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Ellen Brown J.D. Esq.
Associate of Global News Aruba
Executive Consultant to The Editor in Chief
Ellen Brown J.D.
Global News Aruba Associate
Attorney at Law Senior Associate News Reporter
Consultant to The Editor in Chief of Global News Aruba
Executive Editorial Writer
Posted on March 14, 2017 by Ellen Brown
The Canadian plan also helps Canadians live longer and healthier than Americans. . . . We need, as a nation, to reexamine the single-payer plan, as many individual states are doing.
— Donald Trump, The America We Deserve (2000)
The new American Health Care Act has been unveiled, and critics are calling it more flawed even than the Obamacare it was meant to replace. Dubbed “Ryancare” or “Trumpcare” (over the objection of White House staff), the Republican health care bill is under attack from left and right, with even conservative leaders calling it “Obamacare Lite”, “bad policy”, a “warmed-over substitute,” and “dead on arrival.”
The problem for both administrations is that they have been trying to fund a bloated, inefficient, and overpriced medical system with scarce taxpayer funds, without capping its costs. US healthcare costs in 2016 averaged $10,345 per person, for a total of $3.35 trillion dollars, a full 18 percent of the entire economy, twice as much as in other industrialized countries.
Ross Perot, who ran for president in 1992, had the right idea: he said all we have to do is to look at other countries that have better health care at lower cost and copy them.
So which industrialized countries do it better than the US? The answer is, all of them. They all not only provide healthcare for the entire population at about half the cost, but they get better health outcomes than in the US. Their citizens have longer lifespans, fewer infant mortalities and less chronic disease.
President Trump, who is all about getting the most bang for the buck, should love that.
Hard to Argue with Success
The secret to the success of these more efficient systems is that they control medical costs. According to T. R. Reid in The Healing of America, they follow one of three models: the “Bismarck model” established in Germany, in which health providers and insurers are private but insurers are not allowed to make a profit; the “Beveridge model” adopted in Britain, where most healthcare providers work as government employees and the government acts as the single payer for all health services; and the Canadian model, a single-payer system in which the healthcare providers are mostly private.
A single government payer can negotiate much lower drug prices – about half what we pay in the US – and lower hospital prices. Single-payer is also much easier to administer. Cutting out the paperwork can save 30 percent on the cost of insurance. According to a May 2016 post by Physicians for a National Health Program:
Per capita, the U.S. spends three times as much for health care as the U.K., whose taxpayer-funded National Health Service provides health care to citizens without additional charges or co-pays. In 2013, U.S. taxpayers footed the bill for 64.3 percent of U.S. health care — about $1.9 trillion. Yet in the U.S. nearly 30 million of our citizens still lack any form of insurance coverage.
The for-profit U.S. health care system is corrupt, dysfunctional and deadly. In Canada, only 1.5 percent of health care costs are devoted to administration of its single-payer system. In the U.S., 31 percent of health care expenditures flow to the private insurance industry. Americans pay far more for prescription drugs. Last year, CNN reported, Americans paid nearly 10 times as much for prescription Nexium as it cost in the Netherlands.
A friend of mine was in Scotland recently. He got very, very sick. They took him by ambulance and he was there for four days. He was really in trouble, and they released him and he said, ‘Where do I pay?’ And they said, ‘There’s no charge.’ Not only that, he said it was like great doctors, great care. I mean we could have a great system in this country.
Contrary to the claims of its opponents, the single-payer plan of Bernie Sanders would not have been unaffordable. Rather, according to research by University of Massachusetts Amherst Professor Gerald Friedman, it would have generated substantial savings for the government:
Under the single-payer system envisioned by “The Expanded & Improved Medicare For All Act” (H.R. 676), the U.S. could save $592 billion – $476 billion by eliminating administrative waste associated with the private insurance industry and $116 billion by reducing drug prices . . . .
According to OECD health data, in 2013 the British were getting their healthcare for $3,364 per capita annually; the Germans for $4,920; the French for $4,361; and the Japanese for $3,713. The tab for Americans was $9,086, at least double the others. With single-payer at the OECD average of $3,661 and a population of 322 million, we should be able to cover all our healthcare for under $1.2 trillion annually – well under half what we are paying now.
The Problem Is Not Just the High Cost of Insurance
That is true in theory; but governments at all levels in the US already spend $1.6 trillion for healthcare, which goes mainly to Medicare and Medicaid and covers only 17 percent of the population. Where is the discrepancy?
