As was mentioned in this column last week, given the defeat of tax hike propositions in California, the state is in a real quandary to find $24 billion dollars by July to close its budget gap. Without those funds or new debt guaranteed by the federal government, California will face insolvency by mid-summer. Unlike Washington, Sacramento cannot just print money out of thin air to put off paying its bills indefinitely. Even that technique of monetary policy will soon catch up with the entire country when people begin spending and prices hit the roof. No, it seems the only way for the Gold Plated State to settle its fiscal woes is to cut payrolls and services.
Not so fast you doomsayers, Ellen Brown, author of Web of Debt, and blogger on the leftist Huffington Post believes she has come up with a scheme to keep the socialistic gravy train in the state rolling without interruption. She admits California cannot print its own money, but it can open a state-owned bank that can create money through credit entries on its books. To explain how it would work she quotes the webpage for the Federal Reserve Bank of Dallas:
Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank...holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times.Pretty neat huh, new money is created by a simple accounting entry and then loaned out again. Because it owns the bank, the state can afford itself a sweetheart deal by giving itself rates below market value and then roll those loans over as needed until revenues had been generated to pay them off. Brown credits the state-owned bank in North Dakota for that state being one of only three currently that are solvent. She also believes North Dakota’s GNP and personal income growth is directly related to the bank’s operation. One can have their cake and eat it too in the Peace Garden State.
Article comments
1 - Dave Nalle
Kenn, you're confusing me. I thought you opposed fed-style banking?
Dave
2 - Clavos
Dave,
Are you being ironic?
3 - Dave Nalle
Possibly.
Dave
4 - El Senor
I don't know about that. But one thing that might save California.
5 - Kenn Jacobine
Dave,
I do - where is the confusion?
Kenn
6 - Bliffle
A shallow analysis of inflation. It ignores the justifiable source of inflationary pressure caused by increasing population and productivity, which means that policy revolves around who benefits from inflation.
Anyway, CA doesn't have very high welfare and tax sources are throttled by the old prop 13 law which flagrantly misallocates tax sources and the ability of the a small minority to hold up any budget.
Also, prison costs are high because of the prosecution of marijuana users and handlers.
7 - Bliffle
"As was mentioned in this column last week, given the defeat of tax hike propositions in California..."
There is considerable opinion around here (admittedly, the liberal SF area) that rejection was not over the (tepid) tax proposals but rather the cowardice and laziness of the legislature and governor in pushing this problem onto the voters instead of solving this themselves and thus earning their pay.
Who needs a government body like that?
8 - Kenn Jacobine
Bliffle,
How does increasing population and productivity cause inflation? Increased productivity and a stable money supply would actually cause deflation. Population growth has nothing to do with inflation. Inflation is caused by too many dollars chasing too few goods. Under our current fiat money system any inflation is always the fault of the Federal Reserve which prints the money. They either miscalculate the need for new dollars or don't care (like is currently happening).