Debt servicing — the top fiscal pressure

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Waterloo Region Record ( staff writer Paige Desmond reports:

“Region of Waterloo councillors vote Wednesday (4 March 2015) to approve the 2015 budget and set the spending tone for this term of council. The last term of council hiked taxes 8.9 per cent and this council is expected to start things off with a 2.5 per cent increase—above the 2.4 per cent rate of inflation for 2014. That would add about $44.68 to the property tax bill on a home assessed at $291,000. ‘It’s a big operation. There’s a lot going on at the region, so that’s well within our guidelines and I think we’re in a good shape,’ Councillor Geoff Lorentz said. Top fiscal pressures include debt servicing [i.e. paying a high compounded interest, usury, on the debt to private commercial banks], rapid transit and staff compensation, though more debate is expected on requests from staff, community organizations and councillors, Lorentz said. Council voted to hike water and waste water rates by 4.9 per cent and 7.9 per cent respectively in February, staying on track with a plan to increase water rates up to 45 per cent over 10 years. The $3.6 billion, 10-year capital budget includes $1.2 billion for water and waste water, $899 million for roads and $857 million for transit.”  

2015 Budget Overview — Region of Waterloo 2015 Budget

The Region of Waterloo’s debt is fast approaching $700 million, and is rapidly growing as you read this. Debt servicing (i.e. paying a high compounded interest (usury) on the debt to a private commercial bank) will cost the region about $62 million this year. Of that, about $48 million will come from taxpayers. And where will the remaining $14 million in interest payments come from? The City of Toronto, with its budget of approx. 11.5 Billion, has a budget deficit of about 86 million to deal with. And then, on the top of the interest, there are huge bank fees. A 2013 study found that the city of Los Angeles spends over $200 million annually on bank fees – more than its budget to maintain its extensive streets and highways!

Gar Alperovitz most recent publication is What Then Must We Do? Straight Talk About the Next American Revolution”. Gar Alperovitz speaks directly to the reader about why the time is right for a revolutionary new economy movement, what it means to democratize the ownership of wealth, what it will take to build a new system to replace the decaying one—and how to strengthen our communities through cooperatives, worker-owned companies, neighborhood corporations, small and medium-size independent businesses, and publicly-owned banks. For the growing group of citizens pacing at the edge of confidence in the old system, or already among its detractors, What Then Must We Do? offers a revolutionary, common-sense solution for moving from despair and anger to strategy and action. Alperovitz is the former Lionel R. Bauman Professor of Political Economy at the University of Maryland and co-founder of the Democracy Collaborative:

alperovitz“Recognition is growing of the undue influence that private corporate finance — tied to Wall Street rather than anchored in Main Street — has on our communities. Most people understand that regulation can only go so far and that it has a tendency to unravel in the face of corporate pressure — as the recent successful efforts by Citigroup to roll back key provisions of the Dodd-Frank legislation amply demonstrate. Again, starting at the local level, public banking seek to transform the current system toward one in which banking is managed as a public utility rather than a global casino where taxpayers pick up the tab for private losses. Public banking campaigns in several areas seek to make sure that state and city deposits are deployed not to pad the margins of Wall Street managers but rather to benefit local communities. Santa Fe Mayor Javier Gonzales, for instance, recently announced that the city was studying the creation of a public bank, noting that its existing provider of financial services, Wells Fargo, “takes city revenues, taxpayer dollars and invests those dollars for its own profit as part of a loan portfolio for folks outside of Santa Fe and New Mexico.” In late January 2014, the Santa Fe City Council approved a $50,000 contract with a local firm to investigate setting up such a bank. Early in 2014, residents in more than 20 Vermont town meetings voted in favor of a proposal to turn the Vermont Economic Development Authority into a state bank. Ultimately, the effort accepted a compromise in the state legislature, with the authorization of up to 10 percent of state cash balance (currently totaling around $350 million) being made available for investment in local enterprise — more or less fulfilling what would have been one of a state bank’s most important functions. The state of North Dakota, of course, has operated a highly successful publicly owned bank for almost a century.”

Big private banks might be too-big-to-fail, and according to U.S. Attorney General Eric Holder, they might be even too-big-to-jail (prosecute). Soon, they may turn out to be too-big-to-bail. But they are not-too-big-to-abandon as depositories for government funds. As of the spring of 2010, North Dakota was the only US state sporting a major budget surplus; it had the lowest unemployment and default rates in the US. Why? If the State of North Dakota can bypass Wall Street with its  state-owned public bank (BND), and declare financial independence, so can the Region of Waterloo, Kitchener, TorontoOntario, and all other cities and provinces across Canada bypass Bay Street.

Is creating a new bank in Canada too much trouble, perhaps? Apparently not so. Not even for a Canadian grocery store. Loblaw’s bank, President’s Choice Financial, was ranked by J.D. Power Associates, as having the highest customer satisfaction among mid-size Canadian banks several years in a row.

“Forming a provincial, regional, or municipal public bank need not be slow nor expensive. An online bank could be run out of a municipal Treasurer’s office and operational in a few months. And the bank could be turning a profit immediately without spending the local government’s own revenues,” says Ellen Brown of

Would creating a public bank in Kitchener be worth the effort? Don’t we have enough banks in Kitchener and in our region already?

Let’s do some math, and see.

Let’s imagine that the Region of Waterloo, and some of small and medium-size businesses, as well as some individual customers, bring their banking business to the Mackenzie King Public Bank of Kitchener. For the sake of simplicity, let’s assume that total deposits at the bank would be 100 million dollars.

Now comes the really sweet part. Due to the “Alchemy” of fractional-reserve banking laws, our Mackenzie King Public Bank of Kitchener would be allowed to expand those 100 million dollars on its balance sheet by a traditional and conservative factor of 20 (leverage), and actually create so-called new money, out of thin air. That would be a nice, round sum of 2 Billion dollars, interest-free, and tax-free. Do you know of any other business better than this one?

What could the Region of Waterloo do with all this extra interest-free money that would suddenly be in possession of? It could pay off its entire regional debt, fully finance its budget interest-free, lower the ever-growing property taxes, finance additional social programs and benefits for the poor, and still sport a budget surplus. It could also easily provide much needed small-business loans, student-loans, and loans to individual residents, all interest-free, locally. And think of all those new public banking government jobs created in the region of Waterloo that will pay for themselves. What else a public bank could do for its people? A good example is here:  North Dakota bill explores giving all babies nest egg once 18.

Instead of borrowing from private commercial banks at a usurious interest, why not borrow from the Ontario Public Bank, or from the Toronto Public Bank, or from our Mackenzie King Public Bank of Kitchener, or from our national central PUBLIC BANK OF CANADA interest-free? Usury is not a law of nature; it comes from human greed. That would relieve the top fiscal pressure in the region of Waterloo, instead of having to continually increase taxes, cut social programs and benefits to save money. Why not save all those unnecessary debt servicing payments, a staggering $62 million this year alone, and deposit them all in our Mackenzie King Public Bank of Kitchener instead? That could be expanded into additional 1.2 Billion dollars of new money in our bank. Why not deposit all the Kitchener municipal revenue into our bank, and expand it on the balance sheet to create 20 times more of new money for the city to spend for the benefit of its residents? Martin Wolf is widely considered to be one of the world’s most influential writers on economics. He is the associate editor and chief economics commentator at the Financial Times:

“One of these radical ideas was proposed by Martin Wolf in the Financial Times. He suggests stripping private banks of their remarkable power to create money out of thin air. Simply by issuing credit, they spawn between 95% and 97% of the money supply. If the state were to assert a monopoly on money creation [via public central bank], government could increase their money supply without increasing debt. Seigniorage (the difference between the cost of producing money and its value) would accrue to the state, adding billions to national coffers. Private commercial  banks would be reduced to being servants, not masters, of economy.” — George Monbiot

Money, everywhere and always, has been created out of thin air, and simply printed out as fancy paper notes. Anyone can do it. It is the best job ever. Private commercial banks create the money they lend just as public banks do — out of thin air. The difference is simply that a publicly-owned bank returns the profits to the government and the People of the country, while a privately-owned bank siphons the principal plus interest into its capital account, to be re-loaned at further interest, progressively drawing money out of the productive economy.

