| NORTH DAKOTA'S BANKING SYSTEM A ROLE MODEL FOR ALL STATES |  |  |  |
| Thursday, 05 March 2009 |
| By Ellen Brown author of "The Web of Debt" [Local solutions, local control. On every level, the deepening financial collapse is demonstrating the demise of centralized systems of every kind and the dire need for community and neigborhood solutions.--CB] Reprinted from PROGRESSIVE REVIEW UNDERNEWS  California [has] avoided bankruptcy for the time being, but 46 of 50 states are insolvents and could be filing Chapter 9 bankruptcy proceedings in the next two years.
One of the four states that is not insolvent is an unlikely candidate for the distinction - North Dakota. . .
What does the State of North Dakota 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. The state legislature established the Bank of North Dakota in 1919. Fleetham writes that the bank was set up 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. Three elected officials oversee the bank: the governor, the attorney general, and the commissioner of agriculture. 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.
Still, you may ask, how does that solve the solvency problem? Isn't the state still 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:
"For 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."
That banks actually create money with accounting entries was confirmed in a revealing booklet published by the Chicago Federal Reserve titled Modern Money Mechanics. . . On page 49 of the 1992 edition, it states:
"With a uniform 10 percent reserve requirement, a $1 increase in reserves would support $10 of additional transaction accounts [loans created as deposits in borrowers' accounts]."
The 10 percent reserve requirement is now largely obsolete, in part because banks have figured out how to get around it with such devices 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. 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.
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.
Today we are in a dangerous deflationary spiral, as lending has dried up and asset values have plummeted. 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. To get out of this deflationary debt trap requires an injection of new, debt-free money into the economy, something that can best be done through a system of public banks dedicated to serving the public interest, administering credit as a public utility. . .
Credit is merely a legal agreement, a "monetization" of future proceeds, a promise to pay later from the fruits of the advance. Banks have created credit on their books for hundreds of years, and this system would have worked quite well had it not been for the enormous tribute siphoned off to private coffers in the form of interest. A public banking system could overcome that problem by returning the interest to the public purse. This is the sort of banking system that was pioneered in the colony of Pennsylvania, where it worked brilliantly well.
Among other advantages to a state of owning its own bank are the substantial sums it could save in interest. As Fleetham notes of his own ailing state of Michigan:
"According to recent financial reports (available online), the State of Michigan, the City of Detroit, the Detroit Water and Sewerage Department, the Wayne County Airport, the Detroit Public Schools, the University of Michigan, and Michigan State University pay over $800 million a year in interest on long term debt. If you add interest paid by Michigan cities, school districts, and public utilities, the cost to our taxpayers easily tops a billion a year. What does Wall Street do with our billion plus dollars? They decorate their offices like kings."
Interestingly, the projected state budget deficit for 2009 is also $1 billion. If Michigan did not have to pay over a billion dollars in interest to Wall Street, the budget could be balanced and the state could be restored to solvency. A state-owned bank could not only provide interest-free credit for the state but could actually generate revenues for it. Fleetham notes that in 2007, the Bank of North Dakota earned a net profit of $51 million on a loan volume of $2 billion. He comments:
"Last year, Michigan citizens paid over $5 billion dollars in personal income tax. With a state bank like North Dakota's we could reduce this burden, fund new businesses, and restore our crumbling water and sewer systems. And we don't have to feel sorry about Wall Street losing our business. They didn't 'earn' the money they lent us. They created it in computers and charged us interest to boot. Let's follow North Dakota's lead and get free from Wall Street's web."
As Gandhi said, "When the people lead, the leaders will follow." We the people can beat the Wall Street bankers at their own game, by moving our legislators to set up publicly-owned banks that create credit using the same banking principles that are accepted as standard and usual in the trade by bankers themselves. |
Last Updated ( Thursday, 05 March 2009 )
New Hampshire
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A group in the US State of New Hampshire is becoming more vocal in its fight for independence. They believe the federal government has overstepped its role and intruded upon their states' rights.
A group calling themselves the Free State Project says the only option is to let states govern themselves and set their own rules – much they already do on issues like firearm legislation.
New Hampshire is one of the places with the most liberal laws in the country, but now it's in a fight for even more independence. There are about 1.3 million people living in New Hampshire. The goal of the Free State Project is to attract 20,000 people to its cause within ten years time.
They don't want Washington making decisions for them any more.
Read more
Some prominent figures have spoken out and criticized the recent operations of the government:
"The federal government is assuming powers that weren't delegated to it. It is already acting to destroy the economy of the United States. It is going to devalue our currency, it is further corrupting domestic policies of the states, motivating them to do things they would not do naturally, except for being bribed with the people's money," said State Representative Dan Itse.
"If anything is going to cause the dissolution of the United States, it's the stimulus package and the excessive spending of the federal government," he added.
Chris Lawless used to work for the government, but he got fed up and quit. Now, he lives in New Hampshire with his wife and three children. Chris said the US Government is incompetent, and he has no illusions about the promises of change:
"The federal government doesn't follow its own rules. There are countless laws that break the constitution and yet they don't seem to care that they've broken these laws. Obama hasn't broken that many laws yet, but he is about to. Just because he is charismatic and well-spoken, that does not make a great leader, it makes great TV," said Lawless, who is a member of the Free State Project.
Chris says the country would be much better off if each state decided its own needs. That way, when the government makes a mistake, the entire country doesn't have to suffer, as is happening now in the turmoil of the current economic catastrophe.
"We always say that we're free – the land of the free. And we're spreading democracy. A lot of times some other countries are freer. There are decisions being made in Washington that affect our lives that they have no business making," said Lawless.
New Hampshire is also one place in America where it is legal to carry a gun. Liberty activists make sure they exploit that right to the fullest. When asked why one activist was carrying a gun he responded: "For the same reason I have an airbag in my car, a fire extinguisher in my kitchen, and a smoke alarm in my house."
The slogan of New Hampshire is 'live free or die'. With the ambitions of members and supporters of the Free State Project, the term 'freedom' in America is taking on a whole new meaning.
Last Updated ( Monday, 16 March 2009 )
More with Alaska and Nevada...
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