Real Wealth: A Future We Can Bank On

Ellen Brown, JDPublic Banking Institute

The Economics of Happiness ConferenceFeb 27-Mar 1, 2015

The Elliott Center, Portland, ORwww.localfutures.org

The Piketty bombshell: capitalism is not sustainable.

The Piketty bombshell: exploding the myths of capitalism.

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

$105 circulates in economy; comes back to government as principal and interest

Government lends $100 @ 5% interest

Spends $5 on budget, infrastructure

• No taxes

• No price inflation

• No government debt!

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 capitalDeposits: $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 super-priority in bankruptcy.

Public banks return the profits to the people and the economy, making banking sustainable.

For more information – PublicBankingInstitute.org

EllenBrown.com