For one thing, Medicare and Medicaid are more expensive than they need to be, because the US government has been prevented from negotiating drug and hospital costs. In January, a bill put forth by Sen. Sanders to allow the importation of cheaper prescription drugs from Canada was voted down. Sanders is now planning to introduce a bill to allow Medicare to negotiate drug prices, for which he is hoping for the support of the president. Trump indicated throughout his presidential campaign that he would support negotiating drug prices; and in January, he said that the pharmaceutical industry is “getting away with murder” because of what it charges the government. As observed by Ronnie Cummins, International Director of the Organic Consumers Association, in February 2017:
. . . [B]ig pharmaceutical companies, for-profit hospitals and health insurers are allowed to jack up their profit margins at will. . . . Simply giving everyone access to Big Pharma’s overpriced drugs, and corporate hospitals’ profit-at-any-cost tests and treatment, will result in little more than soaring healthcare costs, with uninsured and insured alike remaining sick or becoming even sicker.
Besides the unnecessarily high cost of drugs, the US medical system is prone to over-diagnosing and over-treating. The Congressional Budget Office says that up to 30 percent of the health care in the US is unnecessary. We use more medical technology then in other countries, including more expensive diagnostic equipment. The equipment must be used in order to recoup its costs. Unnecessary testing and treatment can create new health problems, requiring yet more treatment, further driving up medical bills.
Drug companies are driven by profit, and their market is sickness – a market they have little incentive to shrink. There is not much profit to be extracted from quick, effective cures. The money is in the drugs that have to be taken for 30 years, killing us slowly. And they are killing us. Pharmaceutical drugs taken as prescribed are the fourth leading cause of US deaths, after heart disease, cancer and stroke.
The US is the only industrialized country besides New Zealand that allows drug companies to advertise pharmaceuticals. Big Pharma spends more on lobbying than any other US industry, and it spends more than $5 billion a year on advertising. Lured by drug advertising, Americans are popping pills they don’t need, with side effects that are creating problems where none existed before. Americans compose only 5 percent of the world’s population, yet we consume fully 50 percent of Big Pharma’s drugs and 80 percent of the world’s pain pills. We not only take more drugs (measured in grams of active ingredient) than people in most other countries, but we have the highest use of new prescription drugs, which have a 1 in 5 chance of causing serious adverse reactions after they have been approved.
The US death toll from prescription drugs taken as prescribed is now 128,000 per year. As Jon Rappaport observes, with those results Big Pharma should be under criminal investigation. But the legal drug industry has grown too powerful for that. According to Dr. Marcia Angell, former editor in chief of the New England Journal of Medicine, writing in 2002:
The combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion). Over the past two decades the pharmaceutical industry has [become] a marketing machine to sell drugs of dubious benefit, [using] its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself.
It’s Just Good Business
US healthcare costs are projected to grow at 6 percent a year over the next decade. The result could be to bankrupt not only millions of consumers but the entire federal government.
Obamacare has not worked, and Ryancare is not likely to work. As demonstrated in many other industrialized countries, single-payer delivers better health care at half the cost that Americans are paying now.
Winston Churchill is said to have quipped, “You can always count on the Americans to do the right thing after they have tried everything else.” We need to try a thrifty version of Medicare for all, with negotiated prices for drugs, hospitals and diagnostic equipment
Ellen Brown is the founder of the Public Banking Institute and a Research Fellow at the Democracy Collaborative. She is the author of a dozen books including the best-selling Web of Debt, on how the power to create money was usurped by a private banking cartel; and The Public Bank Solution, on how the people can reclaim that power through a network of publicly-owned banks. She has written over 300 articles, posted at EllenBrown.com; and co-hosts a radio program on PRN.FM called “It’s Our Money with Ellen Brown.”
Posted on January 26, 2017 by Ellen Brown
Americans could save $1 trillion over 10 years by financing infrastructure through publicly-owned banks like the one that has long been operating in North Dakota.
President Donald Trump has promised to rebuild America’s airports, bridges, tunnels, roads and other infrastructure, something both Democrats and Republicans agree should be done. The country
needs a full $3 trillion in infrastructure over the next decade. The $1 trillion plan revealed by Trump’s economic advisers relies heavily on public-private partnerships, and private equity firms are lining up for these plumbing investments. In the typical private equity water deal, for example, higher user rates help the firms earn annual returns of anywhere from 8 to 18 percent – more even than a regular for-profit water company might expect. But the price tag can come as a rude surprise for local ratepayers.
