Read the transcript below or download the YouTube PowerPoint presentation:
“Alexander Hamilton, wrote the majority of the Federalist Papers, founded the American System and became the first United States Secretary of the Treasury.”
(1) Presentation to the Alaska Legislature. How public banking can help lead our state and nation into a robust economic recovery.
(2) My name is Charles Duncan, and I am the primary author of the Alaska State Bank legislation as an infrastructure and development bank, author of the United Alaska Campaigner economics newsletter since 1984, author of the 10-part series Alaska Emergency Employment Mobilization, former researcher for the Alaska State Legislature, and on the Internet, I am the Alaska State Bank Advocate.
(3) Today, we will discuss some of the ideas necessary for understanding why the creation of state public banks across our nation can help solve some of our most important economic problems including the current global financial and health breakdown crisis that is leading into a world depression.
First, we will establish our foundation through identifying the three major theories for understanding how banks function. Two of these theories are false and one is true, and you will learn the difference.
Next, we will discuss the fact that the deregulation of financial systems in recent decades allowed excessive financial gambling to be the root cause many of
our economic problems, including the inevitable financial crisis that was triggered by the Coronavirus health emergency.
Then, we will identify some of the economic problems facing our state and nation and identify four possible political solutions to the economic crisis and suggest that, most likely, all four solutions including the creation of state public banks will be required for a robust economic recovery.
Next, we will explain how federal monetary policy is changing and how state public banks can take advantage of these policy changes, through leveraging bank credit creation and increasing the legal ability to access Federal Reserve monetary policy funds while at the same time directly accessing Congressional appropriations.
Then, we will consider how to capitalize a state bank in Alaska in order to contribute to the economic prosperity of both our state and nation.
Concluding, we will recognize the primary reasons why the Alaska Industrial Development and Export Authority and the Alaska State Bank must become interlinked partners.
(4) What I want you to learn today is that there are solutions to Alaska’s fiscal crises that can come from monetary policy through shifting some of the state’s responsibilities out of fiscal policy and into public banking that accesses federal subsidies.
The First Bank of the United States building is our image to promote the United States Constitutional assertion of sovereignty over financial systems.
Punishing populations with personal taxes or Permanent Fund Dividend confiscation is not only unnecessary but is actually counterproductive to the economic development of our state because they both lower the amount of money in circulation.
Creating the Alaska State Bank will give the State of Alaska the legal ability to increase the United States money supply, thus increasing the amount of productive money in circulation through investing in infrastructure, science, technology, education, and revenue generating productive capacity.
Even considering the temporary collapse of oil prices, receiving “world average government take” from oil development while leveraging oil and gas investments into the principles of industrial science as identified in the Alaska State Bank legislation must also be considered long- term solutions.
(5) The United States became the world’s most powerful agricultural industrial superpower using principles of industrial science combined with what is historically called the American System of political economy.
In articles available on my personal Facebook page and the Alaska State Bank Advocate Facebook page and website, I discuss the American System and industrial science principles in detail but let us now focus on learning some basic principles of money and banking, define our national economic problems, and then offer some state government led solutions based on participating with our federal government.
(6) Quotes from the Public Banking Institute: Why Public Banks?
“Today, cities and states put their money in Wall Street banks, allowing those banks to leverage our public funds in order to dominate the financialized speculative economy rather than reinvesting them in our communities.”
“At the same time, cities and states borrow money from Wall Street institutions and bondholders at high interest rates and pay large fees to keep money in their banks. This is not a cost-effective way to do business.”
“With city and state-owned banks, we cut out Wall Street middlemen.”
“Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund.”
“Across the nation. . . 30 of 50 states have proposed legislation in support of publicly- owned banks, and over 50 organizations are promoting public banks.”
(7) Before we can discuss how to create a state public bank in Alaska, we must first understand how money is created though considering the three major theories of credit in banking.
The first theory called “financial intermediation” is the most commonly held false belief that says that customers of a bank deposit funds, and then other people are loaned those same funds. This theory says banks are intermediaries between depositors and borrowers and makes the most sense to someone who does not understand the actual accounting systems used in banking.
The fact is that the financial intermediation theory is false for banks and is promoted to intentionally mislead the public in order to avoid financial reform. Most financial institutions are intermediaries but not banks when they originate loans.
The more advanced researcher will fall for the second false theory of banking called the fractional reserve theory of banking. This theory also known as the “money multiplier” says that central bank money is multiplied by a lending bank.
