money moves the world and banking moves money welcome to the public bank solution conversations about an emerging new american institution publicly owned partnership banks able to rebalance the skills of monetary can truly in service of the public interest and our common wealth brought to you by the public banking institute and its national association of partners and organizations below and  public bank solution we have a couple of very special guests today that i'm looking forward to talking to about public banking and about the economy and about money itself and some history and we have a  repeat performance here by our friend and colleague alan brown the author of web of debt and the public bank solution the namesake for this program who has really the world renowned a public banking and also a great pleasure to have michael hudson something called by some the world's best economist and a prolific writer a man who seems to know great deal about almost everything so it should be talks about how the financial system is a parasite on our economic stability and well being that it's designed basically to serve only a few that's a theme that you certainly heard us talk about you've heard a lot of people other other people talking about as well but then his latest book j is for junk economics and michael i like to like it take off on the inspiration for jay as for john what's the junk  economics that you're referring to well it's the false idea how an economy works it's a companion volume to killing the host and since you mention parasitism nature parasites and don't simply take from the economy  banks or extract of they take interest they charge fees but in order to do all of this the parasite has to take over the economies brain and make the host brain makes the host think that it's necessary that the host needs the parasite that it's actually staring at and if you look at the economic development since the crash of two thousand and eight in the newspapers they all say there's five percent or better off all of the ninety if the economy has only grown by paying more money to the financial sector to the five percent ninety five percent of the economy is actually gone down since two thousand and eight we have not recovered because the debts were left in place and in two thousand and eight president obama saved his constituency the banks the donor class not the voters and the result is that voters said wait a minute well they said vote for the lesser evil and he was so the american people chose is the lesser evil so james for junk economics talks about the kind of misleading depiction of the economy as if somehow when wall street grows and the rich just five percent grow the whole five the whole economy is growing even while people are forced further and further into debt even while housing prices are squeezing them more and more health insurance are squeezing the more and more more and more of their income has to be paid to the banks as interest and debt service and the result is that you're having a whole streets commercial real estate empty out shopping streets  new york city where i live are being boarded up story after story after story major companies are even leaving fifth avenue because they can't afford to do business because the  ninety five percent don't have enough money to buy what they're producing so while economics textbooks tell people there's a circular flow if you're just give more money to the upper five percent it's all going to trickle down it doesn't trickle down ppropriates them for themselves pay out of dividends and stock buybacks and if you look at what's happened in the last ten years or so over ninety percent of corporate profits have not been economy and that's called economic growth and it's called economic growth because of the false terminology that's being used so in this book i describe that deflation and all sorts of words that i've used in killing the host but i realize if you begin with the vocabulary you can then just take a vocabulary that actually means something and it's the classical economic vocabulary of words that aren't used many much more like ronte a or rent seekers or economic rent or you can go right down the line if you get a straight vocabulary you'll be much clearer on what constitutes economic growth and how economies work  there's a reason that last month george orwell's one thousand nine hundred four made a resurgence on to the bestseller list and it's because in the washington post the new york times the main media what you're getting is a double think is a kind of  opposite top where words mean the opposite so when they talk about growth they really mean shrinkage and debt deflation when they talk about banking they don't take into account the fact that a bank is now goldman sachs investment banks or stock brokerage firms or a casino capitalism type institution that doesn't have anything to do with the kind of banking that most people think of putting money in the bank and  g writing checks on it and writing it down these are things that banks really don't don't do much of anymore they've entered the gambling process and the gambling process is being underwritten by the federal reserve pushing down interest rates so much that you can borrow from the federal reserve at a fraction of a percent and you can buy companies that are paying seven eight percent dividend and you can just take them over and it's called arbitrage and you can end up just essentially emptying out the company and stopping investment stopping new hiring and just push up the stock by financial engineering the japanese call it the site tech and instead of industrial engineering in our economy we have financial engineering and the objective is to load the whole economy down that that's what happened and then tell us solve the problem of the fact that banks have been making loans not to expand the economy not to finance tangible investment or employment you're going to have a mel structured economy and you're going to end up looking like greece or the euro zone so you you've illustrated  the reality of your situation and the subtitle on your book is a guy to reality in an age of deception and institutionalized deception that's a word that everything is hunky dory while everything is kind of getting deteriorated and ellen in your book you really said you open up that thinking in the book web of debt you really portrayed the fundamental underlying condition in which these economic systems operate or are you see that impact the bar prospects for making any improvement on what we want people to have well when i first went dead it was basically about where does money come from money is not