21 May 2012

Using a public bank to break the financial sector's stranglehold on governments

In my Youtube presentation "Solving the Debt Crisis", I argued that Central banks such as the ECB and the Bank of England should be forced to lend governments enough money to repay their entire national debts to the banking sector. That way, the 27 European countries, which together owe €10.42 trillion, would no longer have to pay the €370.8 billion in interest charges that they handed over to bankers in 2011. That would save taxpayers a huge amount of money in the longterm (€5.6 trillion since 1995), and make the ratings agencies completely irrelevant.

Of course, I am well aware that Mario Draghi, the current head of the ECB is unlikely to be enthusiastic. He was, after all, previously the European Director of Goldman Sachs, the blood-sucking vampire squid. So, what do we do when Mario Draghi (and Angela Merkel) refuse?

Well, here's an option. Each country could set up a Public Bank whose sole function is to pay off the national debt. It would use the fractional reserve banking trick used by commercial banks to invent money out of thin air, and that money would be loaned to the government to pay off the debt to the banks. It would be understood that the loan would only need to be repaid in 1000 years time (or some other similarly ridiculous number), with 0% interest.

Of course, the bank would have to operate with the same very strict controls applied to the rest of the banking sector. My understanding is that commercial banks need to keep 8% of their money as reserves. That means that the bank will actually need to have 8% of the national debt on its books to make things look fair. Where would this 8% come from? Well, one option would be to invite private individuals to donate money to the bank. Personally, I would be happy to donate quite a bit of resources to a public bank that enabled my government to get off the debt hook that requires it to pay tens of billions of euros a year in interest. So maybe there are enough wealthy people around to provide the resources needed for this public bank.

But, let's take the worst case scenario in which there are not enough altruistic people around to fund the public bank with the the 8% of national debt. Even then, there would be a solution. The government could simply make all donations  to the public bank tax deductable so that it costs nothing for individual tax payers!

Could this work? Is this a way to break the strangle hold on our governments? Well, as Ellen Brown argues in her book "The Web of Debt", public banks exist already. The State of North Dakota has one and it works very well. And there is a whole web site devoted to the idea of public banking that you can find here.

Note that  the same trick can be used at all levels. There could be public banks at the national level, but also at the regional level and more locally. In every case, the bank would just exist to get the debt out of the system and slay the blood sucking vampire squids.

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