Private equity investment now generates an average return of about 11.8% annually on a 10-year basis. For infrastructure investment, those profits are made on tolls and fees paid by the public. Even at simple interest, that puts the cost to the public of financing $1 trillion in infrastructure projects at $1.18 trillion, more than doubling the cost. Cities often make these desperate deals because they are heavily in debt and the arrangement can give them cash up front. But as a 2008 Government Accountability Office report warned, “there is no ‘free’ money in public-private partnerships.” Local residents wind up picking up the tab.
There is a more cost-effective alternative. The conservative state of North Dakota is funding infrastructure through the state-owned Bank of North Dakota (BND) at 2% annually. In 2015, the North Dakota legislature established a BND Infrastructure Loan Fund program that made $50 million in funds available to communities with a population of less than 2,000, and $100 million available to communities with a population greater than 2,000. These loans have a 2% fixed interest rate and a term of up to 30 years. The proceeds can be used for the new construction of water and treatment plants, sewer and water lines, transportation infrastructure and other infrastructure needs to support new growth in a community.
If the Trump $1 trillion infrastructure plan were funded at 2% over 10 years, the interest tab would come to only $200 billion, nearly $1 trillion less than the $1.18 trillion expected by private equity investors. Not only could residents save $1 trillion over 10 years on tolls and fees, but they could save on taxes, since the interest would return to the government, which owned the bank. In effect, the loans would be nearly interest-free to the government.
New Money for Local Economies
Legislators in cash-strapped communities are likely to object, “We can’t afford to lend our revenues. We need them for our budget.” But banks do not lend their deposits. They actually create new money in the form of bank credit when they make loans. That means borrowing from its own bank is not just interest-free to the local government but actually creates new money for the local economy.
As economists at the Bank of England acknowledged in a March 2014 report titled “Money Creation in the Modern Economy”, the vast majority of the money supply is now created by banks when they make loans. The authors wrote:
The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. . . . Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. [Emphasis added.]
Money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The BOE report said that private banks now create nearly 97 percent of the money supply in this way.
Richard Werner, Chair of International Banking at the University of Southampton in the UK, argues that to get much-needed new money into local economies, rather than borrowing from private investors who cannot create the money they lend, governments should borrow from banks, which create money in the form of deposits when they make loans. And to get that money interest-free, a government should borrow from its own bank, which returns the interest to the government.
Besides North Dakota, many other states and cities are now exploring the public bank option. Feasibility studies done at both state and local levels show that small businesses, employment, low-cost student loans, affordable housing and greater economic stability will result from keeping local public dollars out of the global banking casinos and in the local community. Legislation for public banks is actively being pursued in Washington State, Michigan, Arizona, Philadelphia, Santa Fe, and elsewhere. Phil Murphy, the front-running Democratic candidate for New Jersey governor, is basing his platform on a state-owned bank, which he says could fund much-needed infrastructure and other projects.
New Money for a Federal Infrastructure Program
What about funding a federal infrastructure program with interest-free money? Tim Canova, Professor of Law and Public Finance at Nova Southeastern University, argues that the Federal Reserve could capitalize a national infrastructure bank with money generated on its books as “quantitative easing.” (Canova calls it “qualitative easing” – central bank-generated money that actually gets into the real economy.) The Federal Reserve could purchase shares, whether as common stock, preferred stock or debt, either in a national infrastructure bank or in a system of state-owned banks that funded infrastructure in their states. This could be done, says Canova, without increasing taxes, adding to the federal debt or hyperinflating prices.
Another alternative was proposed in 2013 by US Sen. Bernie Sanders and US Rep. Peter DeFazio. They called for a national infrastructure bank funded by the US Postal Service (which did provide basic banking services from 1911 to 1967). With post offices in nearly every community, the USPS has the physical infrastructure for a system of national public banks. In the Sanders/DeFazio plan, deposits would be invested in government securities used to finance infrastructure projects. Besides financing infrastructure without raising taxes, the plan could save the embattled USPS itself, while providing banking services for the one in four households that are unbanked or under-banked.
Reliance on costly private capital for financing public needs has limited municipal growth and reduced public services, while strapping future generations with unsustainable debt. By eliminating the unnecessary expense of turning public dollars into profits for private equity interests, publicly-owned banks can allow the public to retain ownership of its infrastructure while cutting costs nearly in half.
