California Dreamin': How the State Can Beat Its Budget Woes

[D-Mack]

...

Creative Problem Solving

The situation looks pretty dire, but it may just need some thinking outside the box. The law does not allow the States to issue "bills of credit," but it does allow them to create another form of money called "checkbook" money. All a State has to do is to form its own bank. Quoting again from the Cornell University Law School Annotated Constitution:

Bills issued by state banks are not bills of credit; it is immaterial that the State is the sole stockholder of the bank, that the officers of the bank were elected by the state legislature, or that the capital of the bank was raised by the sale of state bonds.

If private banks can create credit on their books, so can the world's eighth largest economy. Indeed, there is longstanding precedent for this approach. The State of North Dakota has owned its own bank for nearly a century. North Dakota is one of only two States (along with Montana) that are not currently facing budget shortfalls. North Dakota has beaten the Wall Street credit freeze by generating its own credit. By law, ever since 1919 the State's revenues have been deposited in its own bank, the Bank of North Dakota (BND). Using the "fractional reserve" lending scheme open to all banks, these deposits are then available to be used as the "reserves" for creating many times their face value in loans. Other banks in the State do not see the BND as a threat, because it partners with them and backstops them, serving as a sort of central bank for North Dakota. BND's loans are not insured by the Federal Deposit Insurance Corporation (FDIC) but are guaranteed by the State.



If California followed suit, it would not need to meet the FDIC's capital requirements but could designate state-owned property (parks, buildings and so forth) as its capital base. Applying the "multiplier effect" by which capital is lent and relent many times over, this base could then generate hundreds of billions of dollars in "credit." The State could deposit its revenues in the State bank and pay its payroll through it, generating an even larger deposit base for making new loans. Enough credit could be generated to allow the State not only to meet its short-term budget needs but to buy back its outstanding bonds (or debt). Bond interest and redemption costs on California's General Fund for the current year are estimated at nearly $5 billion -- about 20% of the budget shortfall. All of that money could be saved in interest, since the State would be paying interest to itself.

...

http://www.huffingtonpost.com/ellen-..._b_228036.html

I bet Ahnold would never allow such a thing

[kartius919]

Re: California Dreamin': How the State Can Beat Its Budget Woes

So California should print its own money? Is that the gist of what she is saying? Money based on the the fictitious notion that it is backed by the land and productivity of CA. It won't be unconstitutional because its "checkbook money." Some law school journal said so, so it must be true! Then we can slap on a multiplier of 1 someimaginary-illion through the bank of CA and all our money troubles would be over. Seriously, am I missing something?

[touchring]

Re: California Dreamin': How the State Can Beat Its Budget Woes

So California should print its own money? Is that the gist of what she is saying? Money based on the the fictitious notion that it is backed by the land and productivity of CA. It won't be unconstitutional because its "checkbook money." Some law school journal said so, so it must be true! Then we can slap on a multiplier of 1 someimaginary-illion through the bank of CA and all our money troubles would be over. Seriously, am I missing something?

so what do we call this? terminator dollars?

it will be interesting to see what will happen if terminator dollar starts to appreciate against the us dollar. ;)

[Starving Steve]

Re: California Dreamin': How the State Can Beat Its Budget Woes

So California should print its own money? Is that the gist of what she is saying? Money based on the the fictitious notion that it is backed by the land and productivity of CA. It won't be unconstitutional because its "checkbook money." Some law school journal said so, so it must be true! Then we can slap on a multiplier of 1 someimaginary-illion through the bank of CA and all our money troubles would be over. Seriously, am I missing something?

One thing, more than anything else, bankrupted California: reducing property taxes much tooooooooooooooooooo darn low, thanks to Proposition 13.

For the kids here: Prop. 13 was passed by the people during the so-called Reagan Revolution. Governor Reagan lead the tax revolt.

After Prop 13, homes skyrocketed in price, especially enriching the rich. The State was denied revenue, and the bill for this tax revolt was handed to next generation--- you kids now......... Enjoy.

Yes, civil servants ripped-off the system and yes, senior teachers got fabulous retirements courtesy of the State, but the real cause of this State bankruptcy now is Proposition 13. Make no mistake about that.

[goadam1]

Re: California Dreamin': How the State Can Beat Its Budget Woes

The IOU opens the door to a new kind of currency living in a netherworld between muni bonds and us dollars. If it is acceptable as a form of payment and has any secondary use as a form of payment or tradeanle for other objects of worth, then it is "legite." countries do it all the time and the currency is backed by potential taxes on productivity, the strength of it's institutions, etc.. Why not have a central state bank that issues money that is really debt?

