Alfred Woody's Kewl Blog [ 椼森 ]: Mar 21, 2011

Monday, March 21, 2011

Letter: Change Federal Reserve system and end subsidy to private bankers

Voice: James D. Shaw, Grand Blanc Township

At a time of ballooning deficits, expanding public debt and squabbles about priorities, here is something we may be able to agree on: Our banking system usurps the government’s right to create the people’s money and thus constitutes a gigantic, unnecessary subsidy to private bankers.

The Federal Reserve system gives the illusion of public money creation, in that the Treasury prints our money, yet private banks actually create it. Most people think that banks loan existing deposits, but really they use loans to create new money. Ironically, the federal debt that everyone’s so concerned about is the cornerstone of the system. The Fed “monetizes” this debt by buying treasury bonds with money it creates on the fly, which generates the “reserves” the banks leverage to loan into existence many multiples (roughly nine) of the Fed’s original outlay. Essentially, the vast majority of our money supply consists of debt to private banks on money they created from nothing. The result is an endless and unearned bonanza in the form of compounding interest paid by the rest of us.

Ultimately, the Federal Reserve system must be changed or abandoned. The best alternative is probably to have the Treasury issue debt-free money based on real goods and services provided to the government.

Overhauling the banking scheme will be a tough slog, but in the meantime we can establish, within the Federal Reserve system, a state bank that creates money and makes loans in the public interest. Per the Public Banking Institute, “Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund of the public entity. The costs of public projects ... are also greatly reduced, because public banks do not need to charge interest to themselves.” It is not coincidental that North Dakota, the lone state with its own bank, is thriving like no other. N.D. is the only state that has posted a budget surplus in each year since the recession started, and it has the lowest unemployment rate (3.8 percent).

Let’s follow North Dakota’s lead and establish a Bank of Michigan. Banks should promote the commonwealth, not the con-mens’ wealth.