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The Santa Barbara Independent

July 23, 2009

A simple solution to pathetic state budgets

California should create its own bank, as North Dakota has done

By David Eccles, of Lompoc, father of an eight-year-old disabled girl

 

bank

I would like to clarify some misunderstandings about critical social services and at the same time offer a simple solution to the budget seizures that are visited upon California periodically--especially this year.

I have no doubt that in the short term, budgets will continue to shrink, jobs will continue to be lost, and the federal government will continue to bail out banks while ignoring people truly in need. The cutting of services is regarded by many as a necessary evil, but that’s only half true. It’s not necessary. Others say that California’s programs to help the disabled poor, such as In-Home Supportive Services, deserve to be cut because of some fantastical belief there is massive fraud and waste taking place. Nothing could be further from the truth.

How do I know? My eight-year-old disabled daughter receives In-Home Supportive Services through her mother. IHSS is an efficient program designed to provide elderly or disabled citizens, including children, with the support and care they need each and every day. In California, the care can be provided by an immediate family member, who becomes an employee of the state, paying all the same taxes everyone else pays. Average pay is $12 an hour. (A reduction to $9.50, scheduled to go into effect July 1, was stopped and is still in litigation thanks to a lawsuit by the Service Employees International Union. ) This is not paid 24 hours a day, but based on specified services which may add up to an average work week--regardless of the actual time spent caring for that child or other relative. The program enables families to shelter and care for their disabled or elderly relatives. It’s about as pro-family as they come.

What will happen if the legislature cuts this program further? In the case of a child, if the parents need to work and there is no one else to look after the child properly, then the taxpayer could end up footing the bill for a nurse to come into the home and do the same job the parent was doing, or for the child to be placed in an institution or in foster care. All of these options are far more costly than IHSS, and not as good for the child.

So what's a realistic solution to all this?

If Wall Street and the feds won’t extend credit to California on reasonable terms, the state could simply walk away and create its own bank. California could put its revenues in its own state-owned bank and fan these “reserves” into many times their face value in loans, using the same “fractional reserve” system that private banks use. Many authorities have attested that banks simply create the money they lend on their books. Here’s how it works: For every $1 or $1.50 which people, or the government, deposit in a bank, the banking system creates out of thin air some $10 of checkbook money or demand deposits. It can lend all $10 into circulation at interest just so long as it has the $1 or a little more in reserve to back it up.

If private banks can leverage deposits into multiple amounts of “credit” on their books, a state-owned bank could do the same thing, and return the profits to the public purse. One state already does this. North Dakota boasts the only state-owned bank in the nation. It is also one of only two states currently able to meet its budget. The Bank of North Dakota was established by the legislature in 1919 to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men.

By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. The bank’s surplus profits are returned to the State’s coffers. The bank operates as a bankers’ bank, partnering with private banks to lend money to farmers, real estate developers, schools, and small businesses. It makes 1% loans to startup farms, has a thriving student loan business, and purchases municipal bonds from public institutions.

North Dakota is not suffering from unemployment or feeling the pinch of the economic downturn. Rather, it sports the largest surplus it has ever had. If this isolated farming State can escape Wall Street’s credit crisis, the world’s eighth largest economy can do it too!