created by government as most people think it's actually created by banks and they make loans then the question in public thanks felicia is how do we get that power back there there are several possibilities that congress could take it back or they could just issu money as abraham lincoln did in the eight hundred sixty s but it's not likely with this congress or the federal reserve could do quantitative easing that actually got out into the real economy so they could do quantitative  money for basic income guarantee where you just helicopter money that term came from milton friedman who said that it's easy to cure a deflationary you have to do is fly over the people and drop money on them and he was being sarcastic has he he who is famous for the line that money is always and everywhere a monetary phenomenon meaning that inflation or sorry inflation is always an everywhere monetary phenomenon meaning that if you add more money to the system you're going to drive up prices but even he said all other things being equal and the thing is all other things aren't equal if you add money to the system and you've got workers and materials available and and the money goes into demand for things you can produce i mean if the money goes into housing in line then obviously you're going to drive up the price because there's no place to build it and land it but if the money goes into if you give it like a basic guarantee to individuals they will probably spend it on goods and services that they need right now particularly the lower ninety percent they need basic food and clothes and school things and you know basic things so let's say it shoots if the shoe manufacturer the first thing he's going to do is put in another order for shoes with at the manufacturer and he's not going to actually raises prices as long as he can move the stuff and it shows he's delighted to see all prices remain stable in fact you might actually have prices going down if you you know if you're able to make more and more cheaply etc so you can you congress you can do the federal reserve neither which is real likely  or you can take over the banks as public institutions which then create money in the way that our banks do which is by issuing loans so you're you'd be issuing them and we have won the baker north dakota that does this so your loans go to the local economy for local purposes and the interest comes back to the government so you can cut the cost of infrastructure in virtually in half because rise financing is fifty percent of the cost of infrastructure or you can make very cheap loans to local communities for infrastructure and big america is making two percent loans and infrastructure whereas everybody else is making like forty six percent so you're getting here for a half or a third what communities and other states are getting their infrastructure and that two percent goes back to the states so it goes back to the people you've made a jump and i want to go back to the first point you made the really important point you made is that public banks do not lend for the same things that commercial banks lend commercial banks lend only against property in place so they actually eighty percent of bank loans are made to the real estate sector to transfer buildings that are already built the other twenty percent are to buy companies now in that sense the pretense that the federal reserve had was a quantitative easing was going to reflate the economy but it actually doesn't do that at all if they  economy they do just what you said they'd spend the money into the economy or the production of goods and services that actually hires labor even some labor in america not only china and italy but instead look at what happened the federal reserve said well we do want to reflate the economy but when we say the economy we mean wall street we mean our constituency the banks because the federal reserve is the lobbyist for the banks that was the big change that happened in  thirteen money creation was taken out of the hands of the treasury and put in the hands of wall street under wall street's control there was a whole experience explicit fight and it took one hundred years henry clay andrew jackson all of this hundred thirty s who's going to control the money supply and what is it going to be spent for well if the federal reserve does what it said it was going to do lend to reflate the real estate market let's make housing prices expensive again let's make it so expensive that the american homeowner you know homebuyers will have to borrow even more money from the banks and pay even more money and debt service will the result of paying the federal reserve now the federal housing authority guarantees all mortgage loans up to forty three percent of the homebuyers income what engine if you're buying a home pay forty three percent of your income for mortgage interest you pay  fifteen percent of your paychecks already taken apart for if i see a social security and health care you're paying another ten percent to the bank for credit card debt and student loan debt and bank loans another maybe fifteen to twenty percent in taxes not only income taxes but sales taxes the average american family only spends about twenty five to thirty percent of the paycheck on goods and services that are produced that's why the economy strengthening in the textbook you're talked about a circular flow and the pretense is that workers spend all their money on buying what they produce but if you're a banker or a real estate owner you don't want them to do that you want to make sure that the government channels all of that wage earners income into your pockets not their pockets and you're going to use this money not to buy goods and services maybe andy warhol paintings for twenty two yes but you're going to want to use it to buy other companies and more real estate and to lend even more money to get the bottom ninety percent even further into debt so you get even more interest so the federal reserve is actually dysfunctional and is is promoting a banking system whose objective is to take all of the economic surplus in the form of debt service so that the banks end up with all the growth if you're a banker that's what you want everything you want all the growth leaving nothing for the economy at large that's the business to let's say you're a public bank and you want to limit what these are there for how do you do that well one thing about public bank would not make junk mortgage loans it would not make loans to ninja borrowers no income no job no sense of repayment a public bank would make you say here are the things that are making loans for and here if we do make a mortgage loan