Web of Debt blog

How Uncle Sam Launders Marijuana Money

Thirty states and the District of Columbia currently have laws broadly legalizing marijuana in some form. The herb has been shown to have significant therapeutic value for a wide range of medical conditions, including cancer, Alzheimer’s disease, multiple sclerosis, epilepsy, glaucoma, lung disease, anxiety, muscle spasms, hepatitis C, inflammatory bowel disease and arthritis pain. The community of Americans who rely on legal medical marijuana was estimated to be 2.6 million people in 2016 and includes a variety of mainstream constituency groups like veterans, senior citizens, cancer survivors and parents of epileptic children. Unlike patented pharmaceuticals, which are now the leading cause of death from drug overdose, there have been no recorded deaths from marijuana overdose in the U.S. By comparison, alcohol causes 30,000 deaths annually, and prescription drugs taken as directed are estimated to kill 100,000 Americans per year.

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Let's End Student Debt Slavery

This is the second in a two-part article on the debt burden America's students face. Read Part I.

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Student Debt Slavery: Bankrolling Financiers on the Backs of the Young

The advantages of slavery by debt over “chattel” slavery – ownership of humans as a property right – were set out in an infamous document called the Hazard Circular, reportedly circulated by British banking interests among their American banking counterparts during the American Civil War. It read in part:

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The Banks Are Coming for Your Savings and Digital Money Is Going to Make It Easier

Exposing tax dodgers is a worthy endeavor, but the “limited hangout” of the Panama Papers may have less noble ends, dovetailing with the War on Cash and the imminent threat of massive bail-ins of depositor funds.

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How the World Is Passing America By in Re-Inventing Banks

Global developments in finance and geopolitics are prompting a rethinking of the structure of banking and of the nature of money itself. Among other interesting news items:

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Hang on to Your Wallets, Bankers Are Coming After Your Cash

Remember those old ads showing a senior couple lounging on a warm beach, captioned “Let your money work for you”? Or the scene in Mary Poppins where young Michael is being advised to put his tuppence in the bank, so that it can compound into “all manner of private enterprise,” including “bonds, chattels, dividends, shares, shipyards, amalgamations . . . .”?

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Why Community Banks Are Dropping Like Flies Across America

At over 2,300 pages, the Dodd Frank Act is the longest and most complicated bill ever passed by the US legislature. It was supposed to end “too big to fail” and “bailouts,” and to “promote financial stability.” But Dodd-Frank’s “orderly liquidation authority” has replaced bailouts with bail-ins, meaning that in the event of insolvency, big banks are to recapitalize themselves with the savings of their creditors and depositors. The banks deemed too big are more than 30% bigger than before the Act was passed in 2010, and 80% bigger than before the banking crisis of 2008. The six largest US financial institutions now have assets of some $10 trillion, amounting to almost 60% of GDP; and they control nearly 50% of all bank deposits.

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Time to Enact the Nuclear Option to Spread the Wealth in America

Predictions are that we will soon be seeing the “nuclear option” — central bank-created money injected directly into the real economy. All other options having failed, governments will be reduced to issuing money outright to cover budget deficits. So warns a September 18 article on ZeroHedge titled “It Begins: Australia’s Largest Investment Bank Just Said ‘Helicopter Money’ Is 12-18 Months Away.”

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Rising Progressive Leader in Britain Making Waves with His Plan Spread the Wealth

Dark horse candidate Jeremy Corbyn, who is currently leading in the polls for UK Labour Party leadership, has included in his platform “quantitative easing for people.” He said in a July 22nd presentation:

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Trumping the Federal Debt Without Playing the Default Card

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default."

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Want to Know How the Banks Got Greece to Surrender? Explaining Bank Power 101

In the modern global banking system, all banks need a credit line with the central bank in order to be part of the payments system. Choking off that credit line was a form of blackmail the Greek government couldn’t refuse. 

