Since Wall Street has failed to provide a functioning credit system, California would be totally justified in providing its own. The other choice is to accept debt peonage.
In the latest twist to the California budget saga, Citigroup, Wells Fargo, and JPMorgan Chase (which each got $25 billion in bailout money from the taxpayers) and Bank of America (which got $15 billion) have refused California's request for a loan to tide it over until October. Until the State can get things sorted out, it has started paying its creditors in IOUs ("I Owe You's" or promises to pay bearing interest, technically called registered warrants). Its Wall Street creditors, however, have refused to take them. Why? The pot says the kettle is a poor credit risk!
California expects to need to issue only about $13 billion in IOUs through September, and all its Governor has asked for in the way of a loan from the federal government is a guarantee for $6 billion. Total loans, commitments and guarantees to rescue the financial sector and stem the credit crisis have been estimated at $12.8 trillion. But California has not been invited to the banquet. The total sum California needs to balance its budget is $26.3 billion. That is about the same sum given to Citigroup, Wells Fargo and JPMorgan in bailout money; and it is only about one-tenth the sum given to AIG, a mere insurance company. Corporations evidently trump States and their citizens in the eyes of the powers controlling the purse strings. California has a gross domestic product of $1.7 trillion annually and has been rated the world's eighth largest economy. Its 38.3 million people are one-eighth of the nation's population and a key catalyst for U.S. retail sales. When the California consumer base falters, businesses are shaken nationwide. If AIG and the other Wall Street welfare recipients are too big to fail, California is way too big to fail.
Fitch Rating Agency has downgraded California's municipal bonds to junk bond status -- triple B. Why? AIG and Lehman Brothers had A ratings right up until they declared bankruptcy. California has never defaulted on its bonds, and it cannot arbitrarily decide to default; the State Constitution mandates that debt principal and interest must be paid as promised. California bonds lost their triple A rating only when the municipal bond insurers (Ambac and MBIA) lost theirs. It was these insurers, not the State of California, that got into hot water gambling in derivatives. The State Attorney General has opined that California's IOUs are valid and binding obligations of the State. In rejecting them, however, Wall Street may have ulterior motives. A lower credit rating can justify investors in demanding higher interest rates. The interest offered on the IOUs is substantially lower than the interest banks can get on triple B rated municipal bonds.
There may be deeper motives than that. Considering the enormous importance of the California economy to the country, and the relatively small sum it needs in loans, the refusal to support the State financially seems highly suspicious, especially when much more has been given to less creditworthy private institutions. The banks say they want to keep the pressure on California legislators to work it out among themselves, but what does that mean? The options are even higher taxes, even more cuts in services, or even more fire sales of public assets; in short, the sort of austerity measures expected of supplicants reduced to Third World debtor status. State legislators are understandably reluctant to crawl into that debt pit. Governor Schwarzenegger has refused to approve higher taxes, while Democratic leaders say further cuts in services could leave some Californians starving in the streets.
The Sun Could Shine Again on the Sunshine State
There is an alternative to that dark future, and perhaps it is to keep the public from waking up to the fact that arms are being twisted to accept the new burdens quickly. If Wall Street and the Feds won't extend credit to California on reasonable terms, the State could simply walk away and create its own credit machine. California could put its revenues in its own state-owned bank and fan these "reserves" into many times their face value in loans, using the same "fractional reserve" system that private banks use. Many authorities have attested that banks simply create the money they lend on their books. Congressman Jerry Voorhis, writing in 1973, explained it like this:
[F]or every $1 or $1.50 which people B or the government B deposit in a bank, the banking system can create out of thin air and by the stroke of a pen some $10 of checkbook money or demand deposits. It can lend all that $10 into circulation at interest just so long as it has the $1 or a little more in reserve to back it up.
President Obama himself has acknowledged this "multiplier effect." In a speech at Georgetown University on April 14, 2009, he said:
[A]lthough there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks -- 'where's our bailout?,' they ask -- the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.
If private banks can leverage deposits into multiple amounts of "credit" on their books, a state-owned bank could do the same thing -- and return the profits to the public purse. One State already does this. North Dakota boasts the only state-owned bank in the nation. It is also one of only two states (along with Montana) that are currently able to meet their budgets. The Bank of North Dakota was established by the legislature in 1919 to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the State must deposit all its funds in the bank, and the State guarantees its deposits. The bank's surplus profits are returned to the State's coffers. The bank operates as a bankers' bank, partnering with private banks to lend money to farmers, real estate developers, schools and small businesses. It makes 1% loans to startup farms, has a thriving student loan business, and purchases municipal bonds from public institutions.
North Dakota is not suffering from unemployment or feeling the pinch of the economic downturn. Rather, it sports the largest surplus it has ever had. If this isolated farming State can escape Wall Street's credit crisis, the world's eighth largest economy can do it too!