This theory says that central banks transfer “high powered” money to a commercial bank which then lends out more newly created money. Nice story, but false to accounting reality when originating loans.
These misunderstandings of how banks actually function act as long-term historical propaganda to prevent financial reform; and are being used now to prevent the creation of new public banks across our nation.
The true function of banks is to create new money through originating and purchasing loan contracts. When a new loan is originated, new money is created, and this is known as the true “credit creation” theory of banking.
Banks are in the business of purchasing and selling securities. Bank loan origination is the process of a new loan contract creating a security called a promissory note that is purchased by a bank. The purchased security then becomes new money in the borrower’s account through double entry bookkeeping—acting in somewhat the same way as checks and credit cards in increasing the money supply.
Originating a new bank loan creates new money that did not exist prior to the loan contract.
Although banks do intermediate federal and Federal Reserve loans and some packaged private loans, the fact is that complying with reserve requirements and interbank clearing takes place after loan origination.
The fact is that banks create the majority of the money supply in most nations around the world. Central banks create new money through the spending of sovereign governments and through the direct purchase of assets, and private banks create new money in the double entry bookkeeping process.
Both government banks and private banks create new money. If you believe the function of banks is to simply lend account holders’ money to other people, or you believe banks multiply central bank money, you are misinformed about the actual function of banking.
I welcome you to see the articles linked on the Alaska State Bank Advocate website for documentation on this issue.
(8) Now that we know that banks create money, we can now understand the destructiveness of financial deregulation over the past several decades.
The root of the problem with most large banks today is that the majority of new loans are originated for change of ownership asset speculation, that causes asset price inflation, financial bubbles and crashes, and the long-term debt pyramiding of our entire society.
This type of gambling is almost impossible to regulate today because of its massive size, but legislation both at the federal and state level can discourage this type of speculation from becoming the primary focus of new money creation.
(9) If our nation is to have noninflationary economic growth we must return to time-proven regulations that guide new money creation into physical investments for science, technology, infrastructure, agriculture, industry, education, healthcare, housing, and other productive and productivity enhancing investments.
New money creation must return to providing for the requirements of small and medium sized enterprises that are one of the primary jobs creating engines for our economy.
New money creation should not be used for real-estate speculation, ground rent price speculation, currency price speculation, hostile corporate takeovers, mergers, or any debt-pyramiding operation, asset-stripping, or debt for equity operation, futures, options, indexes, swaps, margin loans, derivatives, or any financial gambling that we already know will end up creating so much non- performing debt that it crashes our entire financial system.
There have been many attempts to reform our financial system in recent years, yet all have failed to prevent the excessive gambling that is continuing to debt- pyramid the economic health of the United States and world economy.
Keep in mind that the United States has what is called a “dual banking system” where banks are chartered and regulated by both state governments and the federal government.
Because our federal government continues to fail at regulating financial systems, now is the time for state governments to help reform our financial system through creating state public banks that guide and reward commercial banks for investing in those types of investments that make our society more productive in the future.
(10) The current economic story begins by understanding that the polices that were implemented after the 2008 financial crises temporarily stabilized some large financial institutions, but the physical economy continues to suffer a very hard price.
Trillions of dollars were pumped into bailing out nonperforming assets, buying preferred bank stock, and massively inflating bank reserves by the Federal Reserve while our nation continued a long-term physical economic decline.
(11) Today, an economically honest appraisal of the United States identifies our nation to be at the end of derivatives phase of the floating exchange rate system. This phase has been dominated by financial instruments that were strictly illegal in the United States Federal Deposit Insurance Corporation banking system between 1946 and 1982.
The regulations that were lost, including the Glass-Steagall Act and Commodity Exchange Act, had established the foundation of a credit guidance policy that allowed for rising physical capital intensity and productivity growth based on physical investments.
Because of the deregulation of financial systems, predatory gambling through asset price speculation now dominates most large banks, including most government central banks in North Atlantic nations.
(12) Every category of infrastructure in the United States is now either beyond its design life or is inadequate because population growth has exceeded the capacity of the infrastructure.
Productive science and technology investments continue to decline, the labor force participation rate is at historic lows, college education is unaffordable for most people, industrial productive capacity continues to decline or be exported to Asian Pacific nations, while homelessness is now endemic in most major cities in the United States.
