Thursday, May 3, 2018

A Choice: Fed Interest Rate Hikes or a Job Guarantee

The JG is getting a lot of press. This is an attempt to call attention to it. I submitted it to the News & Observer but they didn't bite. Perhaps I pack to much information in it. An article could be written on almost any paragraph.
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Political discussions are sizzling as politicians listen to academics touting the advantages of a federal Job Guarantee to target full employment.

For decades the Fed has raised interest rates to fight inflation. After all, the Fed’s mandate is to maximize employment and achieve price stability. So, when the Fed thinks inflation is lurking, it raises interest rates to slow economic growth. Its rationale is based on the out-dated Phillips curve that indicates inflation increases as unemployment decreases. Accordingly, the obvious solution to rising inflation would be to increase unemployment. 

Conventional economists seek the elusive NAIRU (Non-Accelerating Interest Rate of Unemployment). It sounds spooky and is spooky. It posits that there must be some level of unemployment at which prices are stable. The Fed seeks that level through adjustment of interest rates.

That’s right! The goal of the Fed is to reduce job opportunities in order to control prices and maintain the value of the dollar. In doing so, it ignores the tremendous costs of unemployment. Not only does an idle worker contribute nothing to GDP, unemployment payments rise, and the sociological costs are huge. Adding to the misery, the victims of enforced unemployment are often looked upon with scorn.

In the end, the Fed’s action is counterproductive. Increased interest rates raise the price of everything, which is the very definition of inflation. And, through the resulting increased rents people pay, it provides more opportunities for the rich to disadvantage the less fortunate. It is a national policy that most conventional economists support. But it just doesn’t work.

Fortunately, there is an alternative. Marriner Eccles, FDR’s Chairman of the Fed understood it. We named the Fed building in Washington after him and forgot that he knew our great nation has the productive capacity and ingenuity to provide a decent living for everyone. 



During Eccles’ tenure the WPA (Work Progress Administration) thrived and offered jobs to the able and willing. In the 1990s, Warren Mosler, a hedge fund manager, reawakened economists to Eccles’ insights.

Academic authors see the JG as a federally funded, locally administrated program to hire any willing and able worker at a living wage with benefits. The range of possible jobs would have few limits and could include filling potholes to replacing water and sewage systems. And from directing traffic to providing health care. 

The JG would set the minimum wage and a standard for working conditions. Private firms would be free to offer higher wages or better working conditions to hire the workers.

The JG would be countercyclical to and dampen the business cycle by expanding in down times and contracting in good times always maintaining full employment.

Perhaps most important, the JG would counter the corrosive sociological consequences of unemployment and inequality. Critics citing the costs of the JG should first consider the costs of these consequences. The costs and benefits of a JG have been researched thoroughly in the academic community.

Fundamental to the thinking behind a JG is the realization that our economy is not driven by production as viewed by advocates of trickle-down economics. Instead, the economy is driven by sales, which in turn, stimulate production. So, by providing work and wages the federal government stimulates demand to which production responds. 

It is time to make a choice. We can keep the system of enforced unemployment, with all its sociological consequences, to provide a pool of unemployed workers looking for work at low wages. Alternatively, through the JG we can establish a pool of employed workers willing to accept work at wages above a livable minimum.

Academics pushing the JG idea are Professors Darity and Hamilton at Duke University, Tcherneva at Bard College, Kelton at Stony Brook, Fullwiler at University of Missouri, Wray at Levy Institute, and others all of whom are looking at our economy in a refreshing and enlightened way.


Dan Metzger is a retired physicist, living in Chapel Hill, with an interest in how the economy works.  

President Trump gets Foreign Trade Wrong!

I rewrote the last article published in the Albuquerque Journal and submitted it to the Durham News & Observer. It didn't fly.
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In fighting a war, generals on the battlefield know that a frontal attack is not always the best tactic. A flank attack is often a better move. And, so it is with foreign trade.