here the terms on which you make a mortgage loan there has to be an ability to repay we're not going to make a jump loan that we consoled of some dumb german law silly enough to trust the americans you know buy it we're not going to stick at the bad loans to a pension fund who we you know take out and convinced to buy junk loans if you're a public bank you have standards and you say look you mentioned public utilities we can finance public utilities in the future financing let's say the second avenue subway in new york which i donald trump just talked about yesterday in a new york times interview he said it's all a waste will the fact is if you spend five billion six billion dollars on the new york subway a bank could a government bank could make a loan so you don't have to pay eight or nine percent interest on all of this you'd make the loan again the fact that the six billion increases property prices along the subway route by about twelve billion dollars so the loan would be against a windfall gains tax free lunch that all the landlords along the second evan a subway  and the added tax revenue will repay the public bank basically and there's no need to raise the subway fares no need to raise the local taxes on the new york resident or the sales tax no need to raise  income tax you would actually be able to integrate monetary policy with a decent tax policy they go together and promote the rebuilding of the american economy is not going to be rebuilt under the current banking system because they tried it in chicago to build a toll road say tried it in indiana you've given a wonderful example of the indiana toll road that nobody can afford to use because the underwriters insist in such high fees that profiteering and yet the bankers are really essential to the operation of local economies and there is a different national and we make a clear to make a distinction between the international banking cartel the investment bankers and the local community and credit union bankers who are really front and center in local economies and so when we took it in many ways we talk about a public bank for here in new jersey or any of the state level the same process or the same dynamic is happening where the money is staying at home for local management instead of handing it over to the global economy history for what happens with the financial positions you described or other another guest we had less leopold talks about that is the strip mining of america strip mining of our assets well that's the process of the public banking process is real opportunity is trying to create that's right new jersey right now is like a red lined neighborhood in the slum neighborhood  the big city new jersey people will businesses and families will deposit their money in the bank the money is then sent to wall street outside to do speculation and casino capitalism gambles and buying other companies  lending not to foreign countries who who are in trouble and pay distressed rates of interest iceland argentina so the money is siphoned out that's right and a public bank in new jersey would recycle the money here to help new jersey businesses grow and also to provide basic services to new jersey families they could provide credit cards much cheaper than the banks do they could actually operate it cost instead of trying to make a profit profiteer from the new jersey people so you would lower the cost of banking lower the cost of doing business and you would help rebuild the new jersey economy when you saw the pub when we talk about public banks and nationally we're really talking about them not getting so much personally involved in other people's lending but how does that work and how did how's your picture of the north dakota model for example uses the local banks so that their access to mortgage reasonable mortgage financing and so we're still comes through a retail business a local retail business that's actually wh technically give the bank ownership a claim on the house that you're buying and in america now fifty two percent of all the real estate in united states is actually  committed to the bank so if you want if you default the bank gets the house the bank will only wind money not against your income but against an s f that you pledge whether it's your house or whether it's stocks or  bonds they do they want to make they say they're making money as compensation for risk they don't want to take a risk they want you to take the risk and then they gamble reckon with it knowing that the government's going to pay all the risk because they'll have a lobbyist you know a bag man have has technical the ability to take over the infrastructure if there's a default on the loan but if the public sector that takes over the infrastructure it's not going to be like goldman sachs they're not going to jack up the rates and all of a sudden turn this infrastructure into a monopoly to be squeezed out by wall street if the if the public banks did take over the infrastructure they would still run it in the public interest not in the interest of squeezing out  time we were going to continue this conversation in our next program but but i would like to just interject or on this very point there when we talk about public banking the model that we've been using is that every public bank would have a mission a really clearly defined mission in north dakota are saying or model its for agriculture industry and for the general well for a very broad but if you energy could be it could be a much more focused mission that the bank is allowed to lend into and that lending portfolio is guided and shaped and transparent so that the public can see whether or not it's meeting its mission goals yes and so that's one of the one of the shapers the big difference is that banks won't lend money to build anything they say that the stock market they won't lend any money to create means of capital but a public bank could make money say this is for you to build a br merely against a bridge that we can take over and turn into a toll bridge and charge a lot of money and extract the economy this is money we're giving it to actually build infrastructure that's that's not what commercial banks do and this is why the importance of local lenders  say that's that's the road to serfdom when it's actually the road to avoid up b n a this so when we come in our in our next segment here we're going to come back and talk specifically about some of those objectives that the public banking solution can approach the largest of which is infrastructure very big conversation about that so we hope you'll join us on the next part to our conversation with michael hudson and ellen brown thanks for