Solution to Middle Class Credit Card Interest: Public Banking

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According to Professor Margrit Kennedy, author of the recently published book Occupy Money, it doesn’t matter if you and I pay off our own credit card balances every month – as well as the rest of our bills on time – in an effort to pay as little interest as possible to the companies that fronted us the money.

We’re still going to make bankers, financiers and bondholders rich by paying exorbitant rates of interest on everything we purchase, use or pay for. In fact, Kennedy writes, 35 to 40 percent of everything we buy in America goes to interest.

Kennedy’s thesis rests on the notion that these largely hidden interest charges are ultimately paid for by all of us as end-use consumers. They are created at each step of the production chain by the tradesmen, suppliers, wholesalers and retailers who rely on credit to pay their bills and then add the cost of that credit to the next guy in line.

For anyone who wonders how banks and the rest of the country’s economic elite recovered so well after the financial crisis of the past several years, Kennedy has her thought: the interest paid by the country’s bottom 80 percent – a largely regressive tax –  makes the 10 percent who collect it, wealthy.

Kennedy also maintains that the exponential growth in financial sector profits over recent years has come at the expense of the country’s non-financial sectors and ultimately is unsustainable.

North Dakota Cuts Path of Banking Reform

She offers a solution, one that has shown success in places where it has been implemented, including Canada, Australia, Argentina, Brazil, India and China – and also in our own country, North Dakota. The fix: turning private banks into public utilities and private bank profits into public assets.

While public banking may seem like a radical concept, 40 percent of all banks globally are publicly owned. Public banking allows governments to reinvest the interest payments that would normally be owed on debts to private lenders, directly into their own societies, thereby increasing services and/or lowering taxes.

Case in point: the publicly owned state Bank of North Dakota, which underwrites the bond issues of municipal governments, has contributed more than $300 million to state coffers over the past 10 years.

In addition:

  • North Dakota is the only state that escaped the 2008 banking crisis.
  • Bismarck, North Dakota, shows a budget surplus every year.
  • And the Peace Garden State has the lowest rates of unemployment, foreclosure and credit card default in the nation.

What if System Were in Place before 2008 Collapse?

If California had a public bank in 2010, it could have saved $70 billion, or 44 percent of its general obligation and revenue bond debt of $158 billion. That money could have prevented the gutting of state services, the firing of public sector employees and the selling of public assets, while helping to repair the state’s infrastructure and educating its children.

In 2011, the federal government paid $454 billion in interest on its debt – nearly one third of the $1.1 trillion amount paid in personal income taxes. If the U.S. had a national public bank, it could lower tax rates considerably or retire its debt entirely over time and never have to pay for the privilege of borrowing money again.

Kennedy’s dictum: make banks public institutions that feed the economy rather than feed off it.



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