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A Revolutionary Pope Calls for Rethinking the Outdated Thinking That Rules the World

Pope Francis has been called “the revolutionary Pope.” Before he became Pope Francis, he was a Jesuit Cardinal in Argentina named Jorge Mario Bergoglio, the son of a rail worker. Moments after his election, he made history by taking on the name Francis, after Saint Francis of Assisi, the leader of a rival order known to have shunned wealth to live in poverty.

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Why the TPP Agenda Is Straight out of Alice in Wonderland

"Let the jury consider their verdict,’ the King said, for about the twentieth time that day.

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Awesome Power Is On the Verge of Being Handed Over to Private Banks If TPP Passes

In March 2014, the Bank of England let the cat out of the bag: money is just an IOU, and the banks are rolling in it. So wrote David Graeber in The Guardian the same month, referring to a BOE paper called "Money Creation in the Modern Economy." The paper stated outright that most common assumptions of how banking works are simply wrong. The result, said Graeber, was to throw the entire theoretical basis for austerity out of the window.

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Derailing Amtrak: The Latest Disaster in the Infrastructure Crisis

The dangerous underfunding of US infrastructure was underscored by a fatal train derailment on May 12th. The tragedy did not deter the House Appropriations Committee from voting to slash Amtrak funding the very next day. There are ways Congress could fund its massive infrastructure bill without raising taxes. But the conservative-controlled Congress seems to have other plans for the nation’s profitable public assets.

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How the Trans Pacific Partnership Signals the Death of the Republic

The United States shall guarantee to every State in this Union a Republican Form of Government.    — Article IV, Section 4, US Constitution

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It's Depressing But True: The Bankers Run the Show

According to a new study from Princeton University, American democracy no longer exists. Using data from over 1,800 policy initiatives from 1981 to 2002, researchers Martin Gilens and Benjamin Page concluded that rich, well-connected individuals on the political scene now steer the direction of the country, regardless of – or even against – the will of the majority of voters. America's political system has transformed from a democracy into an oligarchy, where power is wielded by wealthy elites.

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Why Aren't Alternative Methods That Could Lift California Out of Its Drought Being Used?

Wars over California’s limited water supply have been going on for at least a century. Water wars have been the subject of some vintage movies, including the 1958 hit The Big Country starring Gregory Peck, Clint Eastwood’s 1985 Pale Rider, 1995’s Waterworld with Kevin Costner, and the 2005 film Batman Begins. Most acclaimed was the 1975 Academy Award winner Chinatown with Jack Nicholson and Faye Dunaway, involving a plot between a corrupt Los Angeles politician and land speculators to fabricate the 1937 drought in order to force farmers to sell their land at low prices. The plot was rooted in historical fact, reflecting battles between Owens Valley farmers and Los Angeles urbanites over water rights.

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How to Enslave a Country to a Megabank in a Few Easy Steps

Remember when the infamous Goldman Sachs delivered a thinly-veiled threat to the Greek Parliament in December, warning them to elect a pro-austerity prime minister or risk having central bank liquidity cut off to their banks? (See January 6th post here.) It seems the European Central Bank (headed by Mario Draghi, former managing director of Goldman Sachs International) has now made good on the threat.

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How Wall Street's Greedy Tentacles Sank Into Schools, Trapping Them in Massive Debts

The fliers touted new ballfields, science labs and modern classrooms. They didn’t mention the crushing debt or the investment bank that stood to make millions. 

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Why Public Banks Outperform Private Banks: Unfair Competition or a Better Mousetrap?

In November 2014, the Wall Street Journal reported that the Bank of North Dakota (BND), the nation’s only state-owned bank, “is more profitable than Goldman Sachs Group Inc., has a better credit rating than J.P. Morgan Chase & Co. and hasn’t seen profit growth drop since 2003.” The article credited the shale oil boom; but as discussed earlier here, North Dakota was already reporting record profits in the spring of 2009, when every other state was in the red and the oil boom had not yet hit. The later increase in state deposits cannot explain the bank’s stellar record either.