[yernamehear]

Re: California Dreamin': How the State Can Beat Its Budget Woes

No, Prop 13 is not the main cause of the problem(s) in CA, and no, Reagan was not the leader of the Prop 13 movement. (I was there then, graduated from two universities there, and lived there for 20 years).

The property taxes are mostly for schools. The other stuff is customarily funded by income tax. Those are already very high. All of the usual suspects are the causes: too many entitlements/social programs (especially for illegals), RE pyramid scheme stuff (sub-prime/liar loans, multi-generational loaning to get 1st time buyers into the RE market). A very bad elixir.

The previous governor was also run-off because he didn't give the population what they wanted: a free lunch. Pick your poison, D or R, it doesn't matter. There's only so much economic resource to go around and the bill is coming due in CA. The rest of the US will help pay it... yet another too big to fail problem.

[Starving Steve]

Re: California Dreamin': How the State Can Beat Its Budget Woes

The IOU opens the door to a new kind of currency living in a netherworld between muni bonds and us dollars. If it is acceptable as a form of payment and has any secondary use as a form of payment or tradeanle for other objects of worth, then it is "legite." countries do it all the time and the currency is backed by potential taxes on productivity, the strength of it's institutions, etc.. Why not have a central state bank that issues money that is really debt?

During the Lesser Depression of the 1930s, Alberta issued Prosperity Certificates for dollar bills. The Prosperity Certificate did pass as money.

The interesting thing about the Prosperity Certificate was that to keep passing the certicate hand-to-hand, a one cent Alberta stamp had to be afixed onto the back of the certicate. So a one cent stamp had to be bought from the Province with one real cent in Canadian money. After 104 stamps were afixed to the Prosperity Certicate ( on the back ), the certificate was fully redeemable by the Province of Alberta for one dollar in Canadian money.

I believe each week, a new penny stamp had to be added to the certificate, so if the certificate was current in its stamps, it was worth one dollar by fiat. And to pass the certificate, as I said, you had to add a stamp.

The scheme worked, and the Province made money on the scheme as well. As I said, the certificates became dollar bills within the province of Alberta.

To-day, Prosperity Certificates are a collectors' item and are quite valuable, especially in mint condition or near mint condition, especially if they have some tax stamps afixed on the back of the certificate.

California needs to think about what Alberta did, instead of just issuing interest-paying IOUs and promising to redeem the IOUs in October of this year. As I said, Alberta made money on prosperity certificates. The certificates worked well for everyone.

[Mashuri]

Re: California Dreamin': How the State Can Beat Its Budget Woes

One thing, more than anything else, bankrupted California: reducing property taxes much tooooooooooooooooooo darn low, thanks to Proposition 13.

For the kids here: Prop. 13 was passed by the people during the so-called Reagan Revolution. Governor Reagan lead the tax revolt.

After Prop 13, homes skyrocketed in price, especially enriching the rich. The State was denied revenue, and the bill for this tax revolt was handed to next generation--- you kids now......... Enjoy.

Yes, civil servants ripped-off the system and yes, senior teachers got fabulous retirements courtesy of the State, but the real cause of this State bankruptcy now is Proposition 13. Make no mistake about that.

Prop 13 has been more than made up for in the back end. Try building anything in CA and see how many fees get piled up by the tens of thousands. This, of course, has to get priced into the home. No, CA is bankrupt the good old fashioned way: Out of control spending.

[cjppjc]

Re: California Dreamin': How the State Can Beat Its Budget Woes

There have been a few references to the Bank of North Dakota before. I either forgot or never understood why it had made a difference to the states finances.

Does it serve a benifit I don't understand? Or are the politicians in Nouth Dakota, and Montana just better at paying for services?

[Master Shake]

Re: California Dreamin': How the State Can Beat Its Budget Woes

One thing, more than anything else, bankrupted California: reducing property taxes much tooooooooooooooooooo darn low, thanks to Proposition 13.

For the kids here: Prop. 13 was passed by the people during the so-called Reagan Revolution. Governor Reagan lead the tax revolt.

After Prop 13, homes skyrocketed in price, especially enriching the rich. The State was denied revenue, and the bill for this tax revolt was handed to next generation--- you kids now......... Enjoy.

Yes, civil servants ripped-off the system and yes, senior teachers got fabulous retirements courtesy of the State, but the real cause of this State bankruptcy now is Proposition 13. Make no mistake about that.

I'm sure all the government services provided to illegal aliens, including incarceration, have nothing to do with it. It's those greedy f-ing taxpayers.

[goadam1]

Re: California Dreamin': How the State Can Beat Its Budget Woes

No, Prop 13 is not the main cause of the problem(s) in CA, and no, Reagan was not the leader of the Prop 13 movement. (I was there then, graduated from two universities there, and lived there for 20 years).

