PBI Newsletter - 'Let's Recap Shall We?' cartoon, Austerity doesn't work -- time to try something new.
PBI Newsletter - 'Let's Recap Shall We?' cartoon, AusteritAt 3:21 PM +0000 2/26/13, Public Banking Institute <info@...> wrote:'Let's Recap, Shall We?' Cartoon, Austerity doesn't work -- time to try something new.PBI Newsletter, February 2013, Edition #22Email not displaying correctly?Note from the Chairman: Austerity doesn't work -- join us to explore what does!We're getting excited about our upcoming Public Banking Institute conference, scheduled for June 2-4 at Dominican University in San Rafael, California.We have an extraordinary roster of speakers planned. Some highlights include Matt Taibbi, who will expose yet more Wall Street corruption; Birgitta Jonsdottir, who will talk about banking in Iceland and the Icelanders who boldly stood up to IceSave and the EU; Prof. Gray Brechin of Berkeley and Prof. Tim Canova of NOVA Southeastern University, who will talk on the funding and achievements of the New Deal; and a computer modeler from Dominican, who will do a visual model of publicly-owned bank solutions to show how well they would work. Prof. Gar Alperovitz will make the connection between public banking and the New Economy, while moderating on Sunday evening and giving the keynote on Monday. The conference website is here - >http:// publicbanking.org/Last year, among other distinguished speakers, our conference featured Paul Hellyer, former Canadian Defense Minister and expert on the Bank of Canada's success operating as a public bank between 1939 and 1974; and a 12-year-old Canadian, Victoria Grant, whose dynamite speech got over 3M hits on the Internet.I'm just finishing up a book on public banking, which I will have done and available at the conference if not before. It's titledThe Buck Starts Here:Restoring Prosperity with Publicly-Owned BanksSo I'm getting excited. I love conferences. I love meeting the people, putting faces to names, and exchanging ideas. But it's a leap of faith. We are all volunteers and have no major funding, so this is truly a grassroots effort. I'm putting my credit card on the line and many others have made public banking advocacy their first priority. We would love to have your support!Ellen BrownChair and PresidentPublic Banking Institute_________________________Featured Article: How the Fed Could Fix the Economy -- and Why It Hasn'tby Ellen Brown, Author, Web of DebtQuantitative easing (QE) is supposed to stimulate the economy by adding money to the money supply, increasing demand. But so far, it hasn't been working. Why not? Because as practiced for the last two decades, QE does not actually increase the circulating money supply. It merely cleans up the toxic balance sheets of banks. A real "helicopter drop" that puts money into the pockets of consumers and businesses has not yet been tried. Why not? Another good question . . . .When Ben Bernanke gave his famous helicopter money speech to the Japanese in 2002, he was not yet chairman of the Federal Reserve. He said then that the government could easily reverse a deflation, just by printing money and dropping it from helicopters. "The U.S. government has a technology, called a printing press (or, today, its electronic equivalent)," he said, "that allows it to produce as many U.S. dollars as it wishes at essentially no cost." Later in the speech he discussed "a money-financed tax cut," which he said was "essentially equivalent to Milton Friedman's famous 'helicopter drop' of money." Deflation could be cured, said Professor Friedman, simply by dropping money from helicopters.It seemed logical enough. If the money supply were insufficient for the needs of trade, the solution was to add money to it. Most of the circulating money supply consists of "bank credit" created by banks when they make loans. When old loans are paid off faster than new loans are taken out (as is happening today), the money supply shrinks. The purpose of QE is to reverse this contraction.But if debt deflation is so easy to fix, then why have the Fed's massive attempts to pull this maneuver off failed to revive the economy? And why is Japan still suffering from deflation after 20 years of quantitative easing?On a technical level, the answer has to do with where the money goes. The widespread belief that QE is flooding the economy with money is a myth. Virtually all of the money it creates simply sits in the reserve accounts of banks.That is the technical answer, but the motive behind it may be something deeper . . . .An Asset Swap Is Not a Helicopter DropAs QE is practiced today, the money created on a computer screen never makes it into the real, producing economy. It goes directly into bank reserve accounts, and it stays there. Except for the small amount of "vault cash" available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank.>According to Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund:
[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.This point is also stressed in Modern Monetary Theory. As explained by Prof. Scott Fullwiler:
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 Sabotage?Another Look at the Japanese ExperienceThat 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 term 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 since.In his book Princes of the Yen (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 the downturn:
[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 oligarchy.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 BankMaking 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 history.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 people.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 local economy.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
Conference Links: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 --
- Publisher's Column
- 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' (sidebar)
and help make this a success!We have a high quality hotel at excellent rates.
Reserve now before rates go up.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!_____________________Upcoming EventsFeb 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)Mar 6 -- Interview with Charlie McGrath, Wide Awake News, 6pm PST (Ellen Brown)Mar 8 -- Get Organized! Starting Your Public Banking Coalition Chapter, Monthly 9AM PST Conference Call (Marc Armstrong) -- BE SURE TO REGISTER BY CLICKING ON LINK!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 ProjectApr 12 -- Get Organized! Starting Your Public Banking Coalition Chapter, Monthly 9AM PDT Conference Call (Marc Armstrong) -- BE SURE TO REGISTER BY CLICKING ON LINK!Apr 18 -- Democratic Party of San Fernando Valley (Ellen Brown)Jun 2-4 -- Public Banking 2013 Funding the New Economy Conference and ConversationPublic Banking in the NewsTruth Out, "The Financial Instrument That Could Save The Economy...," Ellen Brown, February 24, 2013Pacific Standard, "Signed, Sealed, Deposited," David Dayen, February 15, 2013MWC News, "How Congress Could Fix Its Budget Woes Permanently," Ellen Brown, February 14, 2013Eurasia Review, "Time to Drop Money From Helicopters?," Kevin Zeese, Margaret Flowers, February 13, 2013OpEdNews, "AMainstream Economist Goes Off The Reservation...," Scott Baker, February 10, 2013Courtesy, Gwendolyn HallsmithSupport 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 TimesThe 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.That diversity is still our greatest asset, but it is being choked off in Washington. It can be enabled at the state, county and municipal level.The 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.That 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.The 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.It 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.The Grand Bargain is a fraud - lipstick on a pig - and incredibly, Freidman doesn't get it.I 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 worse.There was a lot of pre-Christmas hype about what a great shopping season it would be. It never happened.Now, 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."And Friedman thinks reductions in Social Security and Medicare support will send Americans out to the malls, shopping?This is such easy math.The 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.But 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.It 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.They already have.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 themselves."We can't have that! Imagine American states, counties, cities and municipalities solving their own problems. What would become of us?What would become of us is that America would stop looking to Washington.And 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 deteriorate .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?"The 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.orgMore about the Public Banking InstituteThe 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:* Bank of North Dakota, banknd.nd.gov.* Public Banking Institute, publicbankinginstitute.orgFor PBI Newsletters, go to:http://www.publicbankinginstitute.org/articles-newsletters.htmor contact us at:info@...707.343.6334PBI may also be reached at:Public Banking InstitutePO Box 2195Sonoma, California 95476Copyright © 2013 Public Banking Institute, All rights reserved.You are receiving this because you opted in at our website or in a previous mailing.Our mailing address is:Public Banking InstitutePO Box 2195Sonoma, Ca 95476