That is the old model, but today money and credit are something else. No gold or other commodity backs our money today. Nothing backs it but "the full faith and credit of the United States." Money and credit are creatures merely of legal agreement, a tally of accounts keeping track of who owes what to whom. Two or more parties can enter into a legal agreement without having any money at all. They can advance credit against goods or services and engage in productive trade. The tribute exacted by a private banking monopoly actually hampers this productive flow. As Thomas Jefferson complained to Treasury Secretary Gallatin in 1815:
"The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment."
"Although we have so foolishly allowed the field of circulating medium to be filched from us by private individuals, I think we may recover it . . . . The states should be asked to transfer the right of issuing paper money to Congress, in perpetuity."
The "full faith and credit of the United States" could and should be overseen by a branch of the United States, just as legal agreements are overseen by the judiciary. Publicly-owned banks could issue the full faith and credit of the nation without worrying about capital or reserves. After all, if you are the United States, why do you need "reserves" of your own credit?
While we're waiting for the Calvary to swoop down from Washington and save us something that could take a while we might consider setting up some state-owned banks. The Bank of North Dakota, currently the country's only state-owned bank, is very stable and very profitable, returning a 26% dividend to the state. A bank of that sort could be an attractive investment for all those state and local rainy day funds, pension funds and other local government funds looking for greater returns from the low-risk investments allowed by their legislative mandates. We need to set up some banks that serve the needs of the real economy rather than those of Wall Street bankers, brokers and their super-rich clients for yet more bonuses, bailouts and paper profits. State-owned banks could fill the role the Wall Street banks have declined to fill, providing an effective credit engine for state and local economies.
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