TURNING THE TABLES ON WALL STREET: NORTH DAKOTA SHOWS CASH-STARVED STATES HOW THEY CAN CREATE THEIR OWN CREDIT

http://www.webofdebt.com/articles/state_bank_option2.php

TURNING THE TABLES ON WALL STREET:
NORTH DAKOTA SHOWS CASH-STARVED STATES
HOW THEY CAN CREATE THEIR OWN CREDIT
Ellen Brown, March 11th, 2009
http://www.webofdebt.com/articles/state_bank_option2.php


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“We can’t solve problems by using the same kind of thinking we used
when we created them.”
– Albert Einstein

Forty-six of fifty states are now reported to be so insolvent that
they could be filing Chapter 9 bankruptcy proceedings within the next
two years.1 Of the four that are not in that category, one is the
isolated farming state of North Dakota. What does it have that other
states don’t? The answer seems to be: its own bank. In fact, North
Dakota has the only state-owned bank in the nation. It has avoided the
credit freeze caused by the derivative schemes of the Wall Street
bankers by creating its own credit, leading the nation in establishing
state economic sovereignty.

North Dakota is an unlikely candidate for the distinction. As Michigan
management consultant Charles Fleetham observed last month in an
article distributed to his local media:

“North Dakota is a sparsely populated state of less than 700,000,
known for cold weather, isolated farmers and a hit movie – Fargo. Yet,
for some reason it defies the real estate cliché of location,
location, location. Since 2000, the state’s GNP has grown 56%,
personal income has grown 43%, and wages have grown 34%. This year the
state has a budget surplus of $1.2 billion!”

The secret of its success seems to be the state-owned Bank of North
Dakota, which was established by the state legislature in 1919
specifically to free farmers and small businessmen from the clutches
of out-of-state bankers and railroad men. By law, the state must
deposit all its funds in the bank, and the state guarantees its
deposits. The bank’s stated mission is to deliver sound financial
services that promote agriculture, commerce and industry in North
Dakota. The bank operates as a bankers’ bank, partnering with private
banks to loan money to farmers, real estate developers, schools and
small businesses. It loans money to students (over 184,000 outstanding
loans), and it purchases municipal bonds from public institutions.

A License to Create Money
Still, you may ask, how does that solve the solvency problem? Isn’t
the state limited to spending only the money it has? The answer is no.
Certified, card-carrying bankers are allowed to do something nobody
else can do: they can create “credit” with accounting entries on their
books.

Under the “fractional reserve” lending system, banks are allowed to
extend credit (create money as loans) in a sum equal to many times
their deposit base. Congressman Jerry Voorhis, writing in 1973,
explained it like this:

“[F]or every $1 or $1.50 which people – or the government – deposit in
a bank, the banking system can create out of thin air and by the
stroke of a pen some $10 of checkbook money or demand deposits. It can
lend all that $10 into circulation at interest just so long as it has
the $1 or a little more in reserve to back it up.”2

The Federal Reserve’s 10 percent reserve requirement is now largely
obsolete, in part because banks have figured out how to get around it
with such games as “overnight sweeps”. What chiefly limits bank
lending today is the 8 percent capital requirement imposed by the Bank
for International Settlements, the head of the private global central
banking system in Basel, Switzerland. With an 8 percent capital
requirement, a state with its own bank could fan its revenues into
12.5 times their face value in loans (100 ÷ 8 = 12.5). And since the
state would actually own the bank, it would not have to worry about
shareholders or profits. It could lend to creditworthy borrowers at
very low interest, perhaps limited only to a service charge covering
its costs; and it could lend to itself or to its municipal governments
at as low as zero percent interest. If these loans were rolled over
indefinitely, the effect would be the same as creating new, debt-free
money.

But, you ask, wouldn’t that be dangerously inflationary? Not if the
money were used to create new goods and services. Price inflation
results only when “demand” (money) exceeds “supply” (goods and
services). When they increase together, prices remain stable.

“Nationalization” Should Cover Bank Profits as Well as Losses
Today we are in a dangerous deflationary spiral, caused by sharply
contracting credit and plummeting asset values. The monopoly on the
creation of money and credit by a private banking fraternity has
resulted in a malfunctioning credit system and monetary collapse.
Credit markets have been frozen by the wildly speculative derivatives
gambles of a few big Wall Street banks, bets that not only destroyed
those banks’ balance sheets but are infecting the whole private
banking system with toxic debris. As economist Paul Krugman recently
wrote in The New York Times:

“Arguably, the only reason they haven’t failed already is that the
government is acting as a backstop, implicitly guaranteeing their
obligations. But they’re zombie banks, unable to supply the credit the
economy needs.”3

Krugman went on to speculate that nationalization and reorganization
for the failed Wall Street mega-banks could be the only viable course.
But the form of “nationalization” now being discussed involves
propping up these profligate zombies with billions in taxpayer
dollars, only to return them to their gambling-addicted private owners
(or others like them) once the banks have been restored to viability.
As economist Michael Hudson observes, this is a perversion of
language. True nationalization would involve keeping the entities as
public resources, returning the profits to the taxpayers who bore
their costs.4

Our workers and our factories are sitting idle because the private
credit system has failed. An injection of new money from a system of
public banks could thaw the credit freeze and bring spring to the
markets again. The mathematical flaw in the private credit system is
the enormous tribute siphoned off to private coffers in the form of
interest. A public banking system could overcome that flaw by
returning the interest to the public purse. This is the sort of
banking that was pioneered in Benjamin Franklin’s colony of
Pennsylvania, where it worked brilliantly well. We need to return to
our historical roots and implement that system again.

Ellen Brown developed her research skills as an attorney practicing
civil litigation in Los Angeles. In Web of Debt, her latest book, she
turns those skills to an analysis of the Federal Reserve and “the
money trust.” She shows how this private cartel has usurped the power
to create money from the people themselves, and how we the people can
get it back. Her earlier books focused on the pharmaceutical cartel
that gets its power from “the money trust.” Her eleven books include
Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne
Walker), and The Key to Ultimate Health (co-authored with Dr. Richard
Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.

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