Have you ever wondered how private commercial banks can afford to pay out all those multi-million dollar year-end bonuses before Christmas? In the US, Pacific Investment Management paid its former chief investment officer, Bill Gross, a bonus of about $290 million. It is gross. Last year Canada’s big banks gave out $12.2 Billion in bonuses, 13 percent more than a year before. No austerity in the banking sector in Canada! Usury is not a law of nature; it comes from human greed. AUSTERITY IS A LIE. Where do those more-than-generous bonuses come from? From the usury the People of Canada pay to the greedy private banks that are to-big-to-jail. And how was your Christmas last year? If you can’t join them, beat them at their own game establish a public bank in Kitchener.

On Saturday, January 24, 2015, during the seminar in Toronto City Hall chambers on the subject: “Money, tax, poverty and public banking,” the keynote speech was delivered by Toronto Councillor Kristyn Wong-Tam on the creation of the Toronto Public Bank: “It’s time for Toronto’s citizens to stand up to their political representatives and say: no more cuts to city services. As a city councillor, I am obligated to offer an alternative in the public interest. This is a responsibility that I take seriously. I want Toronto to succeed. It is imperative all members of council work together. We can start by exploring the feasibility of creating Canada’s first public municipally-owned bank:

See: How Public Banking is Winning the West.

Considering all of the above, who would like to say “No” to the idea of establishing the Mackenzie King Public Bank of Kitchener, and why? Please, let us know! Thank you.

How to start a public bank overnight? Simple! Please, read here:

The public banking revolution has started in Canada! If you are interested in contributing any efforts at all towards establishing of our common Mackenzie King Public Bank of Kitchener, then please contact us:  We work in cooperation with the nonprofit Public Banking Institute, and with the Toronto Public Bank’s team of experts.

The Mackenzie King Public Bank of Kitchener could generate its own credit and new capital, and set more reasonable terms for loans to itself. If retailers like Walmart Canada and Loblaw grocery store are able to obtain a licence to create a bank and issue credit, why can’t the Region of Waterloo do the same?! 

Isn’t it high time to start socializing profits

Victor Hugo said: “Nothing is more powerful than an idea whose time has come.”

That time is now.

If you can apply for a mortgage at a grocery store (Loblaw), then why can’t you bank with the Mackenzie King Public Bank of Kitchener interest-free?

See you at the Bank!

Kitchener Citizens Committee on Public Banking


BANKWARS (episode one)

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Vermonters Vote for the Public Bank at Town Halls, but Big Banks Strike Back at State House

Associated Press reported in “Over a Dozen Towns Support Public Bank Idea” that the majority of communities asked to support the creation of a public bank in Vermont have approved the measure at town meetings. Supporters argue that instead of keeping its money in large global banking institutions, the state could save money, create jobs and eventually generate revenue by creating a state bank. The proposal would turn the Vermont Economic Development Authority, a nonprofit agency that makes loans, into a bank. A bill pending in the Legislature would put 10 percent of the state’s funds into it.

John Nichols of The Nation reports in “Vermont Votes for Public Banking” that “the votes were overwhelming. Vermont is not the only state where public banking proposals are in play. But the town meeting endorsements are likely to provide a boost for a legislative proposal to provide the VEDA with the powers of a bank.”

Robb Mandelbaum, in the New York Times writes that “public banking advocates point most hopefully to efforts in Vermont” to emulate the model of the Bank of North Dakota, which “funnels deposits from state agencies back into the state’s economy through a variety of loan and other development programs.”

GWENDOLYN HALLSMITH Co-founder of Vermonters for a New Economy, and the new executive director of the Public Banking Institute, Hallsmith said today: “It is clear that the bank lobby has a lot more traction in the State House than the cities, towns, and the citizens. It has been our contention that the state-chartered banks stand to gain by the legislation, and that their interests and the interests of the large out-of-state banks diverge on this issue.”

According to Vermonters for a New Economy, the bill is encountering fierce opposition, not from ordinary Vermonters, but mostly from lobbyists for big private banks. When Senate Finance Committee hearings began on March 18, the Finance Committee invited only representatives of big banks to testify concerning the proposal. This led a local paper, the Barre Montpelier Times Argus, to call the bill “politically unpopular” even though a large majority of towns supported it in the town meeting campaign.

A study by Vermonters for a New Economy, the Gund Institute at the University of Vermont, and the Political and Economic Research Institute at the University of Massachusetts states that a public bank would create “over 2,500 jobs” and add hundreds of millions in additional gross state product in the state.

According to the Public Banking Institute, public banks are counter-cyclical, meaning they are “capable of reducing the negative impact of recessions, because public banks can make money available for local governments and businesses precisely when private banks decrease lending.”

ANTHONY POLLINA State Senator in Vermont, Pollina introduced S. 204, the bill that would grant the Vermont Economic Development Authority a banking license and direct 10 percent of the Treasurer’s bank deposits to VEDA for investment in Vermont.


Big Banking Interests Strike Back


Matt Stannard is policy director at Commonomics USA and a researcher at the Public Banking Institute.

Wall Street Doesn’t Want Community Bankers to Know the Truth about Public Banking

After seven years of economic instability caused by irresponsible financial practices, the big banks haven’t learned their lesson, and neither have many policymakers. Legislation enacted at the end of 2014 allows Wall Street banks to hold risky assets (such as interest rate swaps and other derivatives) in the banking unit backstopped by FDIC deposit insurance. This places the U.S. taxpayer on the hook for bailouts when these banks again go under due to derivatives failures. Changes adopted at the end of the year by the Federal Reserve threaten to increase interest rates for municipalities, raising the costs of municipal projects, school funding, roads, bridges, and other public service and infrastructure needs. Big banks continue to wreck our economy.

The people are pushing back. Public banking now occupies legislative agendas and/or local campaigns in Hawaii, Illinois, Arizona, Washington, Colorado, New Mexico, Wisconsin, Illinois, Maine, New Hampshire, Connecticut, and Pennsylvania.

In response to the enthusiastic embrace of public banking in Seattle, Washington, James Haley of the Community Bankers of Washington recently asserted that public banks will compete with community banks. He argued that the Bank of North Dakota, far from being a successful model of a public bank supporting small banks, has committed “mission creep.” Haley even asserted that public banks would support risky financial ventures. These are curiously uninformed arguments. Justin Dullum, in the January 20 Northwest Weekly, transcribed them uncritically and without inviting assessment from other experts. The result was an extremely distorted picture of public banking and no picture at all of what BND does for community banks.

Anyone wishing to get an accurate picture of what, precisely, BND does for community banks ought to listen to this seven-minute audio clip, based on a 2012 roundtable discussion that included Eric Hardmeyer of the Bank of North Dakota, Rick Clayburg of the North Dakota Bankers Association, and Gary Peterson of Lakeside State Bank in North Dakota. Of the 2008 economic meltdown, Clayberg said that the Bank of North Dakota was able to purchase loans from smaller banks, improve their equity, and help them “ride out the economic downturn.” He added that legislative oversight strengthens the scope and effectiveness of BND, and that the legislature authorized BND to assist in post-flooding redevelopment in 2010. He emphasized that the participation of local lenders is a decisive agent of implementation in all of these processes. Gary Peterson was enthusiastic about BND’s role in aiding community banks, calling the parties “true partners.” He said that it would be much more difficult to find loan participants without the backing of BND.

The BND helps, and does not compete against, community banks. During the last decade, banks in North Dakota with less than $1 billion in assets have averaged a stunning 434 percent more small business lending than the national average. Not just more lending, but more productive lending: BND enables community banks to devote more assets to productive lending rather than safe holdings like government securities. This is because the BND enables higher than average loan-to-asset ratios—better than their neighbors, and better than the nation.

North Dakota will also weather the coming decline in community banks (they are failing and closing rapidly, with terrible effects on localities) quite well relative to the rest of the country. The state, which has the most community banks per capita in the U.S., is expected to lose two banks in 2015, compared to the national average of 6.34 per state. This is important when we consider that community banks are the lifeblood of local economies. One commentator calls them the “99 percent,” an apt metaphor even if community bankers don’t always see themselves that way.


Mr. Haley asserts that public banks will become competitors, growing “financially dangerous.” According to the FDIC, 81% of banks in North Dakota are community banks–the highest ratio in the United States. Their partnership mandate, created by the legislature, contemplated Mr. Haley’s concerns, and although there’s a miniscule amount of other depositors, the BND is nearly exclusively a state money bank. Deposits from individual customers make up less than 2% of BND’s total, hardly the “mission creep” to individual depositors contemplated by Mr. Haley. Haley’s claims that the BND “offers checking accounts and loans to everybody” and is a “widely functioning bank” are wild exaggerations. BND backs loans made by community banks, and offers a bland checking account for individual depositors, but does not loan those depositors money, and doesn’t have ATMs or debit cards. Haley’s concern about offering personal services would seem petty even if the BND were a fun place for consumers to bank—but in any case, it isn’t.