Ellen Brown is the founder of the Public Banking Institute and a Fellow at the Democracy Collaborative. She is the author of a dozen books including the best-selling Web of Debt, on how the power to create money was usurped by a private banking cartel, and The Public Bank Solution, on how the people can reclaim that power through a network of publicly-owned banks.
Posted on December 21, 2016 by Ellen Brown
It has been called “a bigger risk than Brexit”– the Italian banking crisis that could take down the eurozone. Handwringing officials say “there is no free lunch” and “no magic bullet.” But UK Prof. Richard Werner says the magic bullet is just being ignored.
On December 4, 2016, Italian voters rejected a referendum to amend their constitution to give the government more power, and the Italian prime minister resigned. The resulting chaos has pushed Italy’s already-troubled banks into bankruptcy. First on the chopping block is the 500 year old Banca Monte dei Paschi di Siena SpA (BMP), the oldest surviving bank in the world and the third largest bank in Italy. The concern is that its loss could trigger the collapse of other banks and even of the eurozone itself.
There seems little doubt that BMP and other insolvent banks will be rescued. The biggest banks are always rescued, no matter how negligent or corrupt, because in our existing system, banks create the money we use in trade. Virtually the entire money supply is now created by banks when they make loans, as the Bank of England has acknowledged. When the banks collapse, economies collapse, because bank-created money is the grease that oils the wheels of production.
So the Italian banks will no doubt be rescued. The question is, how? Normally, distressed banks can raise cash by selling their non-performing loans (NPLs) to other investors at a discount; but recovery on the mountain of Italian bad debts is so doubtful that foreign investors are unlikely to bite. In the past, bankrupt too-big-to-fail banks have sometimes been nationalized. That discourages “moral hazard” – rewarding banks for bad behavior – but it’s at the cost of imposing the bad debts on the government. Further, new EU rules require a “bail in” before a government bailout, something the Italian government is desperate to avoid. As explained on a European website called Social Europe:
The EU’s banking union, which came into force in January 2016, prescribes that when a bank runs into trouble, existing stakeholders – namely, shareholders, junior creditors and, sometimes, even senior creditors and depositors with deposits in excess of the guaranteed amount of €100,000 – are required to take a loss before public funds can be used . . . .
[The problem is that] the subordinated bonds that would take a hit are not simply owned by well-off families and other banks: as much as half of the €60 billion of subordinated bonds are estimated to be owned by around 600,000 small savers, who in many cases were fraudulently mis-sold these bonds by the banks as being risk-free (as good as deposits basically).
The government got a taste of the potential backlash a year ago, when it forced losses onto the bondholders of four small banks. One victim made headlines when he hung himself and left a note blaming his bank, which had taken his entire €100,000 savings.
Goldman Sachs Weighs In
It is not just the small savers that are at risk. According to a July 2016 article titled “Look Who’s Frantically Demanding That Taxpayers Stop Italy’s Bank Meltdown”:
The total exposure of French banks and private investors alone to Italian government debt exceeds €250 billion. Germany holds €83.2 billion worth of Italian bonds. Deutsche bank alone has nearly €12 billion worth of Italian bonds on its books. The other banking sectors most at risk of contagion are Spain (€44.6 billion), the U.S. (€42.3 billion) the UK (€29.8 billion) and Japan (€27.6 billion).
. . . All of which helps to explain why banks and their representatives at the IMF and the ECB are frantically demanding a no-expenses-spared taxpayer-funded rescue of Italy’s banking system.
It could also explain why Goldman Sachs took it upon itself to propose a way out of this dilemma: instead of buying Italian government bonds in their quantitative easing program, the ECB and the central bank of Italy could buy the insolvent banks’ nonperforming loans.
As observed in a July 2016 article in The Financial Times titled “Goldman: Italy’s Bank Saga – Not Such a Big Deal,” Italy’s NPLs then stood at €210bn, and the ECB was buying €120bn per year of outstanding Italian government bonds as part of its quantitative easing (QE) scheme. The author quoted Goldman’s Francesco Garzarelli, who said, “by the time QE is over – not sooner than end 2017, on our baseline scenario – around a fifth of Italy’s public debt will be sitting on the Bank of Italy’s balance sheet.” Bringing the entire net stock of bad loans onto the government’s balance sheet, he said, would be equivalent to just nine months’ worth of Italian government bond purchases by the ECB.
Buying bank debt with money generated by the central bank would rescue the banks without cost to the taxpayers, the bondholders or the government. So why hasn’t this option been pursued?