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How Goldman Sachs May Provoke Yet Another Major Financial Crisis

Greece and the troika (the International Monetary Fund, the EU, and the European Central Bank) are in a dangerous game of chicken. The Greeks have been threatened with a Cyprus-Style prolonged bank holidayif they “vote wrong.” But they have been bullied for too long and are saying “no more.”

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Wall Street Is Coming to Fleece Your Town

In an inscrutable move that has alarmed state treasurers, the Federal Reserve, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, just changed the liquidity requirements for the nation’s largest banks. Municipal bonds, long considered safe liquid investments, have been eliminated from the list of high-quality liquid collateral. assets (HQLA). That means banks that are the largest holders of munis are liable to start dumping them in favor of the Treasuries and corporate bonds that do satisfy the requirement.

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Why the Fed Must Act Now to Get Money into the Hands of Ordinary Americans

When an article appears in Foreign Affairs, the mouthpiece of the policy-setting Council on Foreign Relations, recommending that the Federal Reserve do a money drop directly on the 99%, you know the central bank must be down to its last bullet.

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Why We Desperately Need a Global Monetary System That Doesn't Rely on Big Private Banks

Argentina has now taken the US to The Hague for blocking the country’s 2005 settlement with the bulk of its creditors. The issue underscores the need for an international mechanism for nations to go bankrupt. Better yet would be a sustainable global monetary scheme that avoids the need for sovereign bankruptcy.

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The Shadow Banking System is a Great Big Ticking Time Bomb

One thing to be said for the women now heading the Federal Reserve and the IMF: compared to some of their predecessors, they are refreshingly honest. The Wall Street Journal reported on July 2nd:

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Whoa! Big Banks Hit with Monster $250 Billion Lawsuit for Fraud in Housing Crisis

For years, homeowners have been battling Wall Street in an attempt to recover some portion of their massive losses from the housing Ponzi scheme. But progress has been slow, as they have been outgunned and out-spent by the banking titans.

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A Potential Foreclosure Crisis Looms Over America

Former Assistant Treasury Secretary Paul Craig Roberts wrote on June 25th that real US GDP growth for the first quarter of 2014 was a negative 2.9%, off by 5.5% from the positive 2.6% predicted by economists. If the second quarter also shows a decline, the US will officially be in recession. That means not only fiscal policy (government deficit spending) but monetary policy (unprecedented quantitative easing) will have failed. The Federal Reserve is out of bullets.

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Out-of-control Central Banks are Buying Up the Planet

Finance is the new form of warfare – without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means?                                                                                       — Dr. Michael Hudson, Counterpunch, October 2010

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How Banks Rip Off California and Other States on Infrastructure, and How to Fight Back

“The numbers are big. There is sticker shock,” said Jason Peltier, deputy manager of the Westlands Water District, describing Governor Jerry Brown’s plan to build two massive water tunnels through the California Delta. “But consider your other scenarios. How much more groundwater can we pump?”

Whether the tunnels are the best way to get water to the Delta is controversial, but the issue here is the cost. The tunnels were billed to voters as a $25 billion project. However, that estimate omitted interest and fees. Construction itself is estimated at a relatively modest $18 billion. But financing through bonds issued at 5% for 30 years adds $24-40 billion to the tab. Another $9 billion will go to wetlands restoration, monitoring and other costs, bringing the grand total to $51-67 billion – three or four times the cost of construction.

A general rule for government bonds is that they double the cost of projects, once interest has been paid.

The San Francisco Bay Bridge earthquake retrofit was originally slated to cost $6.3 billion, but that was just for salaries and physical materials. With interest and fees, the cost to taxpayers and toll-payers will be over $12 billion.

The bullet train from San Francisco to Los Angeles, another pet project of Jerry Brown and his administration, involves a bond issue approved in 2008 for $10 billion. But when interest and fees are added, $19.5 billion will have to be paid back on this bond, doubling the cost.