To sign a petition that will go electronically to Governor Schwarzenegger and to elected officials in your State, click here. You could also try faxing this article or a letter to Governor Schwarzenegger at 916-558-3160. See http://gov.ca.gov/interact#contact.
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attitude of some of these financiers.....they feel they're cleverer than most of humanity and have the right to fleece everyone else not in their club. The more lies and illusions the better.
"Let me issue and control a nation's money and I care not who writes the laws." - Mayer Amschel Rothschild, 1790
"Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits." - Sir Josiah Stamp, President of the Bank of England in the 1920's, the second richest man in Britain
"If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people. " - Thomas Edison, The New York Times, December 6, 1921
For state wages/salaries it can set up another department - so the 'California Development Bank' lends directly to the 'Cal State Maintenance Program' which would then pay wages and pay into state infrastructure and development projects. That department is spending out, but money could be pulled in later via specific state taxes. But the ideal is that the money just goes out as needed while the bank itself makes loans at little or no Simple Interest - eg to building projects.
The quantity theory of money is basically wrong. With paper/electronic money, what matters is that it is Active and flowing the right ways. Lincoln and Ben Franklin spent Fed/state paper directly into the system....great results.
Jere Hough quotes Franklin's success earlier. Pennsylvania spent in paper and loaned - eg for farms, at low interest - while monitoring overall money supply. The key was having abundant money flowing. With that, the States prospered. Without it - calamity.
A strong Nationalised Reserve, funding State Development Banks everywhere would bypass the private banks that bleed the money supply via compounding interest and foreclosure.
State banks could spend Debt free into wages and productive things. Or if Washington won't play along, States can simply use their huge real estate assets as colateral, start a bank, spend/loan out and roll over the debt 'forever'.
[ Probably an imitation of when they used 10% gold holding in the 2nd national ( private ) bank...that Prez Jackson killed off...and lent out 10 times that in paper ... old Goldsmith trick. So theory is that Fed credit is " good as gold " ? ]
Then, USA banks can also re-issue/lend deposits while holding a Reserve ratio set by the Fed...eg 8-10%. So the retail banking system re-cycles deposits on a reducing formula ( say 8 % out each time ). Then they have this new Deposit account sweeping trick where they just put the money to bed in the right place - but move it elsewhere in the day !
But recent years, they weren't held by the Fed or FDIC to proper deposit ratio control.....just given the OK if it seemed they had enough capital . So they were ridiculously leveraged, like the big banks which crashed despite AAA ratings. And every time the money re-cycles ( eg 90 times ) compounding interest is sucked out of the economy. What a mess - anything would be better, and State banks on little or no Interest but with huge Capital would be ideal.
Quotes:
"In the Colonies, we issue our own paper money. It is called 'Colonial Scrip.' We issue it in proper proportion to make the goods and pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power and we have no interest to pay to no one. In this manner, by creating ourselves our own paper money, we control its purchasing power, and we have no interest to pay, to anyone. You see, a legitimate government can both spend and lend money into circulation, while banks can only lend significant amounts of their promissory bank notes, for they can neither give away nor spend but a tiny fraction of the money the people need. Thus, when your bankers here in England place money in circulation, there is always a debt principal to be returned and usury to be paid. The result is that you have always too little credit in circulation to give the workers full employment. You do not have too many workers, you have too little money in circulation, and that which circulates, all bears the endless burden of unpayable debt and usury." - *Benjamin Franklin Autobiography
We should do it at the national level.why let international banks feed off us like leeches...
One thing this plan hinges on: We do not tell Californian Republicans about this idea. California's debt has to go somewhere, or else everyone will hold the federal government responible, and they have a big enough mess going as it is. They get to be woken up as shocked as everyone esle AND riddled with our former debt. (including the cost of the fake moustaches, fake Califonia and gargantuan samurai sword) I think you'll all agree, it's BULLETPROOF.
- President John Adams
He may not have any " solemn truth " or " proof " to offer, may be frequently wrong, and may not have bothered doing much research before posing as an oracle on the banking system, but thanks to the freedom of the modern ' blog and response' websites he can run interference and keep posting again - and again....and again............and again................etc etc.....and probably get the last word in. "
Bob In New Zealand...........today.................not a member of any sect.
Do you even know what sect means?
You sum it all up in the comments section:
"Wall Street and the federal government have both failed to provide a functioning credit system, so California would be totally justified in providing its own. The other choice is to accept debt peonage."
So we do have a choice - but the problem is that we the people don't know that we have a choice. What we need is a citizen's movement to educate people at the state level that we can take control of our economic destiny - and to lobby for/agitate for change - and not just wait for the next bloated bailout of the corrupt and dysfunctional existing financial sector.
With a publicly owned state bank, California can inspire the world! Thanks for waking us up, Ellen.