President Trump sees trade deficits, import expenses in excess of export income, as a bad deal and surpluses as a good one. Where we have trade deficits the frontal attack is the president’s tactic of choice. He plans to impose tariffs on some imports, which makes those goods more expensive. That’s not a win! Let’s take a closer look. There’s a better option.

When we import we increase our standard of living by purchasing something we want after considering price, quality, and availability. The president thinks we are not paying enough for some things. He wants us to pay more or do without those goods thus lowering our standard of living. 

This applies to the president’s most recent targets, lumber from Canada, cars from Germany, steel from Canada, Brazil, and North Korea; and aluminum from Canada and Russia. President Trump now invokes national security to rationalize tariffs to benefit workers in the metal industries. He could achieve his nominal objective by requiring the military to source its needs domestically while allowing the rest of us to buy at the lowest prices.

Other countries like to export to us so they can get US dollars, which are the widely favored foreign exchange currency. Exporters give us real goods in exchange for our depreciating dollars. Who is the winner in that exchange? In real economic terms of trade, the winner is the importer, who gets real stuff for mere paper or computer digits. The exporter bears the real cost as its productive labor is serving a foreign economy.

In real terms of real trade, our trade deficits make us winners not losers. So, what is the down side of being a winner? When we spend into a foreign economy rather than our own the result is higher unemployment. 

The dilemma is this. We must reduce our standard of living by limiting imports to maintain employment or suffer increased unemployment to enjoy a higher living standard. 

The frontal attack favored by President Trump is to impose tariffs to the consternation of trading partners, who may counter with reprisals. The flank attack is to learn how to deal with unemployment in general. We can do that, although we haven’t since the New Deal in the 1940s.

A federal Job Guarantee (JG) would provide work for anyone willing and able to work. It would be federally funded and locally administered to serve the public. This would provide a pool of employed workers that businesses could draw upon when they decide to hire. 

Workers would earn a minimum wage with benefits. The program would set a national minimum wage and maximize employment. Unlike the much ballyhooed Basic Income Guarantee (BIG), the JG would be countercyclical to inevitable business cycles. That is, it would increase when business hiring is weak and decrease when business hiring increases. 

The cost of the JG would be less than one might think, and it would be superior to the BIG. The work done would add to GDP, while an idle worker adds nothing. And, it would reduce the costs of unemployment benefits while increasing tax revenues. There is considerable literature on the subject generated by its proponents. The JG would help to maintain consumption demand and profits for business.


When we manage our unemployment by employing all able workers, including immigrants, we can enjoy the benefits of imports and increase our GDP. The end result is a better standard of living for all our inhabitants. That’s making America great!

Sunday, June 4, 2017

Trump ’n Trade - A better standard of living for all

I submitted this little piece to the Albuquerque Journal. My last submission before I cancel my subscription to that neoliberal rag. Actually Vera finds the New Mexican much more informative. This was published in the Albuquerque Journal North on June 9.
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In fighting a war, generals on the battlefield know that a frontal attack is not always the best tactic. A flank attack is often a better move. So it is also with foreign trade.

President Trump sees trade deficits, more import expenses than export income, as bad and surpluses as good. So, where we have trade deficits the frontal attack is the president’s tactic of choice. He talks about taxing the imports to make them more expensive. Let’s take a closer look. There is a better option.

When we import we increase our standard of living by purchasing something we want, say lumber from Canada or cars from Germany, after considering price, quality and availability. The president thinks we are not paying enough for these things. He wants us to pay more or do without these goods thus lowering our standard of living. 

Other countries like to export to us so they can get US dollars, the widely favored foreign exchange currency. They give us real goods in exchange for our depreciating dollars. Who is the winner in that exchange? In terms of real goods, the real economic terms of trade, the winner is the importer. The exporter bears the real cost as its productive labor is serving a foreign economy.

In real terms of trade our trade deficits make us winners not losers. So, what is the down side of being a winner. When we spend into a foreign economy rather than our own the result is higher unemployment. 