And those heavy charges pale in comparison to the financing of “capital appreciation bonds.” As with the “no interest” loans that became notorious in the subprime mortgage crisis, the borrower pays only the principal for the first few years. But interest continues to compound; and after several decades, it can amount to ten times principal or more.

San Diego County taxpayers will pay $1 billion after 40 years for $105 million raised for the Poway Unified School District.

Folsom Cordova used capital appreciation bonds to finance $514,000. The sticker price after interest and fees will be $9.1 million.

In 2013, state lawmakers restricted debt service on capital appreciation bonds to four times principal and limited their term to 25 years. But that still means that financiers receive four times the cost of the project itself – the sort of return considered usurious when we had anti-usury laws with teeth.

Escaping the Interest Trap: The Models of China and North Dakota

California needs $700 billion in infrastructure over the next decade, and the state doesn’t have that sort of money in its general fund. Where will the money come from? Proposals include more private investment, but that means the privatization of what should have been public assets. Infrastructure is touted to investors as the next “fixed income.” But fixed income to investors means perpetual payments by taxpayers and rate-payers for something that should have been public property.

There is another alternative. In the last five years, China has managed to build an impressive 4000 miles of high-speed rail. Where did it get the money? The Chinese government has a hidden funding source: it owns its own banks. That means it gets its financing effectively interest-free.

All banks actually have a hidden funding source. The Bank of England just admitted in its quarterly bulletin that banks don’t lend their deposits. They simply advance credit created on their books. If someone is going to be creating our national money supply and collecting interest on it, it should be we the people, through our own publicly-owned banks.

Models for this approach are not limited to China and other Asian “economic miracles.” The US has its own stellar model, in the state-owned Bank of North Dakota (BND). By law, all of North Dakota’s revenues are deposited in the BND, which is set up as a DBA of the state (“North Dakota doing business as the Bank of North Dakota”). That means all of the state’s capital is technically the bank’s capital. The bank uses its copious capital and deposit pool to generate credit for local purposes.

The BND is a major money-maker for the state, returning a sizable dividend annually to the state treasury. Every year since the 2008 banking crisis, it has reported a return on investment of between 17 percent and 26 percent. While California and other states have been slashing services and raising taxes in order to balance their budgets, North Dakota has actually been lowering taxes, something it has done twice in the last five years.

The BND partners with local banks rather than competing with them, strengthening their capital and deposit bases and allowing them to keep loans on their books rather than having to sell them off to investors or farm the loans out to Wall Street. This practice allowed North Dakota to avoid the subprime crisis that destroyed the housing market in other states.

North Dakota has the lowest unemployment rate in the country, the lowest default rate on credit card debt, one of the lowest foreclosure rates, and the most local banks per capita of any state. It is also the only state to escape the credit crisis altogether, boasting a budget surplus every year since 2008.

Consider the Possibilities

The potential of this public banking model for other states is huge. California’s population is more than 50 times that of North Dakota. California has over $200 billion stashed in a variety of funds identified in its 2012 Comprehensive Annual Financial Report (CAFR), including $58 billion managed by the Treasurer in a Pooled Money Investment Account earning a meager 0.264% annually. California also has over $400 billion in its pension funds (CalPERS and CalSTRS).

This money is earmarked for specific purposes and cannot be spent on the state budget, but it can be invested. A portion could be invested as equity in a state-owned bank, and a larger portion could be deposited in the bank as interest-bearing certificates of deposit. This huge capital and deposit base could then be leveraged by the bank into credit, something all banks do. Since the state would own the bank, the interest would return to the state. Infrastructure could be had interest-free, knocking 50% or more off the sticker price.

By doing its own financing in-house, the state can massively expand its infrastructure without imposing massive debts on future generations. The Golden State can display the innovation and prosperity that makes it worthy of the name once again.

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