Posts Tagged ‘banking’


Ellen Brown

February 27, 2018

One Belt, One Road,” China’s $1 trillion infrastructure initiative, is a massive undertaking of highways, pipelines, transmission lines, ports, power stations, fiber optics, and railroads connecting China to Central Asia, Europe and Africa. According to Dan Slane, a former advisor in President Trump’s transition team, “It is the largest infrastructure project initiated by one nation in the history of the world and is designed to enable China to become the dominant economic power in the world.” In a January 29th article titled “Trump’s Plan a Recipe for Failure, Former Infrastructure Advisor Says,” he added, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

On Monday, February 12th, President Trump’s own infrastructure initiative was finally unveiled. Perhaps to trump China’s $1 trillion mega-project, the Administration has now upped the ante from $1 trillion to $1.5 trillion, or at least so the initiative is billed. But as Donald Cohen observes in The American Prospect, it’s really only $200 billion, the sole sum that is to come from federal funding; and it’s not even that after factoring in the billions in tax cuts in infrastructure-related projects. The rest of the $1.5 trillion is to come from cities, states, and private investors; and since city and state coffers are depleted, that chiefly means private investors. The focus of the Administration’s plan is on public-private partnerships, which as Slane notes are not suitable for many of the most critical infrastructure projects, since they lack the sort of ongoing funding stream such as a toll or fee that would attract private investors. Public-private partnerships also drive up costs compared to financing with municipal bonds.

In any case, as Yves Smith observes, private equity firms are not much interested in public assets; and to the extent that they are, they are more interested in privatizing existing infrastructure than in funding the new development that is at the heart of the president’s plan. Moreover, local officials and local businessmen are now leery of privatization deals. They know the price of quick cash is to be bled dry with user charges and profit guarantees.

The White House says its initiative is not a take-it-or-leave-it proposal but is the start of a negotiation, and that the president is “open to new sources of funding.” But no one in Congress seems to have a viable proposal. Perhaps it is time to look more closely at how China does it . . . .

China’s Secret Funding Source: The Deep Pocket of Its State-owned Banks

While American politicians argue endlessly about where to find the money, China has been forging full steam ahead with its mega-projects. A case in point is its 12,000 miles of high-speed rail, built in a mere decade while American politicians were still trying to fund much more modest rail projects. The money largely came from loans from China’s state-owned banks. The country’s five largest banks are majority-owned by the central government, and they lend principally to large, state-owned enterprises.

Where do the banks get the money? Basically, they print it. Not directly. Not obviously. But as the Bank of England has acknowledged, banks do not merely recycle existing deposits but actually create the money they lend by writing it into their borrowers’ deposit accounts. Incoming deposits are needed to balance the books, but at some point these deposits originated in the deposit accounts of other banks; and since the Chinese government owns most of the country’s banks, it can aim this funding fire hose at its most pressing national needs.

China’s central bank, the People’s Bank of China, issues money for infrastructure in an even more direct way. It has turned to an innovative form of quantitative easing in which liquidity is directed not at propping up the biggest banks but at “surgical strikes” into the most productive sectors of the economy. Citigroup chief economist Willem Buiter calls this “qualitative easing” to distinguish it from the quantitative easing engaged in by Western central banks. According to a 2014 Wall Street Journal article:

In China’s context, such so-called qualitative easing happens when the People’s Bank of China adds riskier assets to its balance sheet – such as by relending to the agriculture sector and small businesses and offering cheap loans for low-return infrastructure projects – while maintaining a normal pace of balance-sheet expansion [loan creation]. . . .

The purpose of China’s qualitative easing is to provide affordable financing to select sectors, and it reflects Beijing’s intention to dictate interest rates for some sectors, Citigroup’s economists said. They added that while such a policy would also put inflationary pressure on the economy, the impact is less pronounced than the U.S.-style quantitative easing.

Among the targets of these surgical strikes with central bank financing is the One Belt, One Road initiative. According to a May 2015 article in Bloomberg:

Instead of turning the liquidity sprinkler on full-throttle for the whole garden, the PBOC is aiming its hose at specific parts. The latest innovations include plans to bolster the market for local government bonds and the recapitalisation of policy banks so they can boost lending to government-favoured projects. . . .








Sovereign Debt Jubilee, Japanese-Style

Japan has found a way to write off nearly half its national debt without creating inflation. We could do that too.

Let’s face it. There is no way the US government is ever going to pay back a $20 trillion federal debt. The taxpayers will just continue to pay interest on it, year after year.