Interest payments to big banks bleed dry the institutions upon which we rely for basic services and day-to-day governing. Those banks control the financing of America’s municipalities. Those banks have exhibited no evidence of having reformed after 2008. Regulations are ignored, gamed, or gutted. That’s what the public banking movement is pushing back against.  Another longtime opponent of public banking recently said that it was “a cure worse than the disease.” If we want to use such tired metaphors, the “disease”, here are: a vested profiteering franchise, playing with our national and global survival, while constantly evading regulation, engaging in schemes and scams with legal impunity, and profiting from the crises they create. The Bank of North Dakota has never done anything like those, and future public banks will not do so either, because they will be under direct government control and their mandate will explicitly forbid them engaging in that sort of secret too-big-to-jail “activities” that private banks are infamous for.

It is high time to test our “cure”.  In fact, we already know it works! 

Martin Wolf is widely considered to be one of the world’s most influential writers on economics. He is the associate editor and chief economics commentator at the Financial Times:

“One of these radical ideas was proposed by Martin Wolf in the Financial Times. He suggests stripping private banks of their remarkable power to create money out of thin air. Simply by issuing credit, they spawn between 95% and 97% of the money supply. If the state were to assert a monopoly on money creation [via public central bank, and public banks], government could increase their money supply without increasing debt. Seigniorage (the difference between the cost of producing money and its value) would accrue to the state, adding billions to national coffers. Private commercial banks would be reduced to being servants, not masters, of economy.” —  George Monbiot

Scott Baker and Walt McRee provided valuable assistance in the writing of this article. Any errors, however, are solely my own. 

See:  Benefits for cities and municipalities of a Public Bank


Wall Street Interests Deceive the People about Public Banks

At the beginning of March, responding to the impressive wave of state-level public banking movements in the news, Mark Calabria of the Cato Institute wrote a template that became two different published OpEds. The Denver Post titled Calabria’s piece “Colorado would be wise to reject state-owned banking,” while American Banker titled the piece “Promises of Public Banks Don’t Match Reality.” The wording differs in the two pieces, but the message points are the same. In the course of delivering those points, Mr. Calabria distorts other scholars’ published research, gets some historical anecdotes wrong, and plays on tired old fears of “government control” while glossing over the rampant, widespread corruption of Wall Street banking.

See:  Coverage of HSBC in Britain’s Telegraph is a fraud on its readers

Although ostensibly associated with libertarian thought, Cato really argues in the interests of its supporters, who, in addition to the Koch family, include American Express, Chase Manhattan, CME Group, and Citicorp/Citibank. Mr. Calabria does not disclose Cato’s or his own financial interest in maintaining those corporations’ business, which might well be undercut by the success of both public and community banks. These are not “libertarian” interests in the sense of being genuinely committed to local control or even qualitatively less regulation. These companies know that regulatory systems covering powerful private banks are easier to game, and the rewards are big for those who can play the system. Public banks are regulated too, but their structurally limited power and absolute transparency create substantially fewer incentives for corruption. That Mr. Calabria can’t find any anecdotes of corruption from a currently existing public bank nearing 100 years of age (the Bank of North Dakota) is more informative than his Bill and Ted-style trip through history.

We can extract nine major arguments from Mr. Calabria’s piece:

1. Historically, public banks have failed because of governmental involvement and corruption.

Again, this has not been true in the case of the Bank of North Dakota, which has neither failed nor been subject to corruption. Mr. Calabria attempts to indict the BND for different reasons later, but BND is the most topical example in this discussion, and it isn’t failing and it isn’t corrupt.

As for pre-BND history, Mr. Calabria gets some of it wrong, beginning when he mis-identifies the first known public bank. This isn’t worth slogging through, though; Mr. Calabria is doing little more in his historical treatment than making extremely subjective claims without citations, covering a rather large span of history. It’s impossible to make any generalization about government-involved banking in early American history, because there were so many different ways to do it. In Politics and Banking: Ideas, Public Policy, and the Creation of Financial Institutions, Susan Hoffmann explains:

Between the two extremes of mostly private commercial banks and almost entirely public state central banks there existed just about every arrangement imaginable. The state shared in ownership of some banks but not in governance (beyond specifying the banks’ constitutions). When the state was involved in a bank’s governance, its representation on the board of directors ranged from minimal to a majority plus public selection of the president. The capital of state banks consisted of various combinations of specie, mortgages on land and slaves, and bonds issued by the chartering state, other states, or the United States.

Readers are urged to read Ellen Brown’s The Public Bank Solution for a historical treatment of public banks dating from 3,000 BC to the present. Ms. Brown’s treatment doesn’t sugarcoat the problems some public banks had. But placing those problems next to the problems created by too-big-to-fail banks will give readers a sense of perspective.

2. The failure of the Vermont public bank of 1806 is an indictment of public banks.

Jim Hogue’s excellent analysis of the Vermont State Bank reveals, yet again, that Mr. Calabria’s analysis is selective and oversimplified. Profits at the VSB were $11,000 in 1808, $22,000 in 1809, $33,000 in 1810, and $44,000 in 1811. Governor Galusha, who had initially opposed the bank, admitted that “the establishment of a public bank in this state has saved many of our citizens from great losses, and probably some from total ruin.” Private corrupt financial interests ended up undermining and discrediting the bank, apparently on purpose.  Vermont-based journalist Ken Picard calls the closure of the State Bank “inexplicable,” pointing out, as does Hogue, that the bank was profitable and enjoyed widespread political support. Hogue’s most important conclusion is that the reasons for both the creation and the ultimate demise of the Vermont State Bank underscore the need for banking to be a public utility instead of a private business.

3. Fannie Mae and Freddie Mac illustrate the failure of government involvement in banking.

Fannie Mae and Freddie Mac had little to do with the housing bubble of the late 2000s; Wall Street capitalists peddled their high-risk subprime schemes beyond the Freddie and Fannie system, and it was private-label securities rather than anything done by Fannie and Freddie that led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission. Fannie and Freddie indeed failed due to bad business decisions, but there is no connection between those decisions and the kinds of mandates that would be contained in a public banking charter; Mr. Calabria doesn’t even assert that any such similarities exist. One recurring conclusion readers can’t help but make as they compare Cato’s work to PBI’s is that both public and private institutions can get it right, or not get it right. The public banking movement seeks to create public financial institutions that responsibly support community-oriented private ones.

4. The German Landesbanken carried the bulk of losses related to the 2008 subprime crisis.

Arguing that the German Landesbanken were responsible for subprime crisis losses ignores the pressure the big banks exerted on  the German public banks to accept risky securities and debt obligations. In any case, BND and German banks still weathered the Great Recession better than their private counterparts. Evidence much more recent than what Mr. Calabria relies upon concludes that the Landesbanken have been, and continue to be, highly successful public banks. Germany has 11 regional public banks (Landesbanken) and several municipal public banks for consumers (Sparkassen). We’ll discuss Sparkassen a bit later. Concerning Landesbanken, Ellen Brown explained in 2012:

Germany and Japan are export powerhouses, in second and third place globally for net exports. (The U.S. trails at 192nd.) One competitive advantage for both of these countries is that their companies have ready access to low-cost funding from cooperatively owned banks.

In Germany, about half the total assets of the banking system are in the public sector, while another substantial chunk is in cooperative savings banks. Germany’s strong public banking system includes 11 regional public banks (Landesbanken) and thousands of municipally owned savings banks (Sparkassen). After the Second World War, it was the publicly owned Landesbanks that helped family-run provincial companies get a foothold in world markets. The Landesbanks are key tools of German industrial policy, specializing in loans to the Mittelstand, the small-to-medium size businesses that drive the country’s export engine.

Because of the Landesbanks, small firms in Germany have as much access to capital as large firms. Workers in the small business sector earn the same wages as those in big corporations, have the same skills and training, and are just as productive. In January 2011, the net value of Germany’s exports over its imports was 7 percent of GDP, the highest of any nation. But it hasn’t had to outsource its labor force to get that result. The average hourly compensation (wages plus benefits) of German manufacturing workers is $48—a full 50 percent more than the $32 hourly average for their American counterparts.

