California to consider public banking

[Sutter Cane]

The California legislature has passed a bill to study public banking. Still has to make it past the governor:

California Passes Bill to Study Public Bank

Text of the bill here.

This bill would establish the investment trust blue ribbon task force to consider the viability of establishing the California Investment Trust, which would be a state bank receiving deposits of state funds. The task force would be required to consider how the investment trust could strengthen economic and community development, provide financial stability to businesses, reduce the cost paid by state government for banking services, and provide for excess earnings of the trust to be used to supplement General Fund purposes.

[Starving Steve]

Re: California to consider public banking

When everything in California bankrupt or going bankrupt, and when interest rates are 0.0000 % on U.S. 90-day treasury bonds, the State of California wants to open a bank, lend to bankrupt firms, and use the profits from this venture to pay into the State General Fund???????

A kindergartener or a pre-schooler must have come up with a business plan like this. And the State is going to pay for a task force to consider how the investment trust could .... piss-away more more money on .... in order to provide excess earnings of the trust to be used to supplement General Fund purposes.

"Excess earnings of the trust" in order to supplement the General Fund so that the Fund might piss-away more money on solar energy insanity or windmills that don't turn........or maybe bail-out defunct solar and wind companies??????

What am I missing here? This has to be a joke!

How would it be possible to-day for a bank to lose money when the rent on money is ZERO (like 0.0000 %) and the Federal Reserve Bank will pay the bank a return on money, PLUS PROVIDE THE MONEY TO THE BANK WITHOUT LIMIT IN ORDER THAT THE BANK MIGHT LOAN THE MONEY BACK TO THE FED? How would the bank, any bank, lose money in this sweet-heart deal with the Fed?

The only way for the bank (public or private) to lose money is to go out of its way to lose money and to lend to defunct businesses involved in hair-brained ventures like "green energy". As I wrote above, "[T]his has to be a joke!"

[dcarrigg]

Re: California to consider public banking

The California legislature has passed a bill to study public banking. Still has to make it past the governor:

The Boston Fed did a report looking at this in relation to Massachusetts. You don't have to agree with the conclusions, but it is an interesting read.

[Starving Steve]

Re: California to consider public banking

If the State of California was solvent and had a budget surplus, then the State could open State banks ( insured by the State ) to lend to IMPORTANT and VITAL agencies of the government such as school districts, public hospitals, cities, counties, state parks, water districts, etc. The idea here would be to attract more money through a state banking network than the State could attract through the sale of State of California bonds. To-day, state entities such as the state prison system or counties or cities incorporated within the state borrow money by issuing their own bonds, so these entities do not require a state bank. Also, the State of California sells bonds to the public which are guaranteed by the State and are implicitly ( but not necessarily ) guaranteed by the federal government.

Although state banking ( and in Canada, provincial banking ) does work, the decision to do this should be made on a cost/benefit analysis. When I was a child in America, state banks were common, especially in the Midwest. To-day, the only examples that I know of are the Bank of North Dakota and the Treasury Outlets of the Province of Alberta.

To-day, state entities such as its cities and its counties borrow directly from the public by issuing bonds. These bonds are in two types: 1.) bonds which are "implicitly guaranteed" by the entity, and 2.) bonds which are a general obligation of the entity (also known as "G.O.s" in the municipal bond market). In general obligation, the entity satisfies the bond-holder FIRST and before it satisfies any other obligation whatsoever..... At least, that is how this arrangement is supposed to work in the bond market.

Obviously, things might get real nasty if there is a de-flationary shock in our future. If the Fed were wise, it would de-flate slowly and carefully, managing the de-flation every step of the way.... If this is what Bernanke is now doing (and faking an inflation with "helicopters", etc.) , then I have the greatest respect for him.

[Fiat Currency]

Re: California to consider public banking

... To-day, the only examples that I know of are the Bank of North Dakota and the Treasury Outlets of the Province of Alberta.

Shush. Almost nobody knows that Alberta already has its own State Bank (ATB) or that it takes its roots from the Social Credit Party (gasp!) who were fighting Central Banking at the time ... and was founded on the monetary principles of Silvio Gesell (yikes!!).

In the late 1930s, the party fought vigorously over the plan to issue "prosperity certificates" which became known to the public as "funny money". Their leader (C.H. Douglas) hated the idea of prosperity certificates because they depreciated in value the longer they were held.

Sigh ... we never seem to learn much from History.

[Starving Steve]

Re: California to consider public banking

The prosperity certificate was a one-dollar certificate which required up-to-date stamps on the back of the certificate in order to keep the certificate current. So, the bearer had to purchase from the Alberta Treasury Branch near him/her a tiny one-cent stamp, or a series of tiny one-cent stamps to make the certificate current. Once current, the certificate was at par with one Canadian dollar, at least until the next stamp was due.

