The Second American Revolution
From the Bucks County Courier Times
May 17, 2011
More than 80 years ago, Wall Street triggered the Great Depression and cast millions into poverty and despair. The capacity of the states and local governments to deal with the catastrophe was overwhelmed. President Franklin D. Roosevelt used the federal government in ways never before seen or imagined to rescue the American people.
Today, Americans are living through a Second Great Depression, again brought on by Wall Street. Tens of millions endure great hardship and deprivation. There is no rescue in sight from what one observer rightly called "a slow moving social catastrophe."
Now, Washington is powerless to help. It is dominated by corporate interests and the institutions of a federal establishment grown so grotesquely large they can no longer act, but only feed themselves.
But far from Washington a Second American Revolution may be underway, as states from Maine to California move to fill the vacuum left by a federal establishment that can no longer make any credible claim to represent the broad majority of the American people.
The seeds of this revolution were planted in North Dakota, in a long ago and little remarked act of independent and forward looking Americans. It was all about banking.
A few years after the creation of the Federal Reserve gave Wall Street effective control of banking, money and credit in the rest of the nation, North Dakota established a public bank, independent of the Fed, to insure a steady source of liquidity and credit for the state's farmers, businesses and families.
It has been an engine of prosperity. Last month the Bank of North Dakota (BND) reported a $2.6 billion loan portfolio of credit and liquidity injected into the state's economy and people, in partnership with community banks. The bank also reported another year of record profits - $62 million. These profits belong to the bank's only shareholder, the people of North Dakota, and were produced without taxation.
That in a state with a population of only 670,000.
The bank has also acted as a "rainy day" fund for the state, and when a North Dakota town suffered a massive flood and fire, the BND provided emergency credit lines to the city.
Having a less expensive and readily available credit line with the state's own bank reduces the need for municipal and county rainy-day funds that are a waste of capital; often invested in out-of-state banks, and often at very modest interest.
And the BND purchases municipal bonds and can fund infrastructure projects, offering dramatic reductions in the costs of debt service.
Again this year, almost alone among the states, North Dakota boasts a healthy surplus, low unemployment, a booming economy and a strong banking industry, aided in no small measure by something most Americans have never heard of: a publicly owned state bank.
As states and cities slash spending on even vital services and beggar the future, the Federal Reserve declared that it cannot help with their budget problems, although it advanced almost $12.3 trillion in liquidity and short-term loans to bail out Wall Street - an amount 64 times the $191 billion required to balance the budgets of all 50 states.
It didn't matter in North Dakota.
On May 2, Treasury Secretary Geithner announced that the Treasury would stop issuing special securities that help state and local governments pay for their debt.
It won't matter in North Dakota.
Faced with the endemic failure of the federal establishment and the dire needs of the people, legislators in more than a dozen states have embraced the example of North Dakota, and fired the first shots in what may become the Second American Revolution, introducing legislation to form state-owned banks or to study their feasibility.
The Center for State Innovation performed detailed analyses for two of those states, Washington and Oregon. Their conclusion was that a publicly owned bank on the model of the Bank of North Dakota would have a substantial positive impact on employment, new lending, and government revenue in those states.
State and even municipal level public banks have the potential to direct trillions of dollars of credit and hundreds of billions in revenue into locally directed economic expansion, creating jobs and building up prosperity - without raising taxes and without the helpful hand of federal bureaucrats.
Hyperbole? Wishful thinking? Consider California. The state has the eighth largest economy in the world, and it has a debt burden to match. But as large as California's liabilities are, they are exceeded by its assets: immense revenues, investments, pensions and other funds which are sufficient to capitalize a bank to rival any in the world.
Following the BND model and adhering to the reserve requirements that the "too big to fail banks" ignored or evaded before they failed, a public bank in California could be formed with $12 billion in capital and $148 billion in deposits, which in turn could generate $133 billion in credit for the state. Such a proposal is circulating now among California legislators and policy makers.
No other state can match California's ability to capitalize a public bank. But in the aggregate, the potential impacts of only a dozen state banks are revolutionary. A river of credit, investment and revenue, locally generated and locally directed, bypassing Washington, Wall Street and the Fed.
Now as before, it's all about banking.