5. The Bank of North Dakota’s record is tarnished by its connection with fossil fuels.

This is a curious non sequitur. If Mr. Calabria intends to imply that the BND’s success hinges on the oil boom, Ellen Brown convincingly refuted that assumption in 2011 and again in 2014 (“the BND’s return on equity was up to 23.4% in 2009 – substantially higher than in any of the years of the oil boom that began in 2010”); if anything, the causal arrow goes in the other direction. If it’s a swipe at BND and North Dakota for propping up fossil fuels, that’s a curious argument considering that public banks could efficiently and quickly fund a transition to renewable energy. Under either interpretation, the success of the BND is in no way undercut by its support for North Dakota’s extraction infrastructure. Most of us at PBI (and we guess most of you) want a post-carbon economy. Public banks are a key way to get there.

6. North Dakota would have received more interest on its deposits with private banks.

Profitability from high interest is precisely what we are fighting against when the projects or businesses being financed are essential for the public good, and produce long-term growth that far exceeds the value of a bank’s short-term profits. Mr. Calabria also fails to mention the dividends BND annually pays into the state, the benefits of BND’s disaster relief and emergency programs, or their ability to quickly create the infrastructure that facilitated North Dakota’s oil boom.

For points 7 and 8 below, Mr. Calabria relies on a couple of studies that he says indict public banks. The problem is that the authors of the studies are explicit in defining “government” banks as quite distinct entities, definitions so specialized that the Harvard study doesn’t even include the Bank of North Dakota in its analysis—because the BND isn’t the kind of bank its authors are studying.  Indicting the Bank of North Dakota by using aggregated descriptions of “government banks” that, by definition, exclude the Bank of North Dakota is, to put it bluntly, intellectually dishonest.

7. Research concludes that “higher government ownership of banks is associated with slower subsequent development of the financial system.”

This is Calabria’s citation of the Harvard study, which is from 2002 and uses data from 1960-1995, long before 2008 and the collapse and bailout of the big banks, and also before the recent peak years of the BND’s performance. It is vital that readers wanting to compare research read the actual study, because it’s clear that it makes very few conclusions relevant to a discussion of whether states, cities, and counties should set up BND-style banks. In fact, because of the way the authors define “government-owned banks,” the study lists the United States as having no such banks—the BND is not listed. “We do not include Central Banks, Postal Banks (which generally do not lend money to firms and are described as nonbanking institutions), investment banks, other specialized financial intermediaries (trust companies, home loan banks) or worldwide development banks such as the World Bank,” the authors explain. This research doesn’t apply to the BND or the type of banks PBI and its allies envision.

8. Research concludes that “political interference with bank lending decisions generally results in worse economic outcomes.”

This is Calabria’s representation of a paper by Taiwanese professor of finance Chih-Yung Lin, of the National University of Taiwan, “Why Do Government Banks Perform Worse? A Political Interference View.” That paper’s author sets out to examine why government-owned (not BND-style) banks fail in developing countries, and the author clarifies that “government banks in developed countries escape relatively unscathed while those in developing countries suffer significantly.” The data supporting the general conclusion that “government banks” perform worse comes from “71 emerging economies.” The author repeatedly reminds readers that this is not true in developed countries. Again, in this study, a “government-owned bank” is not a BND-style public bank, but rather any bank where the government has a shareholding exceeding 20% of total shares.

Even if the data were applicable, the author is more open about his value assumptions than Calabria is. Chih-Yung Lin cites explanations such as “government banks are designed to maximize social welfare rather than profit,” according to the social agency view.  The research includes anecdotal factors such as the replacement of bank executives following presidential elections. The actual conclusion of the paper is that political interference, in the form of ideology-driven or party-driven replacement of bank personnel, undermines the financial performance of public banks. Of course, there is no evidence that the BND suffers from political interference with its decisions. Charters and legislation prevent such problems.

9. “Government-owned banks also tend to under-price risk in order to appeal to voters.”

There is no contemporary or definitive evidence of this. The administrators of the BND would have no reason to do so. Nobody’s job depends on the outcome of a single election, and nobody’s political career in North Dakota would be made or broken because of BND.

Mr. Calabria’s research is old, does not account for too-big-to-jail banks, doesn’t apply to the Bank of North Dakota’s century of success, distorts the research of others, and hastily reasons from insufficient and inapplicable examples. More recent research consistently reaches optimistic conclusions about publicly-owned banks. To use just one example, Ellen Brown’s 2015 compilation of research on Sparkassen is devastating to Cato’s arguments:

In January 2015, the SPFIC published a report drawn from Bundesbank data, showing that the Sparkassen not only have a return on capital that is several times greater than for the German private banking sector, but that they pay substantially more to local and federal governments in taxes. That makes them triply profitable: as revenue-generating assets for their government owners, as lucrative sources of taxes, and as a stable funding mechanism for small and medium-sized businesses (a funding mechanism sorely lacking in the US today).

Brown continues: “Swiss public banks, too, have been shown to be more profitable than their private counterparts” (citing yet another study). This research review is newer and more comprehensive. She cites Professor Kurt Von Mettenheim, who concluded in 2011 that public savings, cooperative, and public development banks outperform for-profit banks. Brown also points out the subjectivity of performance criteria: Western politicians call unpaid loans to public entities deficits, while China views the spending as productive. This is especially important when considering public projects or paying for policy implementation. Low-interest loans “produce more public policy for less cash,” according to Mettenheim and Olivier Butzbach.

Stakeholders have different values than shareholders. Even if Calabria were reasoning correctly from his research (and we don’t think he is), he is reasoning from different fundamental values and definitions than we are.

Several people assisted in the writing of this article. Thanks to Scott Baker, Marc Armstrong, Ellen Brown, Walt McRee, Earl Staelin, and Douglas Alde. Any errors, however, are solely my own. 





Exposing what lies beneath the bodies of dead bankers and what lies ahead for us:




US blows through $18 TRILLION debt limit



Bill C-51 and the corporate state

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Protests were held in communities across Canada to protest Bill C-51, a bill that would increase powers for CSIS.

Journalist and author Chris Hedges has spent much of his career working as a foreign correspondent in war zones across the globe, and has written extensively on the surveillance state and world conflict. The journalist and writer was scheduled to speak at the Toronto protest on Saturday. His plane was forced to land in Windsor due to heavy fog and so he was unable to attend the Toronto protest.‘s H.G. Watson was able to catch up with him by phone on Saturday to find out why he was travelling to Canada to join the Day of Action Against Bill C-51. This interview has been edited and condensed. 


Why did you want to travel all the way to Toronto to be a part of the protests against Bill C-51?

Chris Hedges: I’ve been fighting you know the [erosion] of civil liberties in the United States for a long time. I sued president Obama over section 1021 of the National Defence Authorization Act, which permits the U.S. military overturning over 150 years of law to carry out domestic policing on American city streets, to seize American citizens who “substantially support” the Taliban, Al Qaeda or something called associated forces — another kind of nebulous phrase — strip them of due process and hold them indefinitely in military facilities.

I was also part of the lawsuit that worked its way up to the Supreme Court on warrantless wire-tapping. I covered the Stasi state in East Germany, I spent 20 years in some of the most despotic regimes around the globe as a foreign correspondent for The New York Times and I think because of that, understand that this is not the kind of power that you ever want to give to a government.

We can’t talk about free citizens in the state where everyone has all of their electronic forms of communication not only monitored, but stored in perpetuity in government computers. It doesn’t matter if they’re not using it. History has shown that if the government feels threatened or they seek greater control — and I think that is the trajectory of the corporate state — they will use it. The goal of wholesale surveillance, and something that Hannah Arendt wrote about in The Origins of Totalitarianism, is not to discover crimes but to give information to the government that it can use if it decides to arrest a certain category of the population. I think this is extremely grave.

What I find disturbing is that although the revelations of Edward Snowden are known, we’re not reacting. We don’t understand the danger that’s in front of it, when you talk about a population that is watched and tracked 24 hours a day. The relationship between a population that is monitored on that level and knows that [the government watches] them is a relationship between masters and slaves — you can’t even use the word liberty anymore and we’re already at that point.

I want to go back to the point you mentioned, that we’re not reacting. Why do you think that is?

People are politically passive because they have kind of given up on the system. That’s certainly true — more true — in the United States where Congress has a nine per cent approval rating. Only 38 per cent of the population even bothers to cast a ballot anymore. I think the other thing is that they don’t quite understand how incredibly dangerous handing any government this kind of power is.

So I think it’s those two factors, coupled with the fact [that] our mass radical movements — more so again in the United States, but Canada is not immune to this — have been largely broken. Labour unions are under assault, and I find that frightening.

That’s why I was willing to fly up here because if we don’t react in a sustained way then we will see cemented into place one of the most frightening dystopias in human history — something that dwarfs anything ever dreamed of by the communist Stasi state in East Germany.

