In addition to deposits from private individuals, the Bank of North Dakota also serves as the depository for all state tax collections and fees – for which they pay a competitive rate of interest to the state treasurer. The bank then uses these deposits as the 10% fractional reserve required by the Federal Reserve – to issue up to 900% of their value as loans. As well as providing a major boost to the state economy by continuing to offer credit (when credit from private lenders has virtually dried up), the bank also pays a hefty dividend back to the North Dakota general fund. In 2009 this amounted to approximately $60 million.
Owing to conservative management, North Dakota’s state owned bank has avoided most of the pitfalls that have caused many private banks to fail (including the giant Wall Street banks that have only survived thanks to trillions of dollars in taxpayer bail-outs). They do no subprime lending and have stayed clear of the derivatives market and credit default swaps. They did purchase some mortgage backed securities prior to the 2008 crash – but not enough of them to cause serious negative financial impact.
A Golden Opportunity for Grassroots Financial Reform
Ariana Huffington and others have been advising progressives to withdraw their support from the Wall Street banks responsible for the 2008 crash – and bank with local community banks instead. Attorney Ellen Brown, who has written extensively on the subject of state owned banks, feels this may not be enough to bring about genuine financial reform. Her main concern is that private community banks are unlikely to accumulate sufficient capital to compete effectively with the Wall Street giants.
Brown recommends that activists get on the bandwagon by supporting other states’ efforts to follow North Dakota’s example – as well as Congressman Dennis Kucinich (along with some Tea Party members) who propose to create a publicly owned federal bank – by having the government assume control of the Federal Reserve. At present the Federal Reserve is a consortium of private banks – which, thanks to their absolute control over credit and the money supply, have ultimate control over the US economy.
Currently there are five states (Massachusetts, Illinois, Michigan, Washington, Minnesota) with bills pending to explore the creation of state owned banks or lending institutions. In addition state candidates in eight other states (Florida, Oregon, Illinois, California, Vermont, Idaho, Hawaii, Virginia) are running on a platform that calls for the creation of a state owned bank as a way to stem the hemorrhage of state funds to private banking institutions (as interest on state debt).
The process of obtaining a charter to start a state owned bank is relatively simple. In California, for example, the startup capital required for a typical California bank is only $20 million. This is a comparatively small amount for the world’s eighth largest economy. Especially since the money wouldn’t actually be spent. It would form the reserve which would entitle a California state bank to generate $200 million worth of loans.
Creating a Federal Bank
Up until the creation of the private Federal Reserve system in 1913, the US had a central, federally owned bank for most of its history. Many prominent economists, including Milton Friedman, Ben Bernanke (the current chairman of the Federal Reserve) and John Kenneth Galbraith, blame the Federal Reserve Act for the Great Depression of the 1930s.
In 2008 progressive presidential candidates Dennis Kucinich and Cynthia McKinney ran on a platform advocating the US government create a federal central bank by taking over the Federal Reserve. Nobel laureate and former World Bank chief economist Joseph Sitglitz echoed these sentiments last year, observing that the US government would have been much better off funding a federally owned bank than authorizing trillions of dollars to the private investment banks who speculated their way into bankruptcy.
Here in New Zealand we have had a government-owned bank – Kiwibank – since 2002. It has been a fantastic resource in helping this country weather the global recession. I also find it fascinating that in the US, it is mainly Ron Paul and various Tea Party members and supporters who been championing the call for the government to assume control (or abolish) the Federal Reserve.
In doing so, they are taking on some very powerful enemies. Perhaps this is why Bill Clinton and other members of the corporate establishment are working so hard to discredit them. (more with good links at http://stuartbramhall.aegauthorblogs.com)
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I am a 63 year old American child and adolescent psychiatrist, activist and political refugee in New Zealand. I also have a newly published memoir The Most Revolutionary Act: Diary of of an American Refugee (see www.stuartbramhall.com) that describes the 15 years of intense government harassment I experienced before deciding to emigrate in October 2002. I also blog about this at www.stuartbramhall.com