A lot of interest.

If the Federal Reserve raises the fed funds rate to 3.5% and sells its federal securities into the market, as it is proposing to do, by 2026 the projected tab will be $830 billion annually. That’s nearly $1 trillion owed by the taxpayers every year, just for interest.

Personal income taxes are at record highs, ringing in at $550 billion in the first four months of fiscal year 2017, or $1.6 trillion annually. But even at those high levels, handing over $830 billion to bondholders will wipe out over half the annual personal income tax take. Yet what is the alternative?

Japan seems to have found one. While the US government is busy driving up its “sovereign” debt and the interest owed on it, Japan has been canceling its debt at the rate of $720 billion (¥80tn) per year. How? By selling the debt to its own central bank, which returns the interest to the government. While most central banks have ended their quantitative easing programs and are planning to sell their federal securities, the Bank of Japan continues to aggressively buy its government’s debt. An interest-free debt owed to oneself that is rolled over from year to year is effectively void – a debt “jubilee.” As noted by fund manager Eric Lonergan in a February 2017 article:

The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BoJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.

If the Federal Reserve followed the same policy and bought 40% of the US national debt, the Fed would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs.

Eight trillion dollars in money created on a computer screen! Monetarists would be aghast. Surely that would trigger runaway hyperinflation!

But if Japan’s experience is any indication, it wouldn’t. Japan has a record low inflation rate of .02 percent. That’s not 2 percent, the Fed’s target inflation rate, but 1/100th of 2 percent – almost zero. Japan also has an unemployment rate that is at a 22-year low of 2.8%, and the yen was up nearly 6% for the year against the dollar as of April 2017.

Selling the government’s debt to its own central bank has not succeeded in driving up Japanese prices, even though that was the BoJ’s expressed intent. Meanwhile, the economy is doing well. In a February 2017 article in Mother Jones titled “The Enduring Mystery of Japan’s Economy,” Kevin Drum notes that over the past two decades, Japan’s gross domestic product per capita has grown steadily and is up by 20 percent. He writes:

It’s true that Japan has suffered through two decades of low growth . . . . [But] despite its persistently low inflation, Japan’s economy is doing fine. Their GDP per working-age adult is actually higher than ours. So why are they growing so much more slowly than we are? It’s just simple demographics . . . Japan is aging fast. Its working-age population peaked in 1997 and has been declining ever since. Fewer workers means a lower GDP even if those workers are as productive as anyone in the world.

Joseph Stiglitz, former chief economist for the World Bank, concurs. In a June 2013 article titled “Japan Is a Model, Not a Cautionary Tale,” he wrote:

Along many dimensions — greater income equality, longer life expectancy, lower unemployment, greater investments in children’s education and health, and even greater productivity relative to the size of the labor force — Japan has done better than the United States.

That is not to say that all is idyllic in Japan. Forty percent of Japanese workers lack secure full-time employment, adequate pensions and health insurance. But the point underscored here is that large-scale digital money-printing by the central bank used to buy back the government’s debt has not inflated prices, the alleged concern preventing other countries from doing it. Quantitative easing simply does not inflate the circulating money supply. In Japan, as in the US, QE is just an asset swap that occurs in the reserve accounts of banks. Government securities are swapped for reserves, which cannot be spent or lent into the consumer economy but can only be lent to other banks or used to buy more government securities.

The Bank of Japan is under heavy pressure to join the other central banks and start tightening the money supply, reversing the “accommodations” made after the 2008 banking crisis. But it is holding firm and is forging ahead with its bond-buying program. Reporting on the Bank of Japan’s policy meeting on June 15, 2017, The Financial Times stated that BoJ Governor Kuroda “refused to be drawn on an exit strategy from easy monetary policy, despite growing pressure from politicians, markets and the local media to set one out. He said the BoJ was still far from its 2 per cent inflation goal and the circumstances of a future exit were too uncertain.”

Rather than unwinding their securities purchases, the other central banks might do well to take a lesson from Japan and cancel their own governments’ debts. We have entered a new century and a new millennium. Ancient civilizations celebrated a changing of the guard with widespread debt cancellation. It is time for a twenty-first century jubilee from the crippling debts of governments, which could then work on generating some debt relief for their citizens.


Ellen Brown is an attorney, founder of the Public Banking Institute, a Senior Fellow of the Democracy Collaborative, and author of twelve books including Web of Debt and The Public Bank Solution. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at <;.

300+ blog articles are posted at

300+ blog articles are posted at






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