The conundrum is this. We must reduce our standard of living by reducing imports to maintain employment or suffer increased unemployment to enjoy a higher living standard.

The Current Account closely matches Trade Balance deficit. Also, current account closely matches the Capital Account, the measure of capital leaving US. We can afford it. See https://fred.stlouisfed.org/graph/?graph_id=192470&rn=7163

The frontal attack is to tax our trade deficit as proposed by Speaker of the House Paul Ryan and threatened by President Trump. The flank attack is to learn how to deal with unemployment in general. We can do that, although we haven’t since the New Deal in the 1940s.

A federal Job Guarantee (JG) would provide work for anyone willing and able to work. It would be federally funded and locally administered to serve the public. This would provide a pool of workers that businesses could draw on when they decide to hire. 

Workers would earn a minimum wage with benefits. The program would set a national minimum wage and maximize employment. Unlike the much ballyhooed Basic Income Guarantee (BIG), the JG would be countercyclical to inevitable business cycles. That is, it would increase when business hiring is weak and decrease when business hiring increases. 

The cost of the JG would be less than one might think, and it would be superior to the BIG. The work done would add to GDP, while an idle worker adds nothing. And, it would reduce the costs of unemployment benefits and add to tax revenues. There is considerable literature on the subject generated by its proponents. The JG would help to maintain consumption and profits for business.

When we manage our unemployment by employing all able workers, including immigrants, we can enjoy the benefits of imports and increase our GDP. The end result is a better standard of living for all our inhabitants. That’s making America great!

Sunday, May 14, 2017

Conservative economics yield poor results



I submitted this to the Albuquerque Journal on May 7, 2017. They didn’t publish it. Well, I’ll admit  it is a bit strident, so I’ll try to do better next time. But, these are strident times.
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The only thing more wacky than Robert Samuelson's column in the Journal on Saturday morning was its title, "Health entitlements consuming more GDP.” So called entitlements don't consume GDP, they add to and are a part of it. Samuelson complains that “entitlements” make up too much of GDP. 

A large fraction of health care costs make private investors rich, which means we have a health profit system and "care" takes a back seat. The fix would be more care and less profit.

Then we have Social Security, that the rich don’t need to care about. But, most old people care. When they buy things; food, clothing, smart phones, cars, they contribute to the economy. They consume, but they don't consume GDP.

As Samuelson observes, after we add in defense and other discretionary spending, Federal spending adds up to 15-20% of GDP. I think it should be more. For those, who think it is too much, we can do what any third grader can understand: Increase GDP! 

How do we increase GDP? We increase consumption, which typically makes up 75% of GDP. How do we increase consumption? We increase the income of workers by giving them a greater share of the benefits of our increasing productivity. It does not help GDP to give tax breaks to the rich. They don't spend more. They have no reason to invest in more production when customers have little money in their pockets. 

From Tcherneva 
real-world economics review, issue no. 71 

For almost a half century, we have followed the neoliberal, free market, trickle-down economic myth and have paid for it with a sluggish economy. Workers have not benefited from increased productivity. By now we should realize that the neoliberal paradigm exploits labor, the environment, legislatures, and ignores the arts and sciences to enrich the few at the expense of many.

Unfortunately, the neoliberal emphasis on nonproductive financial products has increased the  well known wealth gap. The financial sector acquires over 40% of corporate profits. This becomes overhead on everything we buy including productive labor. This overhead is the main reason our labor costs are not competitive. 

Samuelson concludes with the old neoliberal bugaboo over federal deficits. This is just a myth to convince us that federal spending must always be avoided in favor of privatizing public services to gain more profit. 

Federal spending increases demand for goods and services. Too much spending will cause inflation only if our productive capability falls short of demand. Meanwhile, deficits add to private savings, and the government can buy anything that is for sale in US dollars including labor.