(13) The endemic feature of homeless people is the result of real estate asset price inflation, a continuing decline in purchasing power for middle income wage earners, a dramatic rise in healthcare costs, unemployment, and economic hopelessness leading to increased drug and alcohol abuse.
The most important feature in the decline of the United States, other than the decline in infrastructure, is a continuing increase in private debt that is accelerating all other problems.
All of these factors of decline existed prior to the Coronavirus economic shutdown.
(14) All of the economic factors of decline are linked to deregulation in our financial system that allowed excessive gambling to act as a parasite on physical production.
The value of the United States currency only survives today because of its dominance as a global reserve currency which allows for the deficit purchasing of products cheaply from mostly Asian Pacific nations.
Someday, this dominance will end, and our nation will be left with a financial oligarchy that makes most of the economic decisions while most people live in poverty with collapsed infrastructure, and without the productive industry necessary to rebuild.
The current Coronavirus and stock market instability are now further shocking our already weakened physical economy and creating conditions that can lead directly to a global economic breakdown with the potential for dramatic increases in the human death rate caused through suffering and poverty.
(15) There have been multiple efforts to reform our financial system in recent years and all have failed. In the United States, there are four political institutions that can create and lead effective economic financial reforms.
Number one: The President of the United States can identify goals so large that the current financial system must be reformed to achieve these goals.
War mobilizations, Defense Production Act, building canal systems, building a merchant marine and navy, building transcontinental railroads, building an interstate highway system, and racing to the Moon are classic examples of how a President can guide economic and financial systems to meet national goals.
Number two: The United States Congress can pass legislation to reform our financial system and spend newly created money to make our nation more productive in the future.
The First Bank of the United States, Second Bank of the United States, National Banking Act of 1863, Reconstruction Finance Corporation (RFC), Glass-Steagall Act, and Commodity Exchange Act are all examples of successful financial economic reforms led by the United States Congress. The current CARE Act stabilization packages are just the beginning of a process that can lead to a new financial economic reform.
Number three: The Federal Reserve can purchase government securities, create new money, and influence the availability and cost of money and credit.
The Federal Reserve controls basic tools of monetary policy—open market operations, the discount rate, and reserve requirements. The Working Group on Financial Markets, public and private asset purchasing programs, and the indirect buying of United States Treasuries are all examples of Federal Reserve programs that guide financial systems to meet employment and inflation goals—even considering the never-ending complaint that the Federal Reserve favors a financial oligarchy.
Number four: State governments can create and regulate banks and corporations and guide the federal government through leveraging state funds with federal funds and credit.
Much of the infrastructure of the United States was built using this leveraging and incorporating process. State governments identify infrastructure projects and other priorities and finance corporations and entrepreneurship through leveraging funds with the federal government.
Today, this tradition continues with the nation-wide popularity of public banking opening up a new possibility for local decisions that guide federal financial reform.
(16) The problem is that our recent Presidents, current Congress, and Federal Reserve have all continued to fail in reforming our economic and financial system in a way that promotes physical production and the general welfare.
The problem is that Presidents have failed to identify and successfully lead national goals as a method of reform. Our Congress has failed with a never-ending stalemate and the Federal Reserve continues to fail through the purchasing of nonperforming assets.
Even though our nation is undergoing rapid changes in economic policy because of the current health crisis the Care Act stabilization programs are not true stimulus packages and are still not focusing on the root problem of financial reform.
If you believe that simply giving money to people and firms without guidance toward becoming more creative and productive then you do not understand what caused the decline of the United States before the health crisis accelerated the collapse of our economy.
The excessive gambling on existing assets using increases in the money supply must be directed back toward physical production and our Congress is continuing to fail to solve this root of our economic problems.
Now, as the only other option currently on the table, state-led public banking must take the lead—our current financial and health crisis must become the catalyst for launching public banks across our nation.
(17) Public banking can be the catalyst for reform in an era when our central bank, the Federal Reserve, has run out of options for lowering interest rates while their “quantitative easing” policy of inflating bank reserves, and the “full price” purchasing of nonperforming assets all fail as methods of stimulating the physical economy.
The current financial and health crisis is destabilizing the world economy, and these Federal Reserve polices must fade in importance and new era must rise out of necessity. A few positive changes have taken place since the beginning of our nations’ health crisis but the root of the problem is still not being addressed.
