Don Kenobi
/ 83.5.240.* / 2009-06-13 13:30
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When Abraham Lincoln needed money to fund the American Civil War, rather than paying 25 to 36 percent interest charges, he avoided going into debt by printing Greenback dollars that were “legal tender” in themselves. The ploy not only allowed the North to win the Civil War but helped fund a period of unusual national expansion and development.
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The island state of Guernsey, located in the Channel Islands, used government-issued money to fund roads, bridges, and other needed infrastructure throughout most of the 19th and 20th centuries, without price inflation and without incurring government debt.
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The Bank of North Dakota, founded in 1919, is a wholly state-owned bank that creates credit on its books just as private banks do. This credit is used to serve local needs, and the interest on loans is returned to the government. Not coincidentally, North Dakota has a $1.2 billion budget surplus at a time when 47 of 50 states are insolvent, an impressive achievement for a state of isolated farmers battling challenging weather.
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During the First World War, when private banks were demanding 6 percent interest, Australia’s publicly-owned Commonwealth Bank financed the Australian government’s war effort at an interest rate of a fraction of 1 percent, saving Australians some $12 million in bank charges. After the First World War, the bank’s governor used the bank’s credit power to relieve the depression conditions in other countries by financing production and home-building, and lending funds to local governments for the construction of roads, tramways, harbors, gasworks, and electric power plants. The bank’s profits were paid back to the national government.
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A successful infrastructure program funded with interest-free “national credit” was also instituted in New Zealand after it elected its first Labor government in the 1930s. Credit issued by its nationalized central bank allowed New Zealand to thrive at a time when the rest of the world was struggling with poverty and lack of productivity. According to a book titled State Housing in New Zealand, published by the Ministry of Works in 1949:
“To finance its comprehensive proposals, the Government adopted the somewhat unusual course of using Reserve Bank credit, thus recognizing that the most important factor in housing costs is the price of money—interest is the heaviest portion in the composition of rent. … This action showed … it was possible for the State to use the country’s credit in creating new assets for the country.”