So, government can be involved in increasing GDP. It can afford to hire staff for healthcare, teachers and facilities for a more capable work force, workers to build infrastructure, and to support senior citizens with a decent retirement. Our children and their children benefit from wise federal spending without having to pay off the national debt. They don’t owe it; they own it.


Samuelson and other neoliberals would have us believe it's all about money. It's not. It’s about allocation of our productive resources, which are people and facilities. We can afford anything we can do. It is not about living within our means; it’s about living up to our means.

Sunday, October 30, 2016

Debt crisis, what debt crisis?

I submitted this to the ABQ Journal Oct 20, still no joy. An earlier version in response to the Anthony Davies’ OpEd on October 5 is now past its use-by date. In addition, I have included below links to verify attributions I made and one to John Harvey, who is one of many from academia whose views I share. 
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The federal debt has almost everyone in a panic. Most pundits and politicians including those from President Obama to Sara Palin and from The Peter Peterson Foundation to The Committee for a Responsible Federal Budget have agreed that the federal government should manage its debt just like a household. “Government must stop spending more than it earns.” This note disputes that job-killing, intuitive myth.

Since President Nixon took our country and the world off the gold standard in 1971, we have had a fiat monetary system. All our money comes from the US government. Bank loans or federal spending bring money into the economy. 

Under a gold standard the amount of gold held by the government limits the amount of money in the economy. Under a fiat system only our productive capacity, our workforce and facilities, limits us. This is completely contrary to old economic thinking. 

Limited only by our productive capacity, we can afford anything we can do. Because our economy can have all the money it needs, our politicians need not worry about funding but how to grow our productive capacity and where to deploy it for a prosperous future. 

Gross Domestic Product (GDP), which is the monetary value of all the goods and services sold in our country, measures our economy. The elements that contribute to GDP are household consumption, business investment in the means of production, net exports, and the government deficit. 

To grow GDP, we must have people employed in productive activities. In a poor, slow-growing economy household consumption is low, because people choose to pay off debt or otherwise save rather than buy stuff. Also, business investment is low, because inventory is not needed when people are not buying stuff. In our country, net exports are negative, because we have net imports. All this results in slow growth and too many people being either unemployed or under employed.

The only choice remaining for growth is government deficits to increase employment and add to GDP. 

Deficits are not under the complete control of government. They depend on household decisions about saving and business decisions about investment. Additionally, a poor economy increases the deficit through unemployment insurance for more people and continuing support for the poor and disabled. 

Deficits add to our economic growth and well being. Reduced deficits would make our economy worse. Deficits alone do not cause inflation until demand for goods and services exceeds our ability to produce them. Only when all able bodies are employed do we reach our limit of production.

Private debt is larger than Federal debt. Private debt is the problem; it has to be paid back to creditor.

Government austerity represents an outdated economic view. After eight years of sluggish economic performance using the old views that rely on monetary policies to stimulate growth, many economists are looking at fiscal measures, which means more deficits. Recently, Jason Furman, Chairman, Council of Economic Advisors, published a conference paper advocating fiscal stimulus as part of a “New View” to replace the “Old View.” 

Empirical evidence of the dangers of too-small deficits exists in the Eurozone where the Maastricht Treaty limits deficits to 3% of GDP. Only countries with strong exports such as Germany can comply readily with that constraint. Eurozone countries are compromised further by having given up their sovereign currencies to the Euro. Consequently, they suffer under a de facto gold standard. So grave is the Eurozone crisis that the eminent economist, Joseph Stiglitz, has advised both Greece and Portugal to exit the Eurozone, and he predicts that Italy may exit in a few years. These economies are decimated, because they have not been able to run enough deficits to prosper.

Fiscal deficits, used productively, will expand our economy. The resulting federal debt is not a crisis. We never have to pay it off; we outgrow it by keeping our GDP growing.