The only truly workable solution for the Federal Reserve is to stimulate our physical economy using a “window guidance” program of direct quotas for the “quality and quantity” of credit. This solution of creating quotas for categories of productive investments instead of purchasing nonperforming nonproductive assets has been endlessly discussed over many years, yet still has not been implemented.
This type of reform is based on the previously successful Glass-Steagall Act and Commodity Exchange Act criteria for distinguishing between a productive or speculative investment.
Of course, the empire system of hedge funds and oligarchic bankers hates this solution or any other solution that interferers with their predatory gambling— but the ongoing financial economic calamity will diminish their political power and pave the way for the new “quality and quantity” Federal Reserve credit guidance policy.
This Q policy of quotas for quality and quantity is based on time-proven regulations that demonstrate that we are not a nation of predatory gamblers, we are a nation of innovative producers developing creativity and making contributions of lasting value.
The fact is that our states now require public banks to take full advantage of this inevitable change in monetary policy.
(18) If our Congress was not so partisan and deadlocked on the issue of financial reform they would step in and mandate this “quality and quantity” Federal Reserve change. There is also the possibility that our President could lead a similar reform in the United States Treasury.
Abraham Lincoln, one of our most honored American System presidents, signed into law the National Banking Acts, Legal Tender Acts, National Academy of Sciences Act, Land- Grant College Act, Homestead Act, Railway and Telegraph Acts, and established the Department of Agriculture.
Even though the Federal Reserve, Congress and our President continue to fail or hesitate, state governments must be ready to take full advantage of inevitable changes in monetary policy though creating state public banks.
State governments must prepare through increasing the legal ability to access federal and Federal Reserve monetary policy changes based on credit creation and the sale of loan and bond packages directly to the Federal Reserve while leveraging Congressional appropriations.
Without a state public bank, the ability to access this process will be greatly diminished.
State governments must prepare to survive in this era of economic calamity and rapidly changing public policy, through the creation of state public banks.
(19) Now that we know that our Congress is hopelessly deadlocked on the issue of financial reform while our President is attempting, yet not achieving, a science and infrastructure mobilized economy, and the Federal Reserve continues to hesitate, there is only one solution that has the popularity to be fully successful.
That is the public banking solution based on the local decision-making process of guiding productive investments through state governments working together with our President, our Congress and the Federal Reserve.
Creating the Alaska State Bank will give the State of Alaska the legal ability to increase the United States money supply and receive both federal and Federal Reserve monetary stimulus funds. Only a bank can create money and receive banking funds. So, we must create a state public bank that is necessary to receive the categorized investment funds, credit subsides, and appropriations from Congress.
Wall Street got bailed out after the last financial crisis, but now is the time rebuild our nation.
(20) Establishing new state-owned banks around our nation opens up the potential for guiding, rewarding, and protecting local private banks, public banks, credit unions, municipalities, boroughs, villages, port authorities, native corporations, industries, students, and entrepreneurship.
Now is the time to protect these local institutions and people from international predators using state public banks and the power of the United States Treasury and Federal Reserve. Our primary method of protection will be to encourage and reward the creation of new productive loans based on time-proven regulations.
The financial regulations and national goal setting that were successful in the 1950s and 1960s in the United States acted as credit guidance policies that transformed our nation into an agricultural industrial superpower with a successful middle class.
Today, we have lost these regulations, and our leadership has failed to successfully identify goals that guide our financial system.
The solution is for state governments to take the lead and create state banks that act to leverage loans with other financial institutions in a way that directs newly created money into investments that make our state and nation more productive in the face of the current financial economic calamity.
(21) The current ongoing global financial crisis must not be allowed to turn into a horrific world depression. State governments must be ready to participate using the “credit creation” and “credit guidance” potential of public banks that leverage United States federal and Federal Reserve monetary stimulus funds.
Many serious students of monetary policy understand what is said here and know that this current ongoing financial crisis does not need to turn into another global depression. It has been 36 years since I published my first article on monetary policy in the official election pamphlet of the State of Alaska and I have learned some hard and life changing lessons over time.
These hard lessons are the reason why I must insist that now is the time for state governments to create public banks to receive federal funds and monetary policy financial credit. I strongly advise all Alaskans to help create the Alaska State Bank. Alaskans will survive and prosper.
(22) Once we have decided to create the Alaska State Bank, the first problem to solve is how to meet banking regulations for capitulation; there are multiple options each having different consequences. Most likely, Alaska’s best solution is to use multiple methods of providing the initial capital necessary for complying with banking regulations.
