From the Editor:
As 2013 draws to a close, state, local, and federal governments are battling debt and interest burdens that are greater than ever. Their receipts are down and their bills are up. The only alternative has been to borrow – at interest – creating an exponentially growing debt. While "conservatives" express alarm at the ever-increasing debt levels and "liberals" denounce calls for austerity and cuts in essential services, there is one concern that should be shared by the 99%: Borrowing at interest increases costs and debt and transfers wealth out of our communities and into the pockets of Wall Street financiers, unless we borrow from our own publicly-owned banks.
From 2000 to 2010, the total debt of state and local governments increased by a factor of 2.5 from $1.2 trillion to approximately $3 trillion. With burdening compound interest, this increased debt has put a strain on the budgets of states and local communities, which are required to balance their budgets, forcing states and communities to not only cut spending, but, in some cases, take on further debt. Some states, including California and New York, have worked to curb their debt spending as their debt burdens had become increasingly unmanageable.
As 2013 draws to a close, state, local, and federal governments are battling debt and interest burdens that are greater than ever. Their receipts are down and their bills are up. The only alternative has been to borrow – at interest – creating an exponentially growing debt. While "conservatives" express alarm at the ever-increasing debt levels and "liberals" denounce calls for austerity and cuts in essential services, there is one concern that should be shared by the 99%: Borrowing at interest increases costs and debt and transfers wealth out of our communities and into the pockets of Wall Street financiers, unless we borrow from our own publicly-owned banks.
From 2000 to 2010, the total debt of state and local governments increased by a factor of 2.5 from $1.2 trillion to approximately $3 trillion. With burdening compound interest, this increased debt has put a strain on the budgets of states and local communities, which are required to balance their budgets, forcing states and communities to not only cut spending, but, in some cases, take on further debt. Some states, including California and New York, have worked to curb their debt spending as their debt burdens had become increasingly unmanageable.
In 2011, according to the US Census Report,
revenues for all state and local governments totaled $3.2 trillion,
taxes totaled $1.3 trillion, and interest payments on debt totaled $124
billion, or 9.2% of tax receipts and 3.9% of the total revenues. This is bad enough but it is slated to get worse; and the federal situation is already worse.
According to the federal fiscal year 2013 budget report, the total federal budget was $3.5 trillion, personal income tax receipts were $1.3 trillion, and the interest on the debt was $416 billion, or 31.6% of tax receipts. “Net interest” is often quoted, since some of the debt is held by Social Security and other government trust funds. For fiscal year 2013, the net interest payments on the debt totaled $223 billion, or 16.9% of personal income tax receipts, or 6.4% of the total budget.
Debt is an essential tool for financing public infrastructure, spreading the costs over several decades of use. The problem is interest. Interest, which is almost always compounded, results in exponentially increasing interest and debt, as well as exponentially increasing bank assets and financial profits. Even in times of economic stability, typical levels of debt, at interest, increase costs unnecessarily and transfer huge wealth over time out of our local states and communities, enriching and empowering the Wall Street financiers.
In the article, It's the Interest, Stupid! Why Bankers Rule the World, Ellen Brown explains how we can eliminate the burden of interest by recapturing it with our own publicly-owned banks, at the state/local and federal levels.
According to the federal fiscal year 2013 budget report, the total federal budget was $3.5 trillion, personal income tax receipts were $1.3 trillion, and the interest on the debt was $416 billion, or 31.6% of tax receipts. “Net interest” is often quoted, since some of the debt is held by Social Security and other government trust funds. For fiscal year 2013, the net interest payments on the debt totaled $223 billion, or 16.9% of personal income tax receipts, or 6.4% of the total budget.
Debt is an essential tool for financing public infrastructure, spreading the costs over several decades of use. The problem is interest. Interest, which is almost always compounded, results in exponentially increasing interest and debt, as well as exponentially increasing bank assets and financial profits. Even in times of economic stability, typical levels of debt, at interest, increase costs unnecessarily and transfer huge wealth over time out of our local states and communities, enriching and empowering the Wall Street financiers.
In the article, It's the Interest, Stupid! Why Bankers Rule the World, Ellen Brown explains how we can eliminate the burden of interest by recapturing it with our own publicly-owned banks, at the state/local and federal levels.
Borrowing from its own central bank interest-free might even allow a government to eliminate its national debt altogether. In Money and Sustainability: The Missing Link (at page 126), Bernard Lietaer and Christian Asperger, et al., cite the example of France. The Treasury borrowed interest-free from the nationalized Banque de France from 1946 to 1973. The law then changed to forbid this practice, requiring the Treasury to borrow instead from the private sector. The authors include a chart showing what would have happened if the French government had continued to borrow interest-free versus what did happen. Rather than dropping from 21% to 8.6% of GDP, the debt shot up from 21% to 78% of GDP.
“No ‘spendthrift government’ can be blamed in this case,” write the authors. “Compound interest explains it all!”
In fact, one state, North Dakota, has done just that. It has stemmed the transfer of wealth via interest from the state -- by owning its own bank. Under state law, the bank is the State of North Dakota doing business as the Bank of North Dakota. The Bank of North Dakota holds the state's deposits and provides financing for the state and local economy, cutting out out-of-state financiers. The North Dakota 2013-2015 approved state budget has no interest listed as an outlay, but includes interest income instead.
Publicly-owned banks, as shown by the example of the state-owned Bank of North Dakota, can eliminate debt-servicing costs given to out-of-state financiers, and use those savings to finance public projects themselves. Further, publicly-owned banks can provide a source of revenue for state and local communities, keeping state and municipal deposits local, feeding the local economy rather than feeding off of it.
Public banking advocates in Vermont, so far unsuccessful in their quest to get the Vermont Legislature to study the feasibility of setting up a state-owned bank, have taken the task upon themselves and released their own preliminary study. It is expected that public banking advocates in other states and communities will follow the example of those in Vermont and others and perform their own studies.
Protectors of the status quo argue that business as usual is acceptable and prudent. However, we know that compound interest increases costs and transfers wealth out of our communities, creating power centers in Wall Street that make a charade of our democracy. As Glen Edens, former HP executive, states: “...a strong financial services industry is simply not good for society. Wall Street does not improve productivity, the model is parasitic, transferring huge resources out of the system...”
As we approach the 100th year anniversary of the Federal Reserve, established by the Federal Reserve Act of 1913, there are increasing calls to “federalize” the private Federal Reserve -- to create a publicly-owned central bank that operates in the public interest. As Canada did from 1939 to 1974, and France from 1946 to 1973, the US government could borrow essentially interest-free from its own “federalized” Fed, resulting in a sustainable economy and a manageably low (or no) federal debt. Even a Harvard professor at the very recent 2013 IMF conference has broached the idea of opening the Fed to accounts for the general public, leading others to take off with the idea of the Fed as a real people's bank.
Assessing the unnecessary interest burden that Main Street endures, the evidence is clear: We the People need public banking for a sustainable and shared prosperity.
Ann Tulintseff
Member of the Board, Public Banking Institute
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