve now before rates go up.
Everything you need to know about the conference is here. Evening tickets as low as $35.
Public Banking Coalition Update:
These are the Public Banking Coalition state chapters and
affiliates registered to-date, to be announced at Public Banking
2013: Colorado, Washington, Vermont, Maine, Massachusetts,
Pennsylvania, New Mexico and Washington D.C. Don't see your
state? Get organized -- contact Marc Armstrong at
info@.... Counties will be announced,
too, but be sure you notify Marc Armstrong!
Feb 27 -- Interview with Jim Banks, KGNU,
Boulder, CO, 12pm PST (Ellen Brown)
Mar 2 -- Interview with Stuart Richardson,
Latin Waves, CJSF 90.1FM, 11am PST (Ellen Brown)
-- Interview with Charlie McGrath, Wide Awake News
, 6pm PST (Ellen Brown)
Mar 14 -- Public Banking in Maine, St. John
Church, Thomaston, ME, 5pm EDT (Marc Armstrong)
Mar 16 -- Economic Sovereignty and
Public Banking, New Hampton, NH, 3pm EDT (Marc Armstrong)
Mar 19 -- Public Banking Update, Bethany
Church, Montpelier, VT, 7pm EDT (Marc Armstrong)
Mar 26 --
How Public Banking can help Build
the New PA Economy, Franklin and Marshall College (Bonchek
Auditorium), Lancaster, PA, 7pm EDT, Speakers include Michael Shuman,
Director of Research for BALLE, the Hon. Vaughn Spencer, Mayor of
Reading, PA, and Michael Krauss, Chairman of the PA Public Banking Project
Apr 18 -- Democratic Party of San Fernando
Valley (Ellen Brown)
Public Banking in the News
Support the Public Banking Institute as we seek to
establish a network of public banks throughout the United States.
Transparent. Accountable. In the Public Interest. Donate today.
End-Run the 1 Percent and the 'Grand Bargain'
Mike Krauss, Bucks County Courier Times
great strength of America has always been the immense diversity of our
people; which has enabled us to adapt, survive and even prosper in an
ever changing environment of challenges and opportunities.
diversity is still our greatest asset, but it is being choked off in
Washington. It can be enabled at the state, county and municipal
key is sustained and affordable credit to stimulate locally directed
economic development: new ideas, new technologies, job creation,
strong local banks and sound municipal finances.
is what public banking is all about - enabling an end-run around the
callous indifference to the well being of the American people, which
the self-absorbed parasites of the federal establishment barely
trouble to conceal.
urgent need for this banking innovation was fully on display in a
recent column by New York Times columnist Thomas Friedman, in which he
was again beating the drum for the "Grand Bargain."
That's the deal that will cut Social Security and Medicare,
raise taxes on those who won't feel it and supposedly cure the
nation's economic woes.
is the argument for austerity, which has produced more misery for the
99 percent and more wealth for the 1 percent in every nation where it
has been tried.
Grand Bargain is a fraud - lipstick on a pig - and incredibly,
Freidman doesn't get it.
say incredibly, because Friedman is married to a former billionaire,
now millionaire, whose family fortune was in commercial real estate,
mostly shopping malls, and was estimated by Forbes at $4.1 billion,
back in 2007. But since the market crashed, the family's fortune has
declined to a reported $25 million.
Friedman is unable to make the connection. His wife's family
fortune was in shopping malls. Americans stopped
shopping. They have no money. There are no jobs. And it is getting
There was a lot of pre-Christmas hype about what a great
shopping season it would be. It never happened.
Bloomberg News reports that February sales at Wall Mart, the world's
biggest retailer, are "off to the worst monthly start in seven
years," according to a Wal-Mart VP who explained in a memo to his
colleagues, "February MTD [month to date] sales are a total
disaster The worst start to a month I have seen in my seven years
with the company."
Friedman thinks reductions in Social Security and Medicare support
will send Americans out to the malls, shopping?
is such easy math.
population of the United States is something over 300 million. Let's
work with that number. If the wealthiest 1 percent of Americans all
purchase new shoes - mom, dad and all the kids - about 3 million
pairs of shoes will be purchased.
if the 53 percent of Americans who have hung on in the middle class
all purchase new shoes (I am excluding the 1 percent at the top and
the 46 percent who now live officially in poverty) about 159 million
pairs of shoes will be sold.
takes jobs, more investment in the 99 percent and less in the 1
percent. The malls would be full.
I'm surprised Mrs. Friedman isn't filing for divorce.
Still, Friedman bangs the Grand Bargain-austerity drum and
warns that without more cuts, America would be in dire straits. How
dire? So dire, he warns, that Americans might stop looking to
Washington for solutions to their problems.
Friedman cited polling data of the Thomson Reuters/University
of Michigan index of consumer sentiment, making his argument for
reductions in Social Security and Medicare, but let slip this news.
According to the poll's director, historically "people have always
turned to Washington in times of economic crisis, but now they're
losing confidence in the government's ability to reshape the
economy Americans now think they have to take more control
can't have that! Imagine American states, counties, cities and
municipalities solving their own problems. What would become of
would become of us is that America would stop looking to
that is Friedman's worry, and the worry of the governing elite and
the 1 percent who have used the federal government for decades to set
up the so-called meritocracy of the best and brightest (Mr. Obama is
their poster boy), to set up an America in which - surprise! -
they do very well, while the living standards of everybody else
I'm rooting for all the gridlock in Washington we can get,
because every time the GOP and Democrats come together, the middle
class takes it in the neck.
Friedman posed the question, "What to do to get Washington
moving again?" The better question is, "What to do to get our
states, counties and municipalities moving?"
former will deliver us to more of Washington's servitude to the 1
percent and the continued concentration of the vast wealth of the
nation in the hands of the few, while the latter will lead to local
initiative that will rev up the engine of American ingenuity and
broadly shared prosperity.
Public banking at the state, county and municipal level is a
declaration of independence from a thoroughly subverted and corrupt
federal government, and the first step on the path back to prosperity
for all Americans.
Mike Krauss is the author of
the forthcoming novel "Pursuits of Happiness," a director of
the Public Banking Institute and chairman of the Pennsylvania Project.
Mike is an international transportation and logisics executive with
broad experience in U.S. government and politics. Mike has lived in
the first world and the third world, traveled widely and done business
on five continents. www.papublicbankproject.org
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
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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