In terms of this particular bill, do you think that this fits into a wider trend of similar legislation in the western world?

Of course it fits into a wider trend — not only into the western world but in Canada. Canadians are monitored as closely as U.S. citizens are as closely as British citizens or any other. This is a global phenomenon and the corporate state — and Harper is representative of the corporate power and the corporate state — seeks this kind of control because they know what is coming with climate change and the inevitable financial collapse that is looming now that global speculators are back on a spree as they were before 2008. With a flick of a switch essentially we have both the legal and physical mechanisms through the creation of massive security forces — militarized police forces — to in essence declare a militarized state both in Canada and the United States. Or should we have another catastrophic act of domestic terrorism anything like that, all the mechanisms are there… we have to fight it now.

So do you think that this bill will actually will do anything towards its stated goal of combatting terrorism?

None of these bills are about terrorism. Terrorism is the excuse. That’s what 9/11 was and that’s what this gunman who carried out this attack on Parliament Hill — they seize on that the same way, for instance, the Nazi party seized on the Reichstag fire to strip away civil liberties in Germany. What people forget is that the next day, after the Nazis essentially eviscerated all civil liberties for the German population, everything appeared normal. Everyone went to work; came home; had dinner. They had ceded to themselves this kind of power in the name of fighting terrorism.

But for most people there’s a kind of normalcy and they don’t quite yet understand what a sea change this has been, and how dramatic this change is, and of course how terrifying it is. Totalitarian systems, they creep forward because they have to break any kind of obstacles or opposition that lie in their path. By the time people grasp what has happened to them, its kind of too late. There are no mechanisms left by which they can fight back. That’s kind of where we’re headed; that’s what is going on.

In what ways can we combat this kind of surveillance?

Well I’ve spent a lot of time with Julian Assange, who believes in encryption up to a point. Even Assange says finally the best encryptors — and he is one of them — will finally not be able to keep channels of privacy open. So he’s kind of optimistic in the short term but not in the long term.

I don’t encrypt. Rather than trying to build a parallel encryption mechanism I think what we have to do is carry out sustained and long term acts of civil disobedience in order to try and force the state to back down. I think that’s the only hope we have left. I think that we have to build radical mass movements and radical alternatives. Political parties I don’t trust. I see with the Democrats, they will, under the bush administration, decry the assault on civil liberties, but Obama’s assault on civil liberties has been far more egregious than that carried out by Bush. I don’t think the traditional political establishment has any intention — I can’t speak for Canada, I’m not Canadian, but that is certainly true in the United States that neither the Republican nor the Democrats have any intention of rolling any of this back

You’ve written a little bit about radicalization and how it really stems from alienation from society. Do you think Bill C-51 that can contribute to radicalization in Canada?

Of course it does because what you do is you target a certain segment of the population and Muslims have already been targeted in the United States and Canada for harassment and abuse and discrimination even though they haven’t done anything. This breeds a kind of rage, especially among the young who feel caught between two cultures already and then feel alienated from two cultures. This feeds into exactly the propaganda that jihadists hand out, which is why you have roughly 20,000 foreign fighters with ISIS, 3,000 or 4,000 of them from Europe and Canada.

What would you propose as a way of them making sure people don’t feel like they are alienated or isolated?

Don’t take away their rights. Don’t take away their right to privacy; don’t take away their right to dissent.

Don’t take away — you know, a functioning democracy is a mechanism by which reform: incremental and peaceful reform can be carried out. When you [shut down] that mechanism you inevitably radicalize, especially your disenfranchised.

You know, if we don’t win this fight, then we are going to cement into place a species of corporate totalitarianism which will usher in a dystopia of terrifying proportions.

Chris Hedges has written twelve books. His column is published Mondays on:

H.G. Watson is a multimedia journalist currently based in Toronto. She was‘s labour intern for 2013-14, and now works at Daily Xtra. 


Edward Snowden leaks reveal Canada spy agency’s ‘deception toolbox’


8 things you need to know about Bill C-51

By Alyssa Stryker, BCCLA Caseworker, and Carmen Cheung, BCCLA Senior Counsel

At over 60 pages, Bill C-51 – the Anti-Terrorism Act – is both literally and figuratively a heavy read. It proposes a myriad of radical changes to Canadian law and to Canada’s national security apparatus, many of which seriously jeopardize the rights and freedoms of Canadians while promising little improvement to public safety. Lawyers at the BC Civil Liberties Association have gone over the bill paragraph by paragraph, and we’ve outlined the parts of this massive document that concern us most. For a more comprehensive explanation of our concerns, read ourSubmission to the Standing Committee on Public Safety and National Security.


Legal Observer on Burnaby MountainWhen you think of being secure, you likely think of being safe from physical danger. But Bill C-51 defines security as not only safeguarding public safety, but also preventing interference with various aspects of public life or ‘the economic or financial stability of Canada’. With this definition, a demonstration in favour of Quebec separatism that fails to procure the proper permit, environmentalists obstructing a pipeline route or a peaceful blockade of a logging road by an Indigenous community could all be seen as threats to national security.


Bill C-51 gives the government the ability to designate an extraordinarily broad range of activities as potential security threats. They claim that they will use good judgment when deciding which individuals and groups constitute ‘true’ threats. But this discretionary power just means that whether or not a particular group is seen as a threat may turn on whether their cause is politically popular and in line with the views of the government of the day.


The Criminal Code already makes it illegal to counsel anyone to commit a terrorism offence and to instruct or facilitate terrorist acts. But Bill C-51 wants to create an additional offence called ‘advocating or promoting terrorism.’ It would criminalize speech in support of ‘terrorism offences in general,’ and includes no requirement that the speaker actually intends for a terrorism offence to be committed. Indeed, there’s no requirement that a terrorism offence even take place.


It’s unclear even to experts exactly what kinds of speech and protest activity may be considered threats to national security if the bill passes; the average Canadian has little hope of feeling confident that their legitimate political activity hasn’t inadvertently crossed the line. Bill C-51’s expansive language means that Canadians will likely choose not to express themselves even in completely legal ways rather than risk prosecution. Legitimate speech will be chilled, and our democracy will be worse off for it.


Canada’s Passenger AirplaneProtect Program – better known as the no-fly list – is already riddled with problems; Bill C-51 would make it even worse. It would make it illegal for the government or an airline to confirm or deny that an individual is on the list, even to the affected individual. Someone who believes that they may have been listed would not be entitled to access any of the evidence on which their suspected listing was based. If they were successful in initiating a judicial review of the listing decision, the hearings may happen in secret.


The proposed Security of Canada Information Sharing Act (part of Bill C-51) would allow government institutions – including non-security-related institutions like Health Canada and the CRA – to share information amongst themselves without a warrant if they believe that the information may be relevant to national security. Given that no one wants to be seen as responsible in case of a security breach, the default will be to share as much information as possible. Massive information sharing does not mean better security. Not only does this jeopardize the privacy of the individuals whose information is being shared, but it may actually make it harder for investigators to detect real security threats: when looking for a needle in a haystack, it hardly helps to add more hay.


CellCurrently the Criminal Code permits the police to arrest, detain and impose restrictions (such as a curfew or travel ban) on someone who has never been (and may never be) charged with a crime if they have good reasons to believe that a terrorist activity will be carried out if these actions aren’t taken. Bill C-51 would lower the threshold for these actions to situations where the police believe that a terrorist activity might be carried out. It also doubles the amount of time an individual can be detained without charge. Innocent people could be arrested and detained on mere suspicion of future dangerousness.


Bill C-51 would radically redefine the role of CSIS to include the ability to act on – rather than merely to collect – security intelligence. This ignores the lessons of history. The 1960s and 1970s saw serious rights abuses undertaken by the RCMP under its ‘security intelligence’ mandate. CSIS was created in the 1980s for the express purpose of separating Canada’s intelligence agency from its police force. As an intelligence agency, CSIS is permitted to conduct much of its work in secret, and the details of most of its activities are never revealed publically. But that’s precisely why CSIS should not be permitted to also operate as a police force: this secrecy means that rights violations by CSIS are more difficult to detect – and once detected, more difficult to remedy – than if they were the result of actions undertaken by law enforcement agencies.

Austerity is a Lie

By Pamela Powers Hannley, Director of the Arizona Public Banking Coalition

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Austerity is a lie.

We have plenty of money.

The problem is that it is being gambled on Wall Street, instead of being invested on Main Street.

That is the message of public banking.