But the scheme did work, and the notes circulated. The ATB received pennies for its stamps, and the notes were redeemed, one-to-one with Canadian currency when the notes had 104 stamps on their back. So long as the certificates were current (in stamps), it didn't matter how many stamps in total were on the back of the certificate, because the note circulated hand-to-hand on the common faith in the Govn't of Alberta that the certificate would be ultimately be redeemed. Each time the note passed to another hand, a penny stamp had to be added in order that the passer ( the utterer ) would pay for the next time period to accommodate the next bearer of the note. The next bearer would then be required to spend the certificate and get full value out of the note ( $1 ) less the penny stamp that he/she had to add to the note to keep the note current. And if the bearer hoarded the note, each time period of delay would cost another penny, so the note circulated rapidly, hand-to-hand.

So this was a great idea! One-cent became $1 for the people of Alberta so long as they had faith in the Treasury of Alberta, and the Treasury of Alberta made a profit on the prosperity certificates of no less than four cents per note, hence equal to or greater than 4%. And for non-current notes and unredeemed notes, the Treasury made a profit on all stamps purchased.... The scheme was a win-win-win for everyone.

Governments to-day everywhere should be so ingenious as the Government of Alberta was under the Social-Credit Party rule during the Great Depression with Social-Credit's prosperity certificates, also known as "So-Cred funny money". The scheme made a profit, the scheme worked, the scheme created real money, the scheme put money into circulation, and the scheme put people and businesses to work.

In our own time, prosperity certificates are a rare and very sought-after collectible from the Great Depression. When I was in the coin business, a decent prosperity certificate was worth at least $50 to buy and at least $80 to sell. A mint-state (crisp and new) Alberta Prosperity Certificate with one or more tiny, but bold and clear, Alberta one-cent stamps on its back was worth up to $300..... So those who held onto their prosperity certificates were winners, too. Everyone won in the So-Cred "funny-money" scheme.

[Fiat Currency]

Re: California to consider public banking

... When I was in the coin business, a decent prosperity certificate was worth at least $50 to buy and at least $80 to sell. A mint-state (crisp and new) Alberta Prosperity Certificate with one or more tiny, but bold and clear, Alberta one-cent stamps on its back was worth up to $300..... So those who held onto their prosperity certificates were winners, too. Everyone won in the So-Cred "funny-money" scheme.

Nice add Starving Steve.

Just curious - Did you ever keep any prosperity certificates?

At any rate ... here we are 7-8 decades later ... still fighting Central Banking, still struggling with monetary concepts like Gesell's, still trying to figure out how to stop currency depreciation ... and so on.

FWIW - I don't think you're crazy, and I made my daughters read your post ... as they still struggle with some of the things/concepts that I throw at them as we head into a New (monetary) World Order.

[Starving Steve]

Re: California to consider public banking

Nice add Starving Steve.

Just curious - Did you ever keep any prosperity certificates?

At any rate ... here we are 7-8 decades later ... still fighting Central Banking, still struggling with monetary concepts like Gesell's, still trying to figure out how to stop currency depreciation ... and so on.

FWIW - I don't think you're crazy, and I made my daughters read your post ... as they still struggle with some of the things/concepts that I throw at them as we head into a New (monetary) World Order.

I never did keep any prosperity certificates, and I only was able to buy maybe four or five, in all of the years that I was in the coin business. Once I was offered some mint-state prosperity certificates with nice stamps on their backs. I bid them $200 or $250 each, but the man wouldn't sell them. He knew how rare these certificates were in that grade.

Properity certificates without stamps are not uncommon in high grade, but those with stamps, especially those with more than one stamp on their reverse and in choice high-grade are very rare. Those are the ones that would fetch a $250 bid and $300 ask, and that was back in the 1980s when I had my shop in Edmonton. To-day, the bid and ask on choice prosperity certificates with stamps might even be higher.

One of the interesting things in Canada is the $1000 Bank of Canada note. Known as "pinkies" for their pink colour, these notes are still in circulation, and they can be had even in mint-state at banks. However, they are only worth $1000. Interesting too, the $1000 bill in Canada is a 1954 series, quite lovely, but only worth face-value.... In America, the old $1000 bill is quite rare, out of circulation, and worth a slight premium over face-value in all grades. In Colorado Springs, I would come into doggie notes ( flimsy notes ), and they still would fetch $1050 in Denver. The U.S. $1000 notes are 1934 series if I remember correctly. The retail market for $1000 bills in the U.S. is to nuts who want to use them as flash-money in bars or casinos, thus to show or to prove how rich they are.

