James Stivers

FOR IDAHO STATE SENATE DISTRICT 2

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An Idaho State Bank

This year, the government of Idaho will collect approximately 2.5 billion dollars in tax receipts. It will collect additional revenue from others sources – like federal money, for example – but for the sake of our discussion, let’s just talk about the 2.5 billion.

The state will deposit those tax receipts in 49 different private banking institutions, banks that you and I, as private banking customers, do business with every day.

Most of these banks are branches of regional banks with corporate offices in different states. Many of the stockholders of those regional banks are other bigger banks in the economic centers of the United States, places such as New York City, San Francisco and Chicago.

When those deposits are made, a very interesting thing happens: they become the basal value of a fractional reserve process also known as the “multiplier effect.” Because these banks are members of the Federal Reserve System – the central banking system of the United States – they are allowed to exercise an aspect of sovereignty known as “the monetary authority.” They are allowed to create new money to make loans by a simple ledger entry. These loans are usually collateralized (for instance, when you take out a loan to buy a car, the car becomes the collateral). They usually collect interest on these loans to the equivalent of the principal, no matter what the interest rate is or how long the loan is.

Consequently, the $2.5 billion of tax receipts deposited in these private banks become $25 billion in a capital base that is available to be used in lending. We might call this capital base “shadow money” from which banks use to make loans and collect interest. The $25 billion in “shadow money” will become another $25 billion in collected interest payments over the course of time.

Where does this money go? The $2.5 billion stays in Idaho to be used for government spending. But most of the remaining $22.5 billion in shadow money is sucked out of the Idaho economy and used by the big banks which have controlling interest in the depositories which receive Idaho’s tax receipts.

What would happen if Idaho had its own state bank?

Well, that $22.5 billion of shadow money would stay in Idaho to fund government operations and be used for making low-interest or even no-interest loans to various municipalities. The state of Idaho might even make money off of the interest from these loans, potentially another $25 billion. Suddenly, the $2.5 billion collected in tax receipts becomes a capital base of $50 billion simply by exercising the monetary authority.

Is this a “pie-in-the-sky” idea? No, not at all.

The state of North Dakota has had a state bank for almost a century. Currently, it is the only state in the Union running a budgetary surplus of $1.8 billion by last reports.

Critics say that North Dakota’s burgeoning oil fields are responsible for this surplus. Others say it gets more in federal money.

But closer analysis does not justify these explanations. By comparison, the state of Oklahoma is an energy-rich state, yet it is facing a budgetary crisis. North Dakota may get 3 or 4% more in federal money, than say Idaho does, but North Dakota also bears a proportionately larger share of the national student loan program. These criticisms simply cannot explain their budgetary surplus.

In a time when our politicians have only two answers to Idaho’s economic woes – higher taxes or more budget cuts – it’s nice to know that there might be a third path: state banking.

Constitutional authority for a state bank is already vested in Idaho’s Municipal Bond Bank Authority in Article VIII, Section 2A under the “Municipal Bond Bank Authority” heading.  “Municipality” includes any county, city, municipal corporation, school district, irrigation district, sewer district, water district, highway district or other special purpose district or political subdivision of the state established by law (par. 4).

It would merely require simple statutory emendations to create a full-service state bank.

We are not talking about a commercial bank competing with private banks for customers. In the current system, government entities in the state of Idaho are competing with private business for capital. Individuals and private businesses cannot get loans to operate and buy goods and services because the government is competing for the money.

If Idaho had its own bank, government entities would not be competing with you and me for money. With a state bank, private banks would be forced to lend to businesses and private individuals. This would get the economy going again.

An Idaho State Bank would be the monetary authority of the state in which state monies would be deposited and state entities funded. The range of lending would be limited to the role for state government designated in its state constitution.

This would also be a win/win situation for private banks, too. They still would get their money when the various government entities spend the $2.5 billion on vendors for goods and services. These vendors, in turn, would deposit their earnings in their respective private banks. The difference is simply that Idaho would benefit from the fractional reserve process, instead of being a cash cow for the super banks which are playing the derivatives markets of the world.

Ultimately, our society should return to a sound monetary system consisting of the precious metals in which the fractional reserve process does not occur. Until that day, we must recognize that it is fundamentally wrong for public monies to be deposited in private banking institutions. This practice gives such depositories unfair competitive advantages over other banks which do not enjoy this privilege. As long as the fractional reserve process exists, it should be used to protect the Idaho economy and fully fund government operations.

n James Stivers, candidate for State Senate

More articles by Stivers on State Banking:

State Banking: A Modest Proposal

(Comparing it with other proposals by Ron Paulers)

State Banking, Insurance, and Freedom

(How a small consortium of underwriters control us)

Local Critics

(Bill Denman of Bonner County has been Stivers’ most vocal critic.

See how Denman’s plan results in fractional reserve banking.)

Jefferson & State Banks

(People’s money or banker’s money: you decide)