The State of Arizona– and 48 other states– allow billions of  dollars in taxpayer funds to be invested for the benefit of Bank of America, JP Morgan CHASE, Wells Fargo, and other Wall Street banks who our hold rainy day funds. Shareholders in those “too-big-to-fail” banks make money on OUR money, while we are told to “tighten our belts”. The only state whose economy didn’t crash in 2008-09 was North Dakota because the State of North Dakota created a public bank in 1919 and invests its money at home, rather than allowing Wall Street to invest ND funds for the benefit of Wall Street shareholders. Forty percent of the world’s banks are public banks, but there is only one in the US because our country and our government are controlled by Wall Street.

Public banking advocates across the country are working on state and municipal public banking initiatives. Public banking initiatives have been proposed by both Republicans and Democrats in multiple sessions of the Arizona Legislature. This year, there are multiple bills addressing public banking and/or the health of community banks in Arizona.

The most promising bill is SB1395, proposed by Southern Arizona Senator Andrea Dalessandro, a long-term public banking advocate which would establish a task force to study the feasibility of establishing a state bank of Arizona. SB1395 will be heard by the Senate’s Financial Institutions Committee on Wednesday, February 18, 2015.

Three members of the committee are strong public banking supporters: Committee Chair Senator David Farnsworth (R) and Senator Steve Farley (D). Yes– this has support from both sides of the aisle.

Farley, Farnsworth and other Democrats and Republicans also have sponsored several pieces of legislation this session that would look at public banking issues.

  • SB1337 would establish a system of monitoring the health of community banks. (Community banks are failing in Arizona. If they are allowed to dry up and blow away, we’ll really be at the mercy of Wall Street.)
  • SB1076 would establish a teacher-student loan program. (The Arizonans for a New Economy emphasizes that public banking can help people with debt relief and low-cost student loans.)
  • SB1338 and SB1336 relax banking fees and the regulations for establishing a bank in Arizona. (These would make it easier to establish a “bank”, but hopefully these would not lead the way to more risky/expensive loan operations like the payday loans or the title loans. Arizonans for a New Economy supports making affordable credit more available for local, small businesses, entrepreneurs, students, and farmers, BUT we don’t support predatory lending by payday loan businesses.)

Public Banking the the Arizona House

On the House side, Representative Juan Jose Mendez has proposed HB2270 to establish a state bank. Although, establishment of a state bank is the goal of Arizonans for a New Economy, we see several problems with HB2270.

  • HB2270 is too much too soon. SB1395 (establishing a state bank feasibility study) is a good first step because it outlines the needs of the state and establishes background date. SB1337 is also good because it monitors the health of community banks. These two Senate bills study the problem before jumping in.
  • There are serious governance issues with SB2270. When Arizonans for a New Economy presents around the state, one of the first questions from the audience is: Who manages this bank? Most people DON’T want the Arizona Legislature or the governor to run the bank (probably a good idea given the dismal fiscal performance and huge debt our state has). SB2270 hands the reigns of the “Bank of Arizona” over to the politicians. Professional bankers should run the state banks– not politicians.
  • The state bank established by HB2270 would end in 10 years. What’s up with that? The Bank of North Dakota has been supporting businesses, community banks, and the people of North Dakota since 1919. Automatically sunsetting a good idea is a bad idea.
  • The Bank of North Dakota has helped that sparsely-populated, rural state thrive because its charter dictates that investments should be made for the public good. HB2270 give no such guidance to the Bank of Arizona. Arizonans for a New Economy advocates for banking in the public interest. Allowing politicians to control the bank and not specifically declaring that the bank should invest for the public good are two major flaws of HB2270; Arizonans for a New Economy does not support this bill.

It’s exciting that both Republicans and Democrats in the Arizona Legislature are are considering public banking as a non-partisan economic solution to raise revenue without raising taxes.


Money out of thin air!

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Dr. James Stanford is one of Canada’s best-known economists. He works for the Canadian Auto Workers union, Canada’s largest private sector trade union, and writes a regular economics column for the Globe and Mail. He speaks regularly to the media on current economic issues, and to audiences of unions, community activists, and others concerned with building a more democratic, critical approach to economics. He received his Master’s degree in Economics from Cambridge University, U.K., and his Ph.D. from the New School for Social Research in New York City. He was the founding chairperson of the Progressive Economics Forum, Canada’s network of progressive economists. His previous book, Paper Boom, was well-reviewed as an accessible critique of the wasteful practices of the financial industry. 


What do banks actually do?

They conjure money out of thin air! 

Were Canadian banks bailed-out?  Absolutely, to the tune of $200 billion.  And they are still protected and subsidized more than any other sector of the economy.

What must be done with these banks?  Tax them, control them, and ultimately take them back.

Those are the “take-aways” from a short talk on the banking system that I was honoured to give as part of an Occupy Toronto rally at the corner of King and Bay in downtown Toronto. Several folks have asked for the written version of my speech, which is posted below. I free-styled it in places, so there are differences between the written speech and the video (as they say, “check against delivery”!)



Well, here we are on Bay Street again, amidst all these gleaming towers, and all this luxury, and power, and affluence.

And what an amazing community we have formed here.

On behalf of the CAW and the CCPA, let me begin by thanking all of you for what you are doing.  What you are building.  The political and moral space you have opened up through the Occupy movement these past few weeks.

There’s no better place than right here to talk about what’s gone so terribly wrong in our society.  About the enormous and immoral contrast between what we see here on Bay Street, and what things are like where most Canadians – the 99% of Canadians – live and work.  Down on Main Street.

You already know that, that’s why you’re here.  All this nonsense I’ve heard in the last two weeks about the Occupiers being naïve and confused, is so wrong.  I have a Ph.D. in economics, and I can assure you that the people in this crowd today know more about economics – more about real economics – than all the stock brokers in these tall towers put together.

You know about work.  About production.  About sharing.  And about sustaining.

They stand around throwing darts at the dartboard, to pick the next stock they’re going to buy.  Proving every day that while government may or may not be able to pick winners, they can’t be any worse at it than the stock market is!

Work.  Production.  Sharing.  Sustaining.  That’s the basis of real economics, the real job of improving living standards and protecting the environment.

Not throwing darts.  Not rolling dice.  Not placing bets.

I often think about what goes on inside these towers.  The plush offices, the oak paneling, the fine art on the walls, the private dining areas, the clubs and bars.

Not everyone down here works like that, of course.  Most of the real work is done by hard-working office workers, who work hard for not much money.

But the ones who call the shots down here, and call the shots for our whole economy, they do very well.  Every now and then I get to step inside one of those towers, in the course of my job.  Into one of those investment banks.  Those private dining areas.  Those boardroooms.

The meals, the furnishings.  And of course the compensation.  Immoral, offensive compensation.  All of it tax-deductible.

Then I compare all that to the generally shoddy state of public institutions and facilities in this city.  Like the rec centre in my neighbourhood, out in Parkdale.  Or the public schools where my kids go to school.  Fine, wonderful schools.  But underfunded and dingy, to be sure.

Rob Ford said he went to City Hall to stop the gravy train.  When I compare public institutions in this city, to these towers here on Bay Street, I know that Rob Ford missed his target by about 3 blocks.  He was 3 blocks too far north.

Want to stop the gravy train, Rob Ford?  Come down here to stop the gravy train!  A gravy train that’s funded with the proceeds of what, ultimately, is just gambling.

Ever since the Occupy movement came to Canada – even before that, actually – there’s been an enormous myth propagated that these guys here on Bay Street – the Canadian banks – did nothing wrong.

Our banks are strong and safe, they say.  They were prudent.  And they weren’t bailed out.

They pat us on the head, and they say: “Go to Wall Street to have your little protest.  But don’t bother protesting here.  Because we didn’t do anything wrong.”

Well that’s simply a lie.  It’s a bald-faced, empirically refutable lie.

In the first place, Canadian banks were bailed out – and in a big way.  Check the record:

At the end of 2008, and the beginning of 2009, Finance Minister Jim Flaherty and other federal officials moved heaven and earth to help Canada’s banks.  Flaherty implemented a new program called the Extraordinary Financing Framework.  Or “EFF” for short.

You know, I could think of another meaning for the acronym “EFF.”  Elitist Friggin’ Financiers!  That’s the real EFF.

It consisted of many different ways to help the banks – these powerful, prudent banks – during their hour of need.

Buying back mortgages in order to inject cash into the banks’ coffers.  Providing huge loans, at near-zero interest rates, from the Bank of Canada, when commercial lenders wouldn’t dare.  Providing other lines of credit, including in U.S. dollars.  And backing the whole thing up with very weird forms of collateral – or sometimes with no collateral at all.

