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Real Wealth: A Future We Can Bank On Ellen Brown, JD Public Banking Institute The Economics of Happiness Conference Feb 27-Mar 1, 2015 The Elliott Center, Portland, OR www.localfutures.org The Piketty bombshell: exploding theismyths of capitalism. capitalism not sustainable. The flaw – markets do not self-correct. A more fundamental flaw: Money is created by private banks as a debt at interest. Exploding another myth of capitalism: ‘[B]anks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits … Commercial banks create money, in the form of bank deposits, by making new loans.’ ‘Money creation in the modern economy’, Quarterly Bulletin,2014 Q1, Bank of England. Then why do they need deposits? • They balance their books by borrowing: • Deposits @ 0.1% • Money market @ 0.15% • Fed Funds @ 0.25% • Fed Reserve @ 0.75% • Profit = the spread. Where does the interest come from? It can only come from more debt. It’s a pyramid scheme. Where does the interest go? Mostly into more money-making-money schemes -- loans, rents, offshore tax havens. The debt overhang: debt-at-interest always grows faster than the real economy. Exponential growth is unsustainable. Found in: • cancer • parasites • compound interest Eventually, the parasite runs out of its food source. How to solve the interest flaw: return the profits to the people. The public model was proven in colonial Pennsylvania. The result: Government prints $105 Lends $100 @ 5% interest Spends $5 on budget, infrastructure • No taxes • No price inflation $105 circulates in economy; comes back • No government to government as principal and interest debt! Spends $5 on Government lends $100 @ 5% interest budget, infrastructure In the US, we have one state-owned depository bank — in North Dakota. • ND also has: • the nation’s lowest unemployment rate • one of the lowest foreclosure rates • lowest default rate • only state to escape the 2008 credit crisis Globally, 40% of banks are publicly-owned. They are mainly in the high-growth BRIC countries, which also largely escaped the credit crisis. The BND model: • Depository for all state revenues. • DBA of the state. • $40M annual dividend (major for a pop. of 740K; compare 584K for Portland). • Average ROE of 20%, 2009-2014. • Mandate to serve the public. • 1% loans to startup farms, businesses, schools; 1.74% variable rate loans to students. Why so profitable? They have lower costs. • • • • • No bonuses, fees, commissions. No high-paid CEOs. No private shareholders. No advertising (captive deposit base). No branches or ATMs (BND partners with local banks, which act as the front office). How to turn a profit overnight: the magic of leverage Capital: $20M from rainy day fund or bond issue x 3% interest = $.6M cost of capital Deposits: $200M x 0.3% interest = $0.6M cost of deposits Loans: $200M - $20M reserve = $180M to lend or invest $180M invested in municipal bonds earning 3% = $5.4M profit - $1.2M (cost of funds) Net profit: $4.2M (21%)$4.26M (21%) How to cut infrastructure costs in half – own the bank. Bay Bridge retrofit: principal, $6 billion; interest, $6 billion. Bullet train: principal, $9.95 billion; interest, $9.5 billion Public banks are also safer. FDIC insurance? Don’t count on it. Derivatives have superpriority in bankruptcy. Public banks return the profits to the people and the economy, making banking sustainable. For more information – PublicBankingInstitute.org EllenBrown.com