Real Canadian $1000 bills of the 1954 series have tiny planchets embedded into their paper and which can be popped-out with one's finger-nail. The only use for $1000 bills in business is to have their serial numbers recorded at your bank, just in case you get robbed. Otherwise, the notes were a head-ache and rather useless in commerce. ( Try exchanging a $1000 bill for small bills when the banks are closed, especially on a Sunday! )

For those who want to own a real collectible, try to find a U.S. $500 bill of the 1934 series. They are rare in all grades. (The note is a Federal Reserve Note of the current small size.)

The reason why high denomination notes in the U.S. are uncommon is that these notes were retired from circulation and burnt by the government, decades ago, in order to fight drug dealing, money laundering, (brown envelope) bribery, money smuggling, counterfeiting, military espionage, and other illegal activities.

[Fiat Currency]

Re: California to consider public banking

... One of the interesting things in Canada is the $1000 Bank of Canada note. Known as "pinkies" for their pink colour, these notes are still in circulation, and they can be had even in mint-state at banks. However, they are only worth $1000. Interesting too, the $1000 bill in Canada is a 1954 series, quite lovely, but only worth face-value....

Hmmm ... pinkies!

These 2 (1954 & 1988) are from my personal collection ... and are definitely worth more than their face value

1000 bills.jpg

The $1,000 notes were "officially" withdrawn from circulation in 2000 - but you're right - some are still in circulation.

Too bad about not keeping any prosperity certificates though. There are several things like that I wish I had kept over the years.

[Chris Coles]

Re: California to consider public banking

Dcarrigg quote:

The Boston Fed did a report looking at this in relation to Massachusetts. You don't have to agree with the conclusions, but it is an interesting read.

Where is the equity capital? This is just another example of a feudal mercantile economy where capital is now a bank loan.

[lektrode]

Re: California to consider public banking

Dcarrigg quote: re: The Boston Fed did a report
Where is the equity capital? This is just another example of a feudal mercantile economy where capital is now a bank loan.

its almost funny at times, this issue of 'capital' consisting of bank loans, when in the not so old days, 'capital' was defined as saving of profits earned and NOT spent, but saved to fund expansion etc

was hilarious, as a self employed type - during the krash of lending, to read about small biz that couldnt go on with out borrowing money to continue operations? - huh? were they ever actually making any money in the first place? and if they were, why do they need borrowed money to fund ops? i'm talking _small_ biz here, ones that should have liquid reserves to 'fund' daily operations - if they dont, how is it they are even in biz?

my general theory is: the only difference tween 'self' employed and UN-employed is a bank account

[Roughneck]

Re: California to consider public banking

North Dakota has a state bank and has done quite well. The principle is quite simple. You take the assets of the state and lend that money out for projects like highways etc and the state does not have to be a slave to the bond market as the interest is paid back to the state bank. IF it is operated soundly it is a way for states to save interest costs and fund it's own infrastructure.

[lektrode]

Re: California to consider public banking

yes, this does seem like a good way to go - i was remarking on mr c's "wheres the equity capital"

have always wondered why in hell would any taxing authority have to _borrow_ money, when all they have to (or should) have to do is increase or add some levy in advance of need for infrastructure improvements and SAVING until the minimum req'd to get the job underway, with tweaks to the funding source as req'd to finish - this is what any prudent individual would do, so WHY DOESNT THE .GOV DO THE SAME ? (at least the states/municipalities) - strikes me as the definition of insanity/financial suicide to borrow for every capital expense, as some/most appear to do?

more on this, found linked on patrick.net today:

http://www.commondreams.org/view/2011/09/15-6

Published on Thursday, September 15, 2011 by YES! Magazine Banking for California's Future


Wall Street's not cutting it: California's legislature voted to do a feasibility study on establishing a state-owned bank.

by Ellen Brown

AB 750, California’s bill to study the feasibility of establishing a state-owned bank that would receive deposits of state funds, has passed both houses of the legislature and is now on the desk of Governor Jerry Brown awaiting his signature.(Photo by Steve Rhodes)
It could be the governor’s chance to restore the state to its former glory. As noted in TIME Magazine:

[I]n the 1950s and ‘60s, California was a liberal showcase. Governors Earl Warren and Pat Brown responded to the population growth of the postwar boom with a massive program of public infrastructure—the nation’s finest public college system, the freeway system and the state aqueduct that carries water from the well-watered north to the parched south.