For example, the Bank of Canada was willing to accept asset-backed commercial paper, or ABCP, from the banks to back up some of these emergency loans.

Remember the ABCP debacle in Canada?  That sophisticated, but highly unstable market totally froze up in Canada, even before the global meltdown.

If you owned ABCP as an individual, you couldn’t spend it.  It was just paper in your pocket.  But the banks held ABCP, and they were able to convert it into cold hard cash, courtesy of the Bank of Canada, when they needed it.

In total, various federal agencies offered the banks up to $200 billion in cash and short term ultra-low-interest loans, at a point in time when the banks could not attain this financing from normal commercial sources because of the global crisis.

They needed it.  They got it.  It was a bail-out, pure and simple.

It was a smart thing to do.  The banks have paid the money back, with interest in some cases.  (Not much interest, since the interest rates were near zero.)

But that doesn’t mean it wasn’t a bail out.

So for the banks and their executives to lecture Canadians, and our governments, about the need to be prudent and fiscally responsible and tighten our belts, is the most offensive thing we could possibly hear.

If it weren’t for Canadian governments and taxpayers, they would quite possibly be out of business.

We’re in this together.  Let’s start acting that way!

So the banks were bailed out, pure and simple.  And moreover, they continue to be coddled and protected and subsidized by the state.  Our government is indeed a “nanny state,” where high finance is concerned.

They are protected against foreign takeovers.

Tell me, if we can protect our banks against foreign takeovers, why can’t we protect our land, and our resources, and our factories, and our jobs against foreign takeovers?  Why is it protectionist to protect people, but not protectionist to protect banks?

They are protected against crises of confidence by an extensive public deposit guarantee system, and a public mortgage insurance program that eliminates most of the risk of their lending.

And they receive enormous subsidies delivered through Canada’s distorted tax system.

Here’s just one example.  Capital gains taxation.  If you make money by buying and selling an asset, your speculative profit is called a “capital gain.”

In Canada, you only have to declare half your capital gains income on your tax return.  It’s called “partial inclusion.”

If you flip hamburgers in a hot, greasy fast food restaurant all day, you have to declare every penny of your hard-earned income on your tax return.

But if you flip stocks and bonds all day in one of these towers, you only declare half.

That’s immoral.  It’s inefficient: because it encourages gambling over real production.  But most of all it’s offensive, when these subsidized fat-cats lecture the rest of us about tightening our belts.

Same goes for across-the-board corporate tax cuts.  The federal CIT rate has been cut almost in half since 2000, from 29% to 15%.  Tell me, have any of you had your tax rates cut in half since 2000?  I didn’t think so.

But these banks have.

Those cumulative tax cuts (along with provincial rate cuts) have saved the financial sector over $10 billion per year.  Just the new tax cuts that the Harper government implemented since 2006 alone (cutting the federal rate from 21% to 15%), put another $3 billion per year into the pockets of the banks.

Tell me, looking around Canada today, and all the problems we face.  Is further enhancing the after-tax profits of the financial industry, really the top priority?  Really the most important thing for Canada to spend $3 billion on per year?

Of course not.  But in our society, it’s not priority that determines where money is spent.  It’s power. So banks are protected and subsidized, and bailed out when needed.

But what do banks actually do, in return for all that money? What is their actual economic function? Let’s cut through the mystification of high finance, and ask that simple question:  What do banks do?  What do bankers actually produce? The practical answer, in concrete terms, is simple: nothing. They produce nothing! 

In that, the banks are different from the real economy, where hard-working people like you and I produce actual, concrete goods and services that are useful.

Banks, and the financial sector more generally, don’t produce goods and services that are useful in their own right.  They produce paper.  And then they buy and sell paper, for a profit.

Here’s a little economic lesson.  You can’t live off paper.  You need food, clothing, and shelter to survive – not paper.  And since we are human beings, not animals, we need more:  we need education, and culture, and recreation, and entertainment, and security, and meaning.  Those are the fundamentals of economic life.  Not paper.

What is paper actually good for?  You can wallpaper your house with it.  You can line your birdcage with it.  In a pinch, you can wipe your ass with it.

But other than that, paper is just paper.  It is not concretely useful in its own right.

How do banks create that paper?  Let me put it bluntly again:  They create it out of thin air. It is not an economic exaggeration to state that the private banking system has the power to create money out of thin air.

But most money in our economy – over 95% of money in our economy – is not currency.  Most money consists of entries in electronic accounts.  Savings accounts.  Chequing accounts.  Lines of credit.  Credit card balances.  Investment accounts.

In that electronic system, new money is created, not by printing currency, but through creating credit.  Every time a bank issues someone a new loan, they are creating new money.

It’s like a big magic machine, creating money out of thin air.  And it’s called the private credit system.

One of my favourite economists, John Kenneth Galbraith, put it this way:  “The process by which private banks create money is so simple that the mind is repelled.”

How do they do it?  They start out with some capital.  Let’s say a billion dollars.  Then they lend it out.  Then they lend it out again.  And again.  And again and again, 10 or 20 or 50 times over.

Each new loan, is new money.  The economy needs that money, let’s be clear.  Without new money, we wouldn’t be able to pay for the stuff we make.  So we’d stop making it, and we’d be in a depression.

So the creation of new money (or credit) is an essential function for the whole economy.  It’s like a utility.  But we’ve outsourced that crucial task to private banks.  We’ve given them a legal license to print money – and the freedom and power to do it on their own terms.

Their goal is not providing the economy with a sensible, sustainable supply of the credit we need.  Their goal is using their unique power to create money out of thin air, to maximize the profits of the banks, and the wealth of the shareholders.

How does this system work, creating money out of thin air?  It only works if:

  • Not everyone comes to the bank to withdraw all this imaginary money, in the form of real cash, at the same time.  And if…
  • The banks keep lending to each other, which is essential to make sure each one has the cash it needs for withdrawals.

We can immediately see that this system is inherently fragile.  Banks create new loans many times larger than their capital, profiting off the interest they earn.  But the money was created out of thin air.  It’s not actually there, if people want it at the same time, and if the banks won’t help each other out.

So Canada’s banks are fragile, too.  True, our banks only lent their capital out 20 times over, not 50 times like the Europeans did.  That’s because Canadian regulations capped the leverage at 20.  But they’ve still got 20 times more loans out there, than they actually have money in the bank.

Confidence is essential to the stability of the whole system.  But confidence is intangible and impossible to predict.  If confidence went south, Canadian banks would collapse as surely as Lehman Brothers or Dexia did.

Now, what do the banks do with all that money they created out of thin air?  They lend it out.  Some of it flows into the real economy, to pay for homes and cars and capital equipment.  But not enough goes there.  That’s why our real economy is stuck.  That’s why there are 2 million Canadians unemployed, official and unofficial.

What about the money that doesn’t flow into the real economy?  Unfortunately, the banks use enormous amounts of it to place bets, enormous bets, buying and selling the paper assets that are created and traded in these towers.  It’s gambling, not production.  It’s legalized, subsidized gambling, all protected by the state.

The interaction of the private credit system, together with the speculative motive, that creates such turmoil and destruction, with each successive financial bubble.  Without massive injections of new credit, the asset bubble could never expand so far – whether it’s sub-prime derivatives, dot-com stocks, or rare earth futures.

If speculators had to spend their own money on these asset bubbles, the prices could never rise to such precarious and destructive levels.

Now, there are two key problems with the operation of this private credit system, and its interaction with speculation, that we must understand in order to fight for change.

First, the flow of credit – created out of thin air by these banks – is like a roller-coaster, all depending on the mood swings of the bankers.

When their greed overwhelms their fear, they will lend to anyone with a pulse.  But when their fear overwhelms their greed, and they want to hoard every penny possible against the feared run on the bank, they pull back loans even from their most reliable customers.

This roller-coaster, called the “bankers’ cycle,” is an inherent and destabilizing feature of the private credit system.  And since the whole economy depends on the flow of new money, the flow of new credit, we are forced to follow the same roller-coaster.

The second problem is that there’s nothing underpinning the paper valuations of financial assets, when they’ve been pumped up by the combination of speculation and irresponsible credit creation.

Then, when speculators’ moods switch polarities, the whole thing comes crashing down.  Quoting Galbraith again, “A popped balloon never deflates in an orderly manner.”

And then we all pay the price for a crisis we didn’t cause.  And we all suffer the hangover from a party we weren’t invited to.

