Dollars and Sense

Sensai Baby Left Me

I’m not a financial guy at all. I do well when our house checkbook is balanced and we have enough to pay our monthly bills. We mostly use a credit union which we prefer over privately-owned banks. And privately-owned banks create nothing while moving giant piles of money around, making absurd amounts of moolah for the stockholders, the 1%.

But, I’ve been reading with interest about California’s State Assembly bill to create a pathway for cities, counties and regions in California to set up their own public banks, which passed by a wide margin in 2019. As of February 2020, Public Bank Los Angeles is currently working on a white paper addressing capitalization, lines of business, loans and financial products to support renewable energy infrastructure, banking services for City of LA and other participating members, impact and equity, regulatory purview and phasing, and governance and jurisdiction of the Bank of Los Angeles.

One reason for this move is that in only one year (2019), the City of Los Angeles paid $170 million in banking fees and $1.1 billion in interest to big banks and investors. That money goes into Wall Street where it can be used for anything, including the financing of harmful industries including private prisons, fossil fuel extraction, and weapons manufacturing. Banking as a public utility is a proven model worldwide. Public banks keep money local and cut costs by eliminating middlemen, shareholders and high-paid executives. The bank would be answerable not to politicians but to an independent board of governors comprised of residents. Its mission would be to serve Angelenos.

Does it work? The Bank of North Dakota, the only existing publicly-owned bank in the U.S., is more profitable than Goldman Sachs, has a better credit rating than JPMorgan Chase, and was the only state not deep in red ink as a result of the 2008 financial crash. 

I first heard about this from a Facebook acquaintance who is a musician AND financial guy, and is now in advanced classes at the UofA for organizational theory and public administration work. He also is a management intern for the city of Tucson.

Another post he recently made is about the argument over the deficit. He read that a politician said, “Someone has to hold the line on the national debt, how did we ever get to using words like trillions and not even question that, it use to be millions, then billions, and now multi-trillion dollar spending bills, at some point my kids kids will have to pay that back we need to hold the line, thanks to Joe Manchin for holding the line.”

His answer, if true, is a stunning example of the reality and misconceptions of economics, money, and its creation in our country. Read on:

“First off, that is financially illiterate. It has no basis in how modern economics for a sovereign like the United States operates. Second, your children's children will pay for it only if we hold the line as there will be less economic growth and vitality in our economy if the government is prevented from issuing currency into our economic system. Federal reserve notes are the equivalent of oxygen in the bloodstream, when currency, which the government has a monopoly on its issuance, becomes scarcer the weaker our system will perform, until eventually our system will collapse for a lack of enough oxygen to keep it running.

The idea that we have to pay for it comes from outmoded gold standard thinking. We are not on a gold standard (since 1971), we are a 100% fiat monetary system. The only restraint on the creation of money is inflation. That is it. Period.

How you manage inflation is where the discussion should be situated. I propose it should be a mix of taxes, wealth transfers, and I belong to the camp of post-Keynesians who believe we should re-implement a price control regime that is set up with automatic limits/stabilizers. This is how we can build enough housing, and how we can build out our infrastructure, and how we can eliminate student debt, without blowing out inflation and our economy. We did this before, we can do this again. Why does it scare people? It will change the balance of power, slightly. That is the issue. Not imaginary debt burdens, power!

And one more thing, when people use imprecise language like ‘trillions of dollars is just too much’ run away, because that is snake oil salesmen stuff, the actual words used to categorize programs are irrelevant, what is relevant are the actual real resources in our economy and how they are actuated, and efficiently managed (Through taxes, transfers, and price controls in extreme cases) so that optimum economic vitality can be achieved. The actual numbers or ‘words’ used to label that process is completely irrelevant. And anyone who gets hung up on those words lacks the analytical capabilities to provide a coherent and meaningful argument and should be marginalized.”

One drawback with public banks is the current lack of FDIC security (Federal credit unions don't carry insurance from the FDIC, but they do carry equivalent insurance from another agency called the National Credit Union Administration). Rumor has it that Saule Omarova is up for Comptroller of the Currency, would sit on the five-person board overseeing FDIC rules, and is a public banking advocate.

This is also the perfect place to add that the Man of La Manchin opposes $3.5 trillion price tag for Democrats’ spending bill that would go toward education, child care, college tuition, medical leave benefits, health care programs, climate change, infrastructure, and jobs, but has no problem with that very same amount going into just five years of our current military budget.

While Manchin doesn’t own the mines and power plants polluting his own state of West Virginia, his businesses have benefited handsomely from them. Since he joined the Senate 10 years ago, an investigation found, he has “grossed more than $4.5 million” from his firms, according to financial disclosures.

This, to me, is extremely interesting. Again, I’m no authority on any of this but please chime in with any insights you might have about all this…wait, are you sleeping? Wake up! Good…now it’s my nap time…

But first…