California to consider public banking

[Starving Steve]

Re: California to consider public banking

A state or provincial bank has to pay interest to depositors on its savings accounts or certificates of deposit. So public-banking does NOT make capital free to the state, but it does make the cost ( rent ) on capital cheaper than borrowing in the bond market. Also, a public bank maintains control to a certain extent on its borrowing costs.

This being said, the cost of capital to-day, under Bernanke's rule at the Fed, is almost free.... And the interest paid to holders of U.S. 90-day treasury bonds is 0.0000%. Money lent to banks under Bernanke's Fed is cheap ( or free ) as well..... Therefore, public-banking is not going to save states very much money. Public-banking would have been an advantage to states in 1980 when the Fed set the discount rate on capital at 18%, but those days, the days of tight money, are long gone.... Nominally, the cost of money to-day to states is at an all-time low. Literally, money is being injected into the economy. So, if states like California are bankrupt now and can't dig-out, they will be bankrupt forever. Public-banking is not going to help.

[lektrode]

Re: California to consider public banking

but wouldnt it be better, mr steve, for The Public, aka the commonwealth of the towns/cities within the states - under a more 'normal' interest rate environment (read: 2pts above the real rate of inflation) to redirect the payout of millions(billions in CA's case) in interest charges, bond-issuance fees etc from FIRE interests/wall st, to its own coffers? this seems same as car rental co's 'self-insuring' ie: building a capital base from which to pay for damage to its fleet, rather than paying millions/year to insurance co's

seems like for the states to do same would be a no brainer - esp for bankrupt states such as CA, where every billion they pay out to the F-industry in interest/bond issuance takes AWAY from The Public, with NO commensurate return TO The Public

again, i blame the political class for this situation, esp in CA, for promising the moon and putting off paying for it, while delivering unsustainable levels of 'benefits', which then forces the borrowing/paying for more billions in interest expense

at least if the state was 'paying itself' as ND is doing, then less would leave that state in the form of interest payments (not to mention taxes collected mainly from the middle class), would it not?

[Starving Steve]

Re: California to consider public banking

I could not agree with you more. Closing the door the barn is always a good idea. But when the horse has run-off, is it still a good idea?

Public banking keeps money at home and in the state or province. But when interest rates are near zero and the Fed is injecting money into the economy, public banking ( state banking ) is just going to load-up the state government with more bureaucracy. Right now, the State of California has to go onto a diet, and not create another arm of the State government that isn't needed at this time...... If California runs out of cash, it can just phone the Fed.

Imagine if interest rates go negative in nominal terms, the State of California might actually be paid to borrow from the Fed. In other words, the State might issue its own bonds and dump them off onto the Fed's balance sheet, thus receiving the cash from the Fed for the bonds and be paid in nominal terms by the Fed to do so.... Incredible as it might seem, this may be Bernanke's next move: negative nominal interest rates.

Printing-presses, paper and ink might be the best solution for the State of California, not state banking.... One wonders if negative interest rates might be in Europe's future too, especially for the EU to bail-out PIGS.

[BK]

Re: California to consider public banking - State run solutions add to the problem

Starving Steve,

To demonstrate how bureaucracies bloom take a look at the Payroll for the Connector.gov - a new State bureaucracy that was created when Gov Romney saved the State with State offered Health insurance for those who could get insurance.

Keep in mind that this list doesn't account for the accruing of Pension, life time health benefits, sick time,etc.
http://www.bostonherald.com/projects/payroll/cca/

Another article on the pay for a new State bureaucracy

Allowing Politicians in California to create a new bureaucracy to offer a State run Bank is like making a recovering alcoholic a bar tender - its not going to turn out well