This cycle of paper expansion and contraction, euphoria and panic, is hard-wired into the DNA of the deregulated private financial system.  The cycle has happened before.  And it will happen again.  The current crisis was no unfortunate accident, no “perfect storm.”  This crisis is simply par for the course, for a system that values speculation over production – and that gives the private credit system free reign to throw gasoline on the fire, through unlimited, unregulated credit creation.

It will happen again and again, until we change the rules of this pointless, destructive game.

So what do we do?

First, tax them That’s the idea behind the Robin Hood Tax, that we are fighting for today.  Make them pay a little bit, with every pointless, unproductive transaction, to help clean up the mess they left behind.

A transactions tax alone won’t solve the problem.  It won’t stop the process.  But at least it will support the public services that we need, all the more so in the wake of each financial meltdown.

Same goes for corporate tax cuts.  Let’s reverse them.  Put the federal rate back to 18% for the financial sector alone, and we’d raise $1.5 billion per year for essential public services.

Taxing the banks is important.  But taxing the banks is not enough.

So, second, we must control them Put in place rules that require them to use this immense power, the power to create money out of thin air, to use it sensibly and productively.  Prohibit the gambling.  Make sure loans are aimed at sustainable, productive purposes.

The new measures being promoted internationally by Mark Carney are a step in the right direction.  But a tiny, tiny baby step.  We need more powerful restrictions.

And friends, even controlling the banks is not enough. What we ultimately have to do is take them back There’s nothing magical about creating credit out of thin air.  There’s no special technology or knowledge needed.  Just the legal power.

We can create credit out of thin air, just as well as any private bank can.  Ultimately, we need a public, democratic, accountable banking system.  One that serves the Canadian economy, not the wealth of those who own banks.

If we can create money out of thin air to buy and sell sub-prime mortgage bonds, then, by God, we can create money out of thin air to pay for affordable housing that could end homelessness.

If we can create money out of thin air to buy short options on Greek sovereign debt, then we can create money out of thin air to invest in a green energy system to stop global climate change.

If we can create money out of thin air to speculate on international currencies, we can create money out of thin air to buy needed medicines to prevent hundreds of millions of needless deaths from disease in the Third World.

There’s no magic to it.  These ideas are prudent and rational and economically sound.  Because like we said at the beginning, it is work and production and sharing and sustaining that supports our real economy.  Not gambling with paper.

These towers look powerful.  But ultimately they are built on paper.

We’ve got the real power, with our ability to work and produce and share and sustain.  We’ve got the power to build something new. We’ve got the power to replace these towers with a system that works!

And that’s exactly what we’ve started to do with this movement.  Thank you for what you are doing!  And let’s get on with the job!

Jim Stanford

Oh Canada! Imposing Austerity on the World’s Most Resource-rich Country

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Even the world’s most resource-rich country has now been caught in the debt trap.  Its once-proud government programs are being subjected to radical budget cuts—cuts that could have been avoided if the government had not quit borrowing from its own central bank in the 1970s.

The Canadian House of Commons in Ottawa passed the federal government’s another round of budget cuts and austerity measures.  Highlights included chopping 19,200 public sector jobs, cutting federal programs by $5.2 billion per year, and raising the retirement age for millions of Canadians from 65 to 67. The justification for the cuts was a massive federal debt (

[ Have you ever wondered how private commercial banks can afford to pay out all those multi-million dollar year-end bonuses before Christmas? In the US, Pacific Investment Management paid its former chief investment officer, Bill Gross, a bonus of about $290 million.  And Canada’s big banks gave out $12.2 Billion in bonuses, 13 percent more than year before. No austerity in the banking sector in Canada! AUSTERITY IS A LIE. Where do those more-than-generous bonuses come from? From the usury the People of Canada pay to the greedy private banks that are to-big-to-jail. Usury is not a law of nature; it comes from human greed. ]  

An online budget game furnished by the local newspaper the Globe and Mail gave readers a chance to try to balance the budget themselves. Possibilities included slashing transfer payments for elderly benefits, retirement programs, health benefits, and education; cutting funding for transportation, national defense, economic development and foreign aid; and raising taxes. An article on the same page said, “The government, in reality, doesn’t have that many tools at its disposal to close a large budgetary deficit. It can either raise taxes or cut departmental program spending.”

It seems that no gamer, lawmaker or otherwise, was offered the opportunity to toy with the number one line item in the budget: interest to creditors.  A chart on the website of the Department of Finance Canada titled Where Your Tax Dollar Goes showed interest payments to be 15% of the budget—more than health care, social security, and other transfer payments combined.  The page was dated 2006 and was last updated in 2008, but the percentages are presumably little different today.

Penny wise, Pound Foolish

Among other cuts in the 2012 budget, the government announced that it would be discontinuing the minting of Canadian pennies, which now cost more than a penny to make.  The government is focusing on the pennies and ignoring the pounds—the massive share of the debt that might be saved by borrowing from the government’s own Bank of Canada.

Between 1939 and 1974, the government actually did borrow from its own central bank. That made its debt effectively interest-free, since the government owned the bank and got the benefit of the interest.  According to figures supplied by Jack Biddell, a former government accountant, the federal debt remained very low, relatively flat, and quite sustainable during those years (see the chart). The government successfully funded major public projects simply on the credit of the nation, including the production of aircraft during and after World War II, education benefits for returning soldiers, family allowances, old age pensions, the Trans-Canada Highway, the St. Lawrence Seaway project, and universal health care for all Canadians.

The debt shot up only after 1974. That was when the Basel Committee was established by the central-bank Governors of the Group of Ten countries of the Bank for International Settlements (BIS), which included Canada. A key objective of the Committee was to maintain “monetary and financial stability.”  To achieve that goal, the Committee discouraged borrowing from a nation’s own central bank interest-free, and encouraged borrowing instead from private creditors, all in the name of “maintaining the stability of the currency.”

The presumption was that borrowing from a central bank with the power to create money on its books would inflate the money supply and prices.  Borrowing from private creditors, on the other hand, was considered not to be inflationary, since it involved the recycling of pre-existing money. What the bankers did not reveal, although they had long known it themselves, was that private banks create the money they lend just as public banks do. The difference is simply that a publicly-owned bank returns the interest to the government and the community, while a privately-owned bank siphons the interest into its capital account, to be re-invested at further interest, progressively drawing money out of the productive economy.

The debt curve that began its exponential rise in 1974 tilted toward the vertical in 1981, when interest rates were raised by the U.S. Federal Reserve to 20%.  At 20% compounded annually, debt doubles in under four years.  Canadian rates went as high as 22% during that period. Canada has now paid over a trillion Canadian dollars in interest on its federal debt—nearly twice the debt itself.  If it had been borrowing from its own bank all along, it could be not only debt-free but sporting a hefty budget surplus today.  That is true for other countries as well.

The Bankers’ Silent Coup

Why are governments paying private international financiers unending high compounded interest on the money they conjure out of thin air, instead of printing that money themselves, interest-free? According to Professor Carroll Quigley, Bill Clinton’s mentor at Georgetown University, it was all part of a concerted plan by a clique of international financiers. He wrote in “Tragedy and Hope” (1964):

“The secret private powers of international financial capitalism had another far-reaching aim, nothing less than to create a new world order of financial control in private hands able to dominate the political system of each country, and the economy of the world, as a whole. This system was to be controlled in a feudal manner by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of this pyramid-scheme was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.” 

Each central bank sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.

In December 2011, this charge was echoed in a lawsuit filed in Canadian federal court by two Canadians and a Canadian economic think tank.  Constitutional lawyer Rocco Galati filed an action on behalf of William Krehm, Ann Emmett, and COMER (the Committee for Monetary and Economic Reform) to restore the use of the Bank of Canada to its original purpose, including making interest free loans to municipal, provincial and federal governments for “human capital” expenditures (education, health, and other social services) and for infrastructure.  The plaintiffs state that since 1974, the Bank of Canada and Canada’s monetary and financial policy have been dictated by private foreign banks and financial interests led by the BIS, the Financial Stability Forum (FSF) and the International Monetary Fund (IMF), bypassing the sovereign rule of Canada through its Parliament.

Today this silent coup has been so well obscured that governments and gamers alike are convinced that the only alternatives for addressing the debt crisis are to raise taxes, slash services, or sell off public assets.  We have forgotten that there is another option: cut the debt by borrowing from the government’s own bank, which returns its profits to public coffers.  Cutting out interest has been shown to reduce the average cost of public projects by about 40%.

Game over.  We win!


Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her nearly-300 blog articles are at Listen to “It’s Our Money with Ellen Brown” on PRN, the Progessive Radio Network