The property taxes are mostly for schools. The other stuff is customarily funded by income tax. Those are already very high. All of the usual suspects are the causes: too many entitlements/social programs (especially for illegals), RE pyramid scheme stuff (sub-prime/liar loans, multi-generational loaning to get 1st time buyers into the RE market). A very bad elixir.

The previous governor was also run-off because he didn't give the population what they wanted: a free lunch. Pick your poison, D or R, it doesn't matter. There's only so much economic resource to go around and the bill is coming due in CA. The rest of the US will help pay it... yet another too big to fail problem.

I went to public school all the way through university in California. A few years after prop 13 passed, they started cutting program after program. First phys ed then band and on and on. Some of the stuff was restored through ceaseless bond measures. Debt and debt instead of paying for what you should think is valuable now (good schools over a third car). We live in the results of supply side economics. It was a fun run.

Meanwhile, my head says, " wow, state bankruptcy is a big deal." but I wouldn't even bother bringing up the topic with polite company. Somehow the can gets kicked down the road.

At some point common sense should prevail. But why doesn't the reckoning ever come. Why does phony debt and what seems like irrational and magically stpupid behavior actuAlly benifet so many.

[goadam1]

Re: California Dreamin': How the State Can Beat Its Budget Woes

F.y.I. The iPhone a terrible for posting comments in online forums.

[D-Mack]

Re: California Dreamin': How the State Can Beat Its Budget Woes

F.y.I. The iPhone a terrible for posting comments in online forums.

Then try the Nintendo DSi with Opera:mad:

[Starving Steve]

Re: California Dreamin': How the State Can Beat Its Budget Woes

I'm sure all the government services provided to illegal aliens, including incarceration, have nothing to do with it. It's those greedy f-ing taxpayers.

Gee, I thought Reagan's supply-side economics was going to work, so that California and America would grow their way out of these deficits.

Gosh, I remember the Republicans, the RePUKES: "Deficits don't count." "Blame the 'welfare queens'." "We are the greatest nation on Earth." "We need a strong defence." "It's the 'illegal-aliens'." "English-only and phonics for the schools." "We can grow our way out of any problems." "Blame the liberals!" "Cut taxes and less government." "Speak Engggggggggggglish." "One nation under God." "There you go again." "The Democrats are the nay-sayers." "Our founding-fathers....blah, blah, blah." "Our Constitution....blah, blah, blah." "Our flag stands for freedom... blah, blah, blah". "Capitalism is the only system that works." "Greed is good." "We are the envy of the world." "Deficits are the result of taxes being too high." "The 'plain folks' in the middle of America have not been heard from." "Trickle-down economics" "Peace through strength." "Socialism never worked." "Guns make us free." "Build more prisons." "Hang 'em high." "Stalin was worse than Hitler." "Stalin killed 20 million." "America saved the world." "Just unleash the power of free-enterprise." "The American healthcare system is the best in the world." "The American healthcare system does not need changing." "The government is trying to steal our healthcare system."

These were the Reagan and Bush chants and codes to their fellow Republicans, especially in the South and the Midwest, and heard especially on FOX News. This went on day-after-day, night-after-night from 1970 until 2008.......... Now look at the mess they have left. Just look! And look at Arnold's mess in California!

Even now, mostly out of power in Washington, you hear these chants coming from the Republicans, especially on their FOX channel........ As I said: The Re-PUKES!!!!!!!!!!!!!!!!!!!! :mad:

[Rajiv]

Re: California Dreamin': How the State Can Beat Its Budget Woes

Here is Ellen Brown's article on North Dakota

Cash-Starved States Need To Play The Banking Game: North Dakota Shows How

Wikipedia entry on Bank of North Dakota

The Bank of North Dakota (BND) is a state-owned and -run financial institution based in Bismarck, North Dakota. Under state law the bank is the State of North Dakota doing business as the Bank of North Dakota.

All state and local government agencies are required to place their funds in the bank. Other entities may also open accounts at the Bank; however, BND offers fewer retail services than other institutions, and has only one office, limiting its competitiveness in consumer banking.

Instead, BND has taken a role more akin to a central bank, and has many functions, such as check clearing, that might be expected from a branch office of the Federal Reserve. The Bank does have an account with the Federal Reserve Bank, but deposits are not insured by the Federal Deposit Insurance Corporation, instead being guaranteed by the State of North Dakota itself.

BND also guarantees student loans (through its Student Loans of North Dakota division), business development loans, and state and municipal bonds.

Though initially conceived by Non-Partisan League populists as a credit union-style institution to free the farmers of the state from predatory lenders, the Bank's functions were largely neutered by the time of its inception by the business-backed Independent Voters Association. The recall of NPL Governor Lynn Frazier effectively ended the initial plan, with BND taking a more conservative central banking role in state finance.

Bank of North Dakota Site