Why do we virtually whisper in banks?
“In God We Trust” takes on new meaning.
Solution Series article
The photograph above is of the UNITED STATES TREASURY. That is where our story starts in 1913. A series of financial panics terrified the sitting Congress into passing The Federal Reserve Act (12/23/ 1913) signed into law by President Wilson. While the TREASURY would continue to collect Federal Taxes and print currency, the actual management of the economy would fall to the newly established central bank called the Federal Reserve.
So the “FED” can do anything it wants to. Better think about that one. The FED can do anything it wants to like secretly lending out 16.1 trillion dollars to banks worldwide, between 2007 to 2010. This figure comes from the government’s first-ever audit of the central bank in 2011. More on this below.
Back to the system: To manage and regulate the vast landscape of financial institutions, the Federal Reserve System utilizes 12 District Banks overseeing designated geographic areas. Within their specific districts, each District Bank is responsible for member banks located in its district.
And that is not the only similarity between a religious cathedral and a financial cathedral. Both require faith to maintain their continued existence. There is not a religion in existence that can survive without the faith of the congregation. And in the case of the Federal Reserve System, should its congregation loose faith, the system would also crumble.
In fact, only a fraction of the money deposited in a bank is actually maintained in the vaults. A certain percentage of deposited money is kept, but the vast amount is “spent” or loaned out in exchange for interest on the loan. This is called “fractional-reserve banking” and is the world standard operation for banks. Its success depends upon the customers believing that at any given minute, the amount of money being held in reserve is sufficient to allow the customer to access THEIR money. If everyone asked for their money back at the same time (a bank run), there would not be sufficient cash on hand.
Should a bank run happen to a FED Member Bank, the FED District Bank would attempt to cover the on hand shortage. If the District Bank level could not cover the loss, the Central Bank would have the U.S. Treasury print some more paper to be sent to fill the financial hole. After all, it is only paper. It is not like the Central Bank had to back the paper with anything other than the faith of the congregation.
The United States Gold Reserve Act ordered all gold and gold backed certificates held by the Federal Reserve be surrendered to the U.S. TREASURY. The gold was sent to Fort Knox and other locations.
Then in 1956 something was added to the printed paper called U.S. Currency. "In God we trust" was adopted as the official motto of the United States and since 1957 has been added to all U.S. paper currency. The new motto invoking God replaced the unofficial motto of the American Republic since the adoption of the Great Seal of the United States in 1782. The old motto was “E pluribus unum”, Latin for "Out of many, one".
Why this change was made is really conjecture. But it certainly fit, didn’t it? The funny money was backed by God. Have faith. It works. Do not worry. Continue to whisper in the lobbies of the financial cathedrals. God is there with you. It says so on the paper everyone wants. But the dollar’s value continues to decline. Faith in the dollar worldwide has waned.
So what if we all just gave up the game? What if something breaks our blind faith and we demand a change. Or what if the entire house of cards comes down from its own weight. What then? Shall we allow the FED to bail out the entire system again as it did between 2007 and 2010? No! We fell for that already and is one of the reasons our faith is waning. No, at that point we can put the old motto back on the currency “Out of many, one”.
If it all comes crumbling down, the cathedrals will still be standing. The people will still know how to do their jobs. The electronic records of accounts will survive. The U.S. Treasury can still print the paper. All that is required is a new concept of faith. No fear. No drama. The only change would be who gets the profit a bank makes from interest.
And I can hear you screaming and grumbling, “Not possible. Too big to fail. Etcetera.” And can you hear my laughter? My friends, when it all began coming a part, before the FED came in and propped up the banks all over the world to the tune of 16.1 trillion dollars, before the “Great Recession” there was a bank that was not part of the system.
That bank is the Bank of North Dakota. As the Huffington Post starts off its article: The Bank of North Dakota serves as an economic development agency and "banker's bank" that lessens the loan risks of private banks and helps them finance larger projects. It offers cheap loans to farmers, students and businesses.”
What is most ironic is the history of how the Bank of North Dakota came into being. The Bank’s President Eric Hardmeyer related the history this way:
Eric Hardmeyer: It was created 90 years ago, in 1919, as a populist movement swept the northern plains. Basically it was a very angry movement by a large group of the agrarian sector that was upset by decisions that were being made in the eastern markets, the money markets maybe in Minneapolis, New York, deciding who got credit and how to market their goods. So it swept the northern plains. In North Dakota the movement was called the Nonpartisan League, and they actually took control of the legislature and created what was called an industrial program, which created both the Bank of North Dakota as a financing arm and a state-owned mill and elevator to market and buy the grain from the farmer. And we’re both in existence today doing exactly what we were created for 90 years ago. Only we’ve morphed a little bit and found other niches and ways to promote the state of North Dakota. (Source http://www.huffingtonpost.com/)
So here is the first home for this bank of the people. Not much of a church, never mind a cathedral. But it was a bank that was concerned with its congregation. And even the current cathedralesque headquarters for BND is still focused on the citizens of North Dakota. It simply is a bank of the people, by the people and for the people. It is still a faith based enterprise, but in this case it is the people believing in the bank and the bank believing in the people.
So the next time someone tries to make you afraid of banks failing, remember that is not a bad thing. It is an opportunity to reevaluate the concept of what a bank should be and to build a new financial system based upon “E pluribus unum”. And remember the people of North Dakota who saw a wrong and had the courage and innovation to make a change that has passed many tests including Time and the Great Recession.
►Mother Jones did this Mach 2009 article
►Huffington Post from May 2013
►Here is a Newsletter providing much more information on public vs private banking
►and for more...Search "Bank of North Dakota.
►to find out more about the audit of the FED, do a search "audit of the FED"
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