The Inflation Objection
Perhaps the concern is that it would be inflationary. But UK Prof. Richard Werner, who invented the term “quantitative easing” when he was advising the Japanese in the 1990s, says inflation would not result. In 2012, he proposed a similar solution to the European banking crisis, citing three successful historical precedents.
One was the US Federal Reserve’s quantitative easing program, in which it bought $1.7 trillion in mortgage-backed securities from the banks. These securities were widely understood to be “toxic” – Wall Street’s own burden of NPLs. The move was highly controversial, but it worked for its intended purpose: the banks did not collapse, the economy got back on its feet, and the much-feared inflation did not result. Werner says this was because no new money entered the non-bank economy. The QE was just an accounting maneuver, an asset swap in the reserve accounts of the banks themselves.
His second example was in Britain in 1914, when the British banking sector collapsed after the government declared war on Germany. This was not a good time for a banking crisis, so the Bank of England simply bought the banks’ NPLs. “There was no credit crunch,” wrote Werner, “and no recession. The problem was solved at zero cost to the tax payer.”
For a third example, he cited the Japanese banking crisis of 1945. The banks had totally collapsed, with NPLs that amounted to virtually 100 percent of their assets:
But in 1945 the Bank of Japan had no interest in creating a banking crisis and a credit crunch recession. Instead it wanted to ensure that bank credit would flow again, delivering economic growth. So the Bank of Japan bought the non-performing assets from the banks – not at market value (close to zero), but significantly above market value.
In each of these cases, Werner wrote:
The operations were a complete success. No inflation resulted. The currency did not weaken. Despite massive non-performing assets wiping out the solvency and equity of the banking sector, the banks’ health was quickly restored. In the UK and Japanese case, bank credit started to recover quickly, so that there was virtually no recession at all as a result.
For Italy and other “peripheral” eurozone countries, Werner suggests a two-pronged approach: (1) the central bank should buy the distressed banks’ NPLs with QE, and (2) the government should borrow from the banks rather than from bondholders. Borrowing in the bond market fattens the underwriters but creates no new money in the form of bank credit for the economy. Borrowing from banks does create new money as bank credit. (See my earlier article here.)
Clearly, when central banks want to save the banking system without cost to the government or the people, they know how to do it. So the question remains, why hasn’t the ECB followed the Federal Reserve’s lead and pursued this option?
The Moral Hazard Objection
Perhaps it is because banks that know they will be rescued from their bad loans will keep making bad loans. But the same moral hazard would ensue from a bailout or a bail-in, which virtually all interested parties seem to be advocating. And as was observed in an article titled “Italy: Banking Crisis or Euro Crisis?”, the cause of the banks’ insolvency in this case was actually something beyond the banks’ control – the longest and deepest recession in Italy’s history.
Werner argues that the moral hazard argument should instead be applied to the central bank, which actually was responsible for the recession due to the massive credit bubbles its policies allowed and encouraged. Rather than being punished for these policies, however, the ECB has been rewarded with even more power and control. Werner writes:
There is thus a form of regulatory moral hazard in place: regulators that obtain more powers after crises may not have sufficient incentives to avoid such crises.
What May Really Be Going On
Werner and other observers suspect that saving the economies of the peripheral eurozone countries is not the real goal of ECB policy. Rather, the ECB and the European Commission are working to force a political union on the eurozone countries, one controlled by unelected bureaucrats in the service of a few very large corporations and banks. Werner quotes David Shipley on Bloomberg:
Central bank officials may be hoping that by keeping the threat of financial Armageddon alive, they can coerce the region’s people and governments into moving toward the deeper union that the euro’s creators envisioned.
ECB and EC officials claim that “there is no free lunch” and “no alternative,” says Werner. But there is an alternative, one that is cost-free to the people and the government. The European banks could be rescued by the central bank, just as US banks were rescued by the Federal Reserve.
To avoid the moral hazard of bank malfeasance in the future, the banks could then be regulated so that they were harnessed to serve the public interest, or they could be nationalized. This could be done without cost to the government, since the NPLs would have been erased from the books.
For a long-term solution, the money that is now created by banks in pursuit of their own profit either needs to be issued by governments (as has been done quite successfully in the past, going back to the American colonies) or it needs to be created by banks that are required to serve the public interest. And for that to happen, the banks need to be made public utilities.
Ellen Brown is an attorney and author of twelve books, including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. She can be heard biweekly on “It’s Our Money with Ellen Brown” on PRN.FM.