Recent Furman paper:


Stiglitz Greece and Portugal advice and prediction for Italy:





Prof. John Harvey:

Friday, October 7, 2016

There is no federal debt crisis

I tried again to counter conventional wisdom with this submission to the Albuquerque Journal. It drives me nuts if I don't keep trying.
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In his article in the Journal on October 5, Anthony Davies claims we must cut federal spending to solve the debt crisis. There is no federal debt crisis. Our crisis for over eight years has been slow growth of the economy and too few good jobs. 

First, Davies writes that when interest rates rise to pre-recession levels, the federal government will owe an additional 500 billion dollars in interest. Actually, it would be more than that, but let’s not quibble.

More importantly, we must understand to whom the interest is paid. That would be the holders of all US Treasury securities, which comprise the federal debt: banks, pension funds, mutual funds, wealthy individuals, and foreign central banks. Also, higher interest rates mean more income to our bank accounts.

In short, federal interest payments are income to the private sector. Income to the foreign sector provides dollars to foreigners that can be spent in our economy. 

Second, and more consequential, Davies apparently thinks that government spending can manage the federal debt. Our federal debt is the accumulation of deficits since the beginning of the republic. Deficits are largely determined by choices made in the private sector.

Conventional wisdom is wrong. Our debt provides assets for the future.

Our economic output is measured by Gross Domestic Product (GDP), which is the monetary value of all the finished goods and services produced in our country. The elements that contribute to GDP are household consumption, business investment in the means of production, net exports, and the government deficit.

To grow GDP, we must have people employed in productive activities. In a poor slow-growing economy household consumption is low, because people would rather pay off debt or otherwise save rather than buy stuff. Also, business investment is low, because inventory is not needed when people are not buying stuff. In our country, net exports are negative, because we have net imports. All this results in too many people being either unemployed or under employed.

Consequently, the only choice is government deficits to increase employment and add growth to GDP. Those deficits depend on household decisions regarding consumption and business decisions regarding investment. Additionally, a poor economy increases the deficit through unemployment insurance for more people and increased support for the poor and disabled. 

Clearly deficits add to our economic growth and well being. To reduce federal spending would make our economy worse.

Davies’ position represents an outdated economic view. After eight years of sluggish economic performance using the old views that rely on monetary policies to stimulate growth, many economists are looking more favorably upon fiscal measures, which means more deficits. To that point, on October 5, Jason Furman, Chairman, Council of Economic Advisors, published a conference paper advocating a fiscal stimulus as part of a “New View” to replace the “Old View.”

Empirical evidence of the dangers of too-small deficits is found in the Eurozone where deficits are limited to 3% by the Maastricht Treaty. There, only countries with net exports such as Germany can comply readily with the treaty. These countries are compromised further by having given up their sovereign currencies to the Euro. Consequently, they can not “print” money to pay their debts. So grave is the Eurozone crisis that the eminent economist, Joseph Stiglitz, has advised both Greece and Portugal to exit the Eurozone, and he predicts that Italy may exit soon. These economies lie in ruin because they have not been able to run enough deficits in their own sovereign currencies to prosper.


Fiscal deficits, used well, will benefit our economy. The resulting national debt is not a crisis. We never have to pay it off; we outgrow it by keeping our GDP growing.

Monday, September 5, 2016

Next President must employ fiscal policies

Today, I submitted this to the Albuquerque Journal. I'm sure they won't publish it, because they highlighted the Macguineas article with a complementary Editor's note. Gotta keep trying.
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Unless we understand what our fiat money is and how it works in our economy, we will continue to think we must balance our national budget or suffer dire consequences just like a household. That leads to the confusion of the Journal editor, who praised a “policy expert,” Maya Macguineas, for her column on September 3rd as the answer to, “What should the next president’s plan be for the national debt?” Both the editor and Macguineas are misinformed.

This quote from another expert, Warren Mosler (Soft Currency Economics II, 2012), tells us almost all we need to know.

