Library of Congress
This is an article I want to share by Joe Bongiovanni of the Kettle Pond Institute.
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In this exercise, many results must be gained and crossed, but the ultimate result provides the equivalence factor between “Public Money” seigniorage gain – being by the exercise of sovereign governmental authority under the American Monetary Reform Act of 2021(AMRA-2021) formerly the NEED Act – and “Public Banking” - earning profits or net income from public bank lending.
Stated differently – how much Public Bank Lending is required to provide equal revenue to AMRA’s financing provision?
IMPORTANT – Only one of the options being considered actually provides any direct benefit to the State to fund its people’s prosperity – the AMRA Option. It’s in the proposed law. While Public Banking laws are being promulgated anew, we should look for ANY connection between the bank-profits generated in the Bank’s Business Plan and a requirement that those profits be shared with the people’s government.
None exist in the model Sate Banking legislation I have seen. Over the years, BND has paid only a tiny fraction of its net income to State Coffers, for instance.
Public Banking Profits or Net Income – These will be estimated in future based upon the State jurisdiction granting the license for the Bank to operate, and thus difficult to “guess-timate” at this time. Based on the experience of the Bank of North Dakota, and their Annual Financial Reports, we can see the average interest paid to its depositors, and we can see the average interest gained on its loans. It is that interest- differential that can be used to provide a means for financing State government.
Having said that, my back-of-the-envelope calculation based on the BND data show an interest ‘differential’ of 3.15 percent. The BND on average charges 3.15 percent more for its loans than it pays on deposits. On average.
So, for each State (city, etc) that contemplates its own Public Bank, we can estimate the total amount of lending that would be required in order to gain the income that is comparable to the State Income gained from the AMRA’s population-based revenue sharing. This is more straight-forward to estimate.
The estimated seigniorage-gain to each State jurisdiction – being based on two factors. One factor is the proportion share of the State population to the U.S. population (because the AMRA’s revenue-sharing provisions are per-capita based). And the other is the total Public Seigniorage gain available to the States from the exercise of sovereign money power.
We use the 2020 Census Data for the State Population estimates and the share of the revenue being provided by the AMRA provisions.
The monetary foundation for the national seigniorage gain figure is the amount of new money needed to accommodate the growth potential of the national economy – in any “next” given year. If the economy is forecast to grow by three percent next year, then we will need to have that three percent growth in monetary resources required to accommodate all the new transactions.
There are many estimates of the amount of new money needed each year - and this year is no different, perhaps excepting a wider band of estimates due to Pandemic uncertainties. The most common figure circulating around the Fed and financial circles these days is $700 Billion of possible money-economy expansion to our near $20 Trillion economy. Let’s say it’s an ordinary-year, all-else-being-equal estimate, and we’ll use $600 Billion as the money supply growth figure provided to Congress by the monetary authority.
The AMRA includes the same revenue-sharing formula contained in the AMI-Kucinich NEED Act of 2011, meaning that each year, the Secretary is instructed by the Congress and Monetary Authority to spread one-quarter of the authorized monetary growth directly to the states for them to spend as they wish – on a population-based equity formula.
Opinion - This is an extremely important provision of the AMRA for permanently democratizing and reforming the money system as the primary means for democratizing the whole economy. The States gave up their monetary rights to the Federal government all these years, and now the federal government Is paying some back as best we can.
More importantly, the nation needs a brand-new federal-state relationship, and it can be advanced to greater public equity and success best, if not only, when the States are strengthened in their economic endeavors.
Given that the estimated national seigniorage gain total is $600 Billion and given further that the law requires that Twenty-Five Percent (25%) of that gain be transferred(distributed) to the States, our revenue sharing formula for the States is based on $150 Billion in total revenue-sharing going to the States. Here are some of the estimated State Revenues from Public Money Administration.
1. Minnesota would receive $2,554,725,045 – over $2.5 Billion annually.
2. Michigan would receive $4,511,493,378. – over $4.5 Billion each year.
3. Illinois would gain some $5,735,997,458 – over $5.7 Billion Annually.
The annual revenue gain to the State of Wisconsin is estimated on this as $2,638,542,857. I will use the Public Bank of Wisconsin for a related comparison between Public Money and Public Banking.
In order for Wisconsin, or any State, to earn from its Public Bank Borrowers a similar revenue balance from its Banking Operations, what is necessary is to determine the size of the lending portfolio that is required - given its earning a net interest income of 3.15 percent – in order to produce the equivalent $2.64 Billion in annual income from that Portfolio.
We will have to leave that as an open question for the Public Banking advocates to determine because we don’t know.
How big would the Wisconsin State Bank’s loan portfolio have to be to provide an equivalent public benefit – again, TO THE BANK - to that available from the American Monetary Reform Act?
In layman’s terms, then: huge!
Opinion - Separately, though primarily important in this discussion - passage of the American Monetary Reform Act, once introduced, would make fractional-reserve banking itself illegal. For anyone. Including all Public Banks still envisioned by the PBI. Fractional-reserve banking is itself the problem – as far as banking goes. There have been numerous books pointing that out.
At 3.1% net interest, each Million Dollars of Loans would gain $31,000 to the Bank. In my estimation, a Wisconsin State Bank with an $85.1 Billion loan portfolio that is earning an average ‘net’ interest of 3.1 % would generate the $2,638,542,857 - to the Bank.
Now, to make a comparison, the people and the Public Bank just have to guesstimate how much of THAT profit can be expeditiously forwarded to the people. The Public Bank of Wisconsin would need have a loan Portfolio of $85.1 BILLION to earn the $2.638 Billion in equivalence. How long do you suppose that might take?
"You don’t solve a problem with more of the problem. This scheme for states to go into the banking business would only ‘serve to protect’ the status quo. The ‘proposal’ completely fails to confront the main problem identified by all serious monetary reforms: ‘fractional reserve’ banking. Instead, it actually endorses and sanctions this vicious and destructive process, by suggesting that State governments engage in it..." Jamie Walton - American Monetary Institute