But that was before Proposition 13, a California constitutional amendment enacted by voter initiative in 1978. Prop 13 limited real property taxes to one percent of the full cash value of the property and required a two-thirds majority in both legislative houses for future increases of any state tax rates.
Prop 13 radically reduced the tax base, and as economist Michael Hudson observes, it is too late to raise property taxes now. The tax savings simply drove property prices up, getting capitalized into additional debt service to the banks. Today, he says, “so much urban property is sinking into negative equity territory that a rise in property taxes will lead to even more foreclosures and abandonments, and hence even lower fiscal returns.”
Meanwhile, the state is struggling to meet its budget with a vastly shrunken tax base. What it needs is a new source of revenue, something that won’t squeeze consumers, homeowners, or local business.
The BND is not a business competitor of the local banks but partners with them, helping with capital and liquidity requirements.
A state-owned bank can provide that opportunity. North Dakota, the one state that currently has its own bank, is the only state to be in continuous budget surplus since the banking crisis began. North Dakota’s balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million and is debating further cuts. It also has the lowest unemployment rate, lowest foreclosure rate and lowest credit card default rate in the country, and it hasn’t had a bank failure in at least the last decade.
Revenues from the Bank of North Dakota (BND) have been a major boost to the state budget. The bank has contributed over $300 million in revenues over the last decade to state coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County. North Dakota is an oil state, but according to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state’s general fund as oil and gas tax revenues did. Over a 15-year period, according to other data, the BND has contributed more to the state budget than oil taxes have.
North Dakota is a conservative red state, not the sort you would expect to be engaging in government enterprise. But the conservative justification for a state-owned bank is that it preserves state sovereignty, allowing the state to be independent of Wall Street and the Feds. The BND is not a business competitor of the local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state.
According to the annual BND report for 2010:

Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. . . . We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the state’s return on its investment.

A 19 percent return on equity beats the 170 billion dollars LOST by CalPERS and CalSTRS, California’s two public pension funds, by the time the stock market hit bottom in March 2009. The BND was making record profits all through that period.
The BND augments state revenues in other ways besides just returning its profits to the general fund. It helps build the tax base by providing the funding needed by local businesses, and by financing the infrastructure that attracts them. Among other resources, it has a loan program called Flex PACE that allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, small business, and essential community services.
The BND also furnishes a credit line to the state itself, one that is effectively interest-free, since the state owns the bank. Credit lines are extended in times of emergency or whenever state departments or municipalities face unforeseen circumstances, such as the recent flooding in the state. Having a credit line to the state’s own bank allows state and local governments to avoid extortionate interest rates from Wall Street and pressure to privatize and reduce services in order to avoid downgrades from rating agencies.
Timothy Canova is Professor of International Economic Law at Chapman University School of Law in Orange, California. In a June 2011 paper called “The Public Option: The Case for Parallel Public Banking Institutions,” he compared North Dakota’s comfortable financial situation to California’s:

. . . California is the largest state economy in the nation, yet without a state-owned bank, is unable to steer hundreds of billions of dollars in state revenues into productive investment within the state. Instead, California deposits its many billions in tax revenues in large private banks which often lend the funds out-of-state, invest them in speculative trading strategies (including derivative bets against the state’s own bonds), and do not remit any of their earnings back to the state treasury. Meanwhile, California suffers from constrained private credit conditions, high unemployment levels well above the national average, and the stagnation of state and local tax receipts.

California was once the nation’s leader in technology, industry, entertainment and public education. Under Governor Pat Brown, tuition at UC campuses was free, making higher education available to all. Today tuition is about $13,000 a year, and the state has an unemployment rate hovering at 12%.
California, like North Dakota, is resource-rich. A state-owned bank will allow it to capitalize on its resources to full advantage by providing the credit needed to realize its potential. As the bank was described by Assembly Member Ben Hueso of San Diego, who authored AB 750, "It's not the fad of the moment, a pair of tight fitting jeans; it's a pair of construction boots."


This work is licensed under a Creative Commons License



Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. She is president of the Public Banking Institute, http://PublicBankingInstitute.org, and has websites at http://WebofDebt.com and http://EllenBrown.com.

[Chris Coles]

Re: California to consider public banking

This has brought into the debate two separate strands; one being honest banking; the other the lack of any institution targeting the need to invest equity capital. What the Bank of North Dakota shows is the difference resulting from an honest bank dedicated to deliver stability to their local community.

My personal beef is the total lack, anywhere, of a debate about the missing source of equity capital.

[dcarrigg]

Re: California to consider public banking

Where is the equity capital? This is just another example of a feudal mercantile economy where capital is now a bank loan.

It seems to me that BND transfers excess 'profits' out to the General Fund of the state. The equity capital then (and I'm using the term in the financial accounting sense of assets minus liabilities) is functionally transferred back into the public coffers.

State entities that reinvest in 'economic development' and 'housing development' ventures also utilize lines of credit and indirect profit transfers from the BND to invest in various state equities and mortgages.

That being said, if you mean equity capital in the sense of modern private (and publicly traded) corporations, you are correct, the initial capitalization did come from the public coffers and there are no funds raised (stocks sold) or dividends paid through trade on an open market.