What I am opposed to, is the Alaska state government requiring the direct use of the Alaska Permanent Fund for capitalization, because there are much better solutions. Of course, if Alaska Permanent Fund managers are interested in the Alaska State Bank, it should be their financial decision to invest.
The easiest most cost-effective methods of capitalizing a new public bank is to begin with congressional appropriations for large project infrastructure and creating and leveraging bond and loan packages and stock, that are sold to the Federal Reserve.
Also, using the “doing business as” legal method of capitalization allows for creating loans based on the total wealth of the State of Alaska. The State of North Dakota has been successfully using this method for many decades.
My hope is that Alaskans will take an interest in capitalizing a new state bank by becoming shareholders in the Alaska State Bank through purchasing shares using a check a box on the Alaska Permanent Fund dividend application. These shares can become very valuable and useful in the future with the issuance of electronic payment ATM cards that can be used for private transactions and or for tax payments in Alaska.
Benjamin Franklin, a primary founder of the United States, clearly identified one of the causes of the American Revolution in his 1766 examination before the House of Commons as the “prohibition of making paper money among themselves.”
Many decisions such as the proportional mix of capitalization methods will be made by licensed bankers once the banking legislation becomes law.
(23) Some people will ask why do we need a state public bank when we already have AIDEA the Alaska Industrial Development and Export Authority?
The problem with AIDEA is that it is not a bank that can have direct access to the United States Treasury or the Federal Reserve, thus causing both capitalization problems and liquidity problems when financing the large and numerous infrastructure projects necessary for Alaska development.
Infrastructure investments financed by the Alaska State Bank can be substantially larger, more numerous and with lower interest rates than with AIDEA—while at the same time the Alaska State Bank will have almost unlimited access to interbank cash flow for day-to-day operations and have the unique ability for issuing grants and debt bond reimbursement.
Combine these advantages with the legal ability to directly receive federal subsidies from Congressional appropriations while directly selling loan and bond packages to the Federal Reserve and the requirement for creating the Alaska State Bank becomes obvious.
Essentially, the Alaska State Bank will expand the financial capabilities of AIDEA. The Alaska State Bank will begin as an infrastructure bank and with the cooperation of AIDEA become a full featured development bank in the future.
The Alaska Industrial Development and Export Authority and the Alaska State Bank will become interlinked partners in long-term economic development.
(24) What is important now is that there is a basic public understanding that our economic problems cannot be solved though continuing to restrict our discussions to fiscal policy. Only through including basic principles of money and banking can we begin to shift many current budgetary expenses out of fiscal policy and into monetary policy.
The genius of this method is that it increases the total volume of money circulating in the local economy which is the opposite of personal taxation or confiscating the Permanent Fund Dividend which lower the volume of money circulating.
Increasing the purchasing power, education, productive skills, and technological tools of individuals using modern infrastructure are the keys to a long-term successful economy.
(25) Credit guidance policies that promote physical production, technology, and productivity and penalizes asset speculation with strict loan committees are the keys to reversing the economic calamity facing our state, our nation, and the world economy. Our method will be to use public banking to return to the policies that once made the United States an agricultural industrial superpower.
(26) Many Asian pacific nations are currently enjoying the benefits of what was at one time called the American System of political economy. New cities and modern science and infrastructure are rising to bring these nations into the modern world.
All we have to do, is remember that our nation was founded on the American System and return to these policies using the state public banking solution.
(27) Alaskans must ask ourselves this fundamental question: Why are we cutting basic services and destroying our transportation systems when we could be financing these requirements through giving the State of Alaska the legal ability to increase the United States money supply?
Now is the time to cooperate with our President, Congress and Federal Reserve in a national economic reform that includes creating state public banks.
(28) Today’s presentation focused on money and banking, and my next presentation will be on the principles of industrial science and the American System of political economy.
If we are to have a higher standard of living, a dynamic and stable financial system, and a healthy natural environment, basic principles of industrial science, the economic policies of the American System, and the requirement for creating state public banks must be on the agenda.
(29) Thank you for hearing this presentation, and I hope this presentation begins a new conversation about creating the Alaska State Bank. I welcome you to join us in discussions at the Alaska State Bank Advocate Facebook page.
Now is a good time to ask some questions and help create the Alaska State Bank.
Charles E. Duncan
PO Box 212706
Anchorage, Alaska 99521
asced751@yahoo.com
Alaska State Bank Advocate Facebook
