Welcome to the Public Banking Blog

“You money reformers are all alike — you think you can just throw money at the problem!”

It’s true.  We think we CAN solve our economic problems by throwing money at them, money generated as credit by a publicly-owned bank. Money is just a legal agreement between parties and the community. It doesn’t need to be dug out of the ground, and it doesn’t need to be borrowed from someone who is hording it. It can be created as credit on the books of a publicly-owned bank, the credit of a community willing to advance goods and services on the promise of being repaid in equivalent value from the fruits of the borrower’s labor. This blog is for people interested in pursuing that sort of approach to the current credit crisis.

7 Responses

  1. Australia

    Australia has a publicly owned central Bank called the Reserve Bank. This bank operates independently of the government. There is also a powerful independent banking regulator called the Australian Prudential Regulatory Authority. The country has had a lot of experience with State owned banks which has been both good and bad.

    However, the banking problem is not simply solved with State Banks as Australia has to fit into the world banking system and most economies all follow the Basel Accords which embed the principles on which banking work into international agreements.

    The critical issue with any bank, be it State owned or Privately owned are the rules under which it can lend money. State banks have more flexibility in their lending practises because ultimately the money created when a loan is made is backed by the State which can always guarantee the money created by its ability to raise taxes. Private banks are constrained by regulations that require them to have levels of liquid reserves and capital reserves so that the system remains trusted.

    To overcome the financial crisis and to make banking “fairer” and to serve the people better we need to allow different rules for the creation of loans. At the moment the rules favour the financing of investments which involve buying existing assets versus financing investments which involve creating new assets.

    The reason State banks are so important is that a State Bank has the flexibility to experiment with different loan mechanisms that are not available to private banks. However, a State can work with a private bank to give the private bank the flexibility to offer different types of loans to encourage the creation of new productive assets.

    It is this second route to banking reform that the public banking movement is concentrating on in Australia as there is no general call for a return to more publicly owned banks as the critical one – The Reserve Bank – is already owned by the public.

    Both public banking and public support of private banks can achieve the same goals. The historical context and political landscape will determine the best course of action. Importantly both advocate reform in the way the system works so that it better serves the people and creates stable sustainable money.

    • Thanks Kevin, very interesting! The Bank of North Dakota acts like a publicly owned central bank for the state. It partners with the private banks rather than competing with them commercially, supplementing the funds and options as you suggest. Were the Commonwealth Bank and Reserve Bank Australia’s only publicly-owned banks, or are or were there others that aren’t so central? Do Australia’s publicly-owned banks not have reserve requirements?

      • Ellen,

        The State Banks in Australia have acted in the same way as the private banks. They run under the same rules and with the same mindset.

        The Reserve Bank of Australia has an inflation target of between 2 and 3% and see that as its main task. What an admission of failure to have a target inflation? It believes it can control the money supply by manipulation of the price of money.

        The State Banks when they existed did not take advantage of their positions to give zero interest – or even low interest – loans for investments and were used as pork barrelling instruments with some bad consequences. They were often used to prop up governments rather than working for the people.

        The great success story in terms of public banks becoming commercial banks has been the Commonwealth bank which was sold to the institutions and to lucky citizens who were able to get shares in the bank when it was privatised. It was privatised on ideological grounds not on economic grounds and turned out to be one of the great investments of all time for those lucky enough or in a position to take advantage of the privatisation. Its success as a private bank has reinforced the perception that private is better than public.

        For public banks to make a difference they have to have a clear strategy on lending for investment and in particular for lending on infrastructure and not just be a pale imitation of a private bank.

        It is unnecessary to have public banks to carryout the reforms on lending as States with their ability to guarantee investment loan repayments with future taxes on the profits on those investments can do it with or without Public Banks.

        The task is to change the mindset of public officials so they can see that banks can give zero interest (or low interest loans) without creating inflation and in a fiscally responsible way. In the USA at the present time public banks are probably the best way to do it because the situation is dire and the various State governments are being squeezed and the private banks are not helping.

        In Australia it is different because the population has seen several State Banks fold and the only successful one sold and become very profitable when privatised.

        For Australia the best chance is to approach the problem by showing the commercial private banks how they can get part of the action for infrastructure spending particularly in areas where they profess to be concerned corporate citizens – namely climate change reduction. At the moment they are unlikely to get little of this money as it will go through the investment banks.

        My strategy is to try to get introductions to the major banks and to go to them with the proposition that investing in renewables via zero interest loans will enable them to show they are good corporate citizens.

        To do this we have to show them the mechanics of how they can give investment loans in a way that will guarantee the repayment of loans, with no risk to them and in a way they can be seen to be heroes in the climate change battle.

        I do this even though it is still unlikely that the banks will do it without prompting but at least they might be prepared when asked. It is likely to need one of our State Legislatures telling a bank it wants zero interest loans for infrastructure and here is how it wants the loans structured.

        The Greens hold the balance of power in Canberra (the equivalent of Washington DC) and are able to influence local government policy – but they are ultra conservative economically because they do not want to be seen as fiscally and financially irresponsible. However, we probably have the best chance of succeeding of anywhere in Australia. I am pushing the financing of our local dam and if I can convince them they can build the dam without increasing water rates then that has to be a big win for them.

  2. Hi you crazy reformers !
    Don’t you know us banksters ain’t lookin to reform ? Especially from
    ignoramusses that aren’t gonna buckle under from a few lies and a little spin from our devout employees in the media and here in WA-WA.
    (that’s my acronym for WAll street—WAshington — now completely amalgamated.)

    Don’t suppose for a moment that your looney notions of nationalizing the FED, re-regulating the banking system that’s kept the Rocks , Roths and Morgs in loose change since 1913, and/or instituting a transaction tax
    on our Hanukkah bonuses, will ever see the light of public press.

    We have have all our critics ‘on-the-ropes” and we’re sharpening our big scissors to cut the ropes.

    Every central bank is now under our control. Even that pesky one up North
    that funded the war and highway across the country and seaway and universal health care and pensions from 1935 to 1972. (That’s when we took over.)
    Just look at what we’ve accomplished since !!! Why, we magnified Canada’s debt from $18 Bn to $566Bn and we’re raking off nearly $170 million a day in interest. We appointed our military industry lobbyist to be Defence Minister and we singled out a US-trained Newfie to send Canadians to Kandahar to clear the pipeline path.As you know , WAR is very, very profitableTo govern their central bank for the next 7 years we sent a GS guy who gets his instruction from us here in WA-W.
    “NO government-created money, Mark ” Got that?

    Now, think about it ….don’t you understand that we deserve our bonuses ?

    And,stop whining. We’ve taken out the four former presidents that meant to block us. We only place morons and milquetoasts in front of us as cover
    while we are nosing around in the vault.
    Get THIS : We have NO complaint Department.

  3. Alberta, Cold Canada
    We have a publicly owned bank here, ATB Financial.
    All we need is a good government that will use it for its intended purpose.

    And for Marcus Carnivorous, Governor of the Bank of Canada, to go back to Fort Smith, North West Territories, where he was raised by Wolves and exported to Goldman Sachs to be groomed for good wolf pack hunting habits.

  4. Ellen, are there states which cannot have a state bank?

    I’d like to start an initiative in WY and/or CO.

  5. Very good blog post I love your site keep up the great posts

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