“The concept of fiat money can be illuminated by a simple model: Assume a world of a parent and several children. One day the parent announces that the children may earn business cards by completing various household chores. At this point the children won’t care a bit about accumulating their parent’s business cards, because the cards are virtually worthless. But, when the parent also announces that any child who wants to eat and live in the house must pay the parent, say, 200 business cards each month, the cards are instantly given value, and chores begin to get done. 

“Value has been given to the cards by requiring them to be used to fulfill a tax obligation. 

“Taxes function to create the demand for federal expenditures of fiat money, not to raise revenue per se. In fact, a tax will create a demand for at LEAST that amount of federal spending. A balanced budget is, from inception, the MINIMUM that can be spent, without continuous deflation. 

“The children will likely desire to earn a few more cards than they need for the immediate tax bill, so the parent can expect to run a deficit as a matter of course.”

That was then. Now credit is money, and gold is just another commodity.

The children may trade among themselves exchanging cards for services or real goods. However, they can not create cards. So, the net financial resources that children can save come from parental deficit spending. 

If there are not enough chores or the wages are too low, some children will not be able to pay their rent. Then we have involuntary unemployment and deflation. There is no need for unemployment as long as there is work to be done and workers available, the parents can always come up with more cards.

We could push the model further to include banking and trade with the neighbor’s children. In a fiat monetary system, the prosperity of the children is managed by the parents making sure that there is full, productive employment. To prevent inflation parents can increase taxes, which take cards away from the children. Then the deficit will take care of itself.

The deficit hawks cite scary consequences due to high private savings, but those consequences just don’t happen. 

Deficits drive interest rates down not up, because federal spending puts money into private bank accounts, which in turn increases reserves in the banking system. Then to maintain interest rates, government has to pay interest on bank reserves and/or sell Treasury securities to reduce the reserves. 

Interest on treasuries, which constitute the “debt,” stimulates the economy as it is income to the private sector not a cost.

We can always have enough cards for entitlement programs as long as we invest in the facilities and personnel necessary to staff them. 

Our economy is not about having or not having cards, it is about allocating our productive resources. We can not afford to continue to let those resources go to waste; we always have enough cards to employ resources productively. Then GDP and private savings will grow appropriately, and the deficit hawks can find something better to do.

The next President and Congress must employ fiscal policies to invest in the education, employment, and well being of the people. And, if they must, war. Our nation can achieve shared prosperity.

Saturday, July 2, 2016

Austerity is at the heart of our discord

Submitted this to Albuquerque Journal. Wow, Journal published on July 6 with title "US must embrace federal deficits, denounce austerity." I like my title better.
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Austerity foments discord. The discord that drove Brexit, the vote for the United Kingdom to leave the European Union. The discord that led to the rise of Donald Trump and his fear mongering over immigrants. The discord that led to the groundswell of support for Bernie Sanders, who highlighted wealth inequality.

Austerity is the way countries around the world manage their economies. Based on outdated gold-standard thinking most people believe that there is a limited amount of money in our economy. When we had an actual gold-standard monetary system the amount of money depended on our supply of gold reserves. If the government spent too much, private business investment would languish, interest rates would rise and ruin business profits. When government spending is curtailed, we have austerity.

Think of this when folks tell you federal deficits are unsustainable. Or, ask them when we paid off the World War II debt.  We didn't. 


Everybody “knows” that government deficits are unsustainable. But, that is just not true. Politicians, pundits, the Peterson Foundation, and all who profit from gold-standard thinking tell us that austerity is necessary. Long ago, in the gold-standard days of 1863, the London Rothschild brothers wrote their New York conspirators:

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”

At last, people are comprehending their disadvantage and are looking for alternatives to relieve their burden. Feeling our discord, we lash out at the establishment, and our tribal instincts make us suspicious of anyone not like us. The behavior is natural but both unproductive and unnecessary.

Every two years we have elections and can vote against the politicians in power, but nothing changes. Changes can’t happen when both political parties sing from the same economic songbook. The only difference is that one sings, “We have a spending problem;” the other sings, “We have a revenue problem.” Both are wrong.

