The Public Bank Solution: From Austerity to Prosperity by Ellen Brown

Author:Ellen Brown [Brown, Ellen]
Language: eng
Format: epub
Tags: Banks and Banking
Publisher: Third Millennium Press
Published: 2013-11-06T19:00:00+00:00

The use of the Japanese Postal Savings System (JPB) to fund the government without taxing the people is similar to President Franklin Roosevelt’s use of the Reconstruction Finance Corporation for that purpose. But in the Japanese version, the government-owned financing entity is actually a bank, having the powers of a bank to advance credit by double-entry bookkeeping. No bonds need to be sold to outsiders. The whole operation occurs in-house, using the deposited savings of the Japanese people.

According to a University of Leipzig discussion paper called “Behold the ‘Behemoth’—The Privatization of Japan Post Bank,” Japan’s public banking sector was already fully developed by the end of World War II. It had a postal banking system that went back to 1875. The postal banks were a popular place for the Japanese people to park their savings, and they had built up a massive deposit base. This pool of funds formed the basis of a unique and opaque system of borrowing and lending sometimes referred to as “Japan’s second budget.” 374

The postal savings banks competed with private savings banks, which paid higher interest rates but were considered less safe than the government’s banks. Postal savings banks specialized in offering small accounts for low-income households. They were attractive to savers because they offered special time deposits on quite favorable terms. The result was a massive accumulation of publicly-held household savings, which were channeled by the government to wherever the money was needed. The funding arrangement was formalized after the Second World War as a system called FILP (Fiscal Investment and Loan Plan), which turned postal services into a huge, opaque pool for funding local governments, government-affiliated public companies, and specialized government lending institutions. Lending was guided by the Ministry of Finance (MoF), the government body in charge of public finance and monetary affairs. Funds allocated to FILP did not place a burden on the taxpayers, and they did not require parliamentary approval.

The depositors’ savings remained available to the depositors on short notice without penalty, even when they had at the same time been lent out. The system worked because most people left their money in the bank, so there was always plenty to shift around in the pool. People’s savings remained very liquid, and interest-rate risks were reduced. What distinguished the system from the creation of credit by private banks was that this credit was directly accessible by the government for public use. Many countries have government-sponsored loan programs, but the Japanese program was remarkable for its size. By 2001, the FILP program involved over 400 trillion yen, a sum equal to 82 percent of Japan’s GDP. Nearly half the government’s spending was funded by borrowing from the savings accounts of the Japanese people themselves.

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