Oregon State Bank Discussed at Medford Forum

Oregon State Bank Discussed at Medford Forum
Rogue Valley IMC • November 23, 2010

Information about a proposed Oregon State Bank, the need for it, and ways to help bring it about, was the focus of one of the work groups at a Community Forum hosted by Oregon Action at the Medford Public Library Monday evening, November 15.

…The group then moved to the main topic: the proposal in the Oregon Legislature to create an Oregon State Bank, modeled after the Bank of North Dakota, and currently the only state-owned bank in the US. The proposed legislation, currently in an Oregon Senate Committee, will get its first hearing in December, according to Peter Buckley. Ivend explained that it would be a banker’s bank, something like the Federal Reserve, but would serve local community banks and credit unions and not Wall Street Banks.

Read the entire post here.

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2 Responses

  1. OUR FEDERAL RESERVE’S RELENTLESS ATTACK ON THE MIDDLE CLASS

    By Robert W. McGehee
    November 19, 2010
    Word Document Posted: Nov 26, 2010
    Unrepentant Patriots’ Document Section (May need to join Group to access)

    With passage of the Humphrey-Hawkins Act in 1978, Congress forced our Federal Reserve (“Fed”) to assume a dual mandate: 1) to maintain a stable currency, and 2) to stimulate employment. This second mandate is not found in the central banks of rival developed economies (most notably the European Central Bank). I believe it is very destructive in the long run to our middle class and country.

    A large, thriving, and growing middle class is what has made the United States unique and powerful among nations. This broad economic segment includes lower middle, middle and upper middle income classes. In the past, our government fostered policies that enabled citizens to move into these middle classes, and to give future generations a chance at an even better economic life than that of the parents.

    The proliferation of 401k accounts, while an admirable idea, has had a paradoxically unintended negative consequence. For the past 25 years, there has been constant political pressure on our Fed to stimulate the equity, bond, real estate and commodity markets at the tragic expense of destroying our country’s ethic of thrift. This has been done under the guise of keeping rates low to “stimulate employment.”

    Speculative investment markets are not meant for people who cannot afford to lose their life savings. The vast expansion of equity ownership via 401k’s has created a political bias to constantly pressure our Fed to intervene and stimulate equity markets by suppressing interest rates. This has forced most traditional “savers” out of safe investment (such as CDs, Money Market accounts, etc.), and into mutual funds and other higher risk investments.

    By some estimates, there remains up to $1 Trillion in traditional consumer savings in this country, in addition to the $2 Trillion in cash on corporate balance sheets. If the Federal Reserve were currently maintaining its base Fed Funds rate at a minuscule 2% (to match a conservative inflation estimate), citizens and corporations would have an additional $60 Billion in annual pre-tax interest income! This money would be spent, providing significant stimulus to our economy.

    Instead, our government maintains its base Fed Funds Rate artificially low, nearly zero, in hopes that the equity and real estate markets will recover and appreciate. Even if these low rates have recently made our 401k values appreciate 10-20%, it is doubtful that this stimulates people to spend money. $60 Billion in real interest income would have a much larger impact on consumer spending than does the psychological lift of 401k values appreciating (especially since we know these values are volatile).

    The argument is then made that keeping rates low will stimulate borrowing, by lowering debt payments. Anyone with a basic understanding of finance knows that of the three primary considerations in term credit lending or borrowing decisions (cash flow, term of loan, and rate), interest rate has the LEAST impact, by a wide margin. In other words, if credit analysis reveals that cash flow is insufficient, no term or rate will compensate. If cash flow is marginally sufficient, the term of a loan has a vastly larger impact on payment than does rate.

    We have empirical evidence that this low rate environment is not favorably impacting borrowing or lending. Our banks are being rehabilitated at the hidden expense of middle class savers and taxpayers. This is being accomplished by allowing banks to borrow from the Fed at nearly zero cost, which funds are reinvested in Treasury bills and bonds at 2-4%, almost risk free (the only risk being the government’s future inability to tax us to fund the bills and bonds). Essentially, banks are borrowing from taxpayers at nearly zero cost, and re-lending to taxpayers at 2-4% – what a deal for them!

    Until banks are forced to pay 2-3% for funds (to reflect real inflation), why would they ever want to go to the effort and risk of underwriting loans on a large scale to small businesses and homeowners? They can receive a 2-4%, virtually risk free return under the above model. If our Fed were currently charging banks a more appropriate 2-3% cost of funds, savers would see their savings rates rise to at least those levels, and banks would have to find qualified borrowers to pay 6-8% for quality loans.

    Over the past 50 years, our middle classes have come under unrelenting economic, political and moral attacks from a government that appears to be increasingly hostile to the very people who have made us the greatest nation in history. The active destruction of thrift, by suppressing savings rates and subsidizing reckless risk, is one of the most egregious examples of this trend.

    Our legislative and executive branches are exerting undue influence over the policies of the Federal Reserve, under the guise of “stimulating employment.” What they are really doing is stimulating one “asset bubble” after another – stocks, real estate, commodities, bonds… all at the expense of a stable dollar.

    We need to demand that our central bank, the Federal Reserve, refocus on its core mission – maintenance of a stable, strong and predictable currency. Companies do not hire, businesses do not borrow, and banks do not lend because rates are low. These positive activities occur due to consumer demand and subsequent business productivity, which are fostered by rational monetary policy.

    Interest rates should not be used in a vain attempt to lead the economy forward; they should follow economic activity. Higher interest rates would stimulate spending by savers, and encourage banks to make real loans to productive businesses in response to this demand. This alternative would be far superior to lending our tax dollars to the banks at nearly zero cost, so they lend it back to us in Treasury bills at 2-4%.

    Rob McGehee November 19, 2010

  2. Eliminating the Federal Reserve System’s employment mandate is not a panacea – nthat will correct the economy. It is true that the interest rates are very low during depressions like the one we are now in. However, our biggest dangers today are deflation not inflation. You can’t have inflation when the economy is operating far below capacity like today.

    The money supply is contracting – because borrowing has slowed down.. When the economy recovers interest rates will rise.

    Unless there is more investment and consumption the economy will not recover regardless of the Fed’s employment mandate … Under Humphrey- Hawkins the Fed Chairman has to report to Congress on the Economy. That is a good thing!

    The rest [of employment mandate] is window dressing.

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