There is an alternative. But, it has taken a long time for enlightened economists to realize it. President Nixon took the world off the gold standard in 1971. In 1973, nations abandoned the Bretton Woods Agreement that tied international trade to gold. But, it wasn’t until 1976 that our government gave up all pretense of tying our currency to gold.

That was the dawn of our present fiat currency with a floating foreign exchange rate. It took almost another twenty years to realize the significance of this momentous change.

That change made a huge difference. A fiat monetary system turns a gold-standard system upside down. A fiat currency is limited in quantity only by our productive capacity not a commodity. Government has the ability and responsibility to employ the productive capacity left idle by the private sector. That means, we need not endure high unemployment.

When the economy struggles, government must increase deficits. These deficits provide income and private sector consumption, which stimulate the economy. Federal deficits are always sustainable when they put idle resources to work for the public good like infrastructure and health care.

A sovereign nation must live up to its means, which includes its work force and facilities. Households and businesses must live within their means, which is what they can earn.

Any accountant can tell you that the national debt, which is the total of US Treasury securities, represents assets in the private sector. The famous National Debt clock could just as well be called the Private Savings clock. Deficits are the only source of private-sector financial savings.

Our broken economy and its resulting discord will not recover until we make full use of our fiat currency and embrace federal deficits. That is to say, denounce austerity. 

Thursday, April 21, 2016

A Public Bank would benefit Santa Fe

After an earlier submission to the New Mexican failed, I submitted this shorter, punchier version.
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The question is not, “Why should we have a public bank?” but, “What is taking us so long?”

Private banks provide investment capital for productive enterprises that generate profits to repay loans. Also, banks provide capital for public projects for the common good, and taxes repay the loans. A public bank returns profits to the public instead of private investors. So, public banks offer a way for banks to serve the people rather than make people serve the banks.

Public banks are not new. The Bank of North Dakota is a century-old, public bank that is an essential element of that state’s economy. In Germany public banks garner 40% of all bank assets. In other parts of the world public banks are common. 

My own skepticism toward a public bank turned to enthusiasm upon working with the Brass Tacks Team of Banking on New Mexico. We modeled the first five years of a hypothetical public bank. Also, we calculated the savings to the city of refinancing existing bonds and loans through a public bank. We showed that a public bank can reduce City borrowing costs significantly.

Generally, this is how a public bank could work. The public bank would be the City’s bank chartered by the State. The City would own the bank as it would provide the capital to be leveraged for loans. The City would deposit its income in the bank and pay its bills from the deposits. We assumed $100 million in city deposits, $10 million in capital, and a $50 million loan portfolio. These amounts are consistent with City assets and liabilities reported for FY 2014.

Public bank benefits the people.



Over the five years our model yielded $10.5 million in profits and reduced City debt by $4.85 million.

The bank would minimize its own expenses. It would not handle individual citizen deposits. And, it would use neither tellers nor ATMs. The bank staff would be few and other overhead would be austere.

The City would only use the bank not manage it. Banking professionals would manage the bank day to day with an appropriate oversight board. Employees would be hired and paid by the bank not by the City.

A bank depositor is an unsecured creditor of a bank. To be a safe haven for City deposits the bank must make conservative investments of its assets. Founded not to satisfy private investors, the bank would not take risks to chase high profits. 

A public bank would offer the City an alternative to expensive, omnibus bonds and provide transparency to funding. Instead of large bonds, the city could take out loans for individual projects as needed.

In the future, the bank could participate with community banks and other lenders for local development efforts. Currently the City is in a budget crunch and looks for ways to save money. A public bank would have helped.


A public bank would return to the City interest on loans that would otherwise go to private investors and Wall Street. It would provide a safe haven for City funds against the turbulent environment of private banking. And, it would provide better transparency of City spending. This would be good stewardship of public funds.