That's what was bailed out in the bank bailout, a functioning credit system.
The United States credit system is one of the seven wonders of the modern world, and it is very hard to believe that persons who do not even understand the algorithms of fractional reserve banking and constitutional limits that prohibit California from issuing money can come up with a better one.
Especially one that takes away the market and purports to be effective with direct control, allocation, debt free issuance, on the mistaken theory that there are three hundred year old gnomes that control the credit market, leading to the jealous thought that the gnomes should not control the system, you yourself should.
Funny money is not inspirational, and it is not a solution for California's problems.
Because this is offering a solution....various options
Wall St owns too much of the Government - except for men like Dennis Kucinich and Ron Paul. Clearly they are deliberately sending the US economy into liquidation ( starting with sabotaged mortgages ) and they will profit from that - just like in the 30's.
Banks turn feral in a Depression and those in a commanding position - eg via friends in the Gov - can control the liquidation of America. Goldman has already shown expertise in that - big recent profits.
America has long been bled by the foreign moneylenders in its midst. While here in New Zealand we have become a satellite to them. The shockwaves will be horrific if America crashes..... the aim.
Most states are in trouble, but California is just worse, due to recently being run badly, as a feudal system.
If California crashes out it will drag America down...and the western world. But it ' shouldn't ' - it's a commodity economy with a strong Agri base.
As always, the basic truth is that the Real Economy ( resources, productive ability, labour etc ) should be matched by the money supply to facilitate the harmonious whole, but the private banks control the money and work in another direction...profit at any cost, via unpayable Interest and foreclosure. A Cal State bank of some type could fix things immediately, releasing needed money for
Strong contraction - the main objective -puts the economy into liquidation and the big banks cash in.
The truly nationalised Bank of Canada, started in 1935 by late great PM MacKenzie King, ran for national benefit, on low interest, and it could create money for public works projects at little or no interest. So you will find, no doubt, that Canada was more prosperous and stable than America between 1935 and 1974. Quote Mackenzie King, approx : " Usury will destroy any nation ".
The deadly Compounding Interest ( usury ) is a big fault in the privately created banking system that now dominates America and the Western world.
Governor Schwarzenegger also hasn’t done much although he was elected due to budget deficit related issues when Gov. Gray Davis was unfairly kicked around. He needs to go around and do some nasty stuff, in addition to establishing a California State Bank as suggested by you:
• Forcefully, tell the public that the budget crisis has been exacerbated due to non-cooperation of four big Banks (Citi, BofA, Wells Fargo and JPMorgan Chase).
• Request public to boycott these banks and move their personal assets to smaller community banks.
• Instruct California State agencies to move accounts out of these four banks.
• Instruct CALPER, presumably the biggest pension fund, to immediately stop and liquidate their investments in any entity that has invested in the stocks or debts instruments of these four banks. That will bring banker boys to their knees.
• He should also float the idea of secession. California can do better itself as a separate country from rest of the Federal Government. Ask any Mexican; they will be happy to have us reunite with Mexico.
From Los Angeles
Yes, when banks refuse to lend money, it does exacerbate the problem of not having enough money. You have to figure out how to increase the flow of money, and not continue to pretend that it doesn't matter because you can borrow money.
Secession, eh? I think you've hit the point of Ellen's conspiracy theory, which is to destroy the United States by destroying the monetary system. Traitorous, if you ask me.
Even without much consent from Washington, Cal state - and any other - could set up a bank from pooled credit and capital and lend out on a fractional system.....into productive purposes ( not luxury/consumption ) with little or no inflation.
Seems like California, with the current crisis, would be the perfect place to start. The Cal State Bank could even issue tax credits that could be used in payment of California taxes, and allow these to circulate as money. They key is that the control of all money should rest with the citizens and voters – the public. Money should not originate in the private sector, as it does now. The allocation of money should be toward the common good, not private (or corporate) fortunes of obscene dimensions.
“The Terminator” could actually live up to his role as a big screen superhero. But is he willing to take on the real “Goldfingers” – the Money Changers? Times of crisis prove the mettle of men and of nation/states. Will the people and governor allow this crisis to go to waste? Or will they just put another band-aid on the cancer?
We will soon know. Thanks Ellen.
Jere L Hough
Kansas City
The allocation of money? Now you want to allocate money, not just create it?
The Money Changers? Ellen's whole point is that the banks are refusing to take the IOUs - they are refusing to be money changers, or accept IOUs as money.
Allow the crisis to go to waste? California has real problems, and paranoid conspiracy theories rank well down on the list.
History is made of conspiracies, large and small. Not "theories", but facts. We are now witnessing the mother of them all. Only those who are totally blind to truth will refuse to see that the banking sytem is little more than an unsustainable Ponzi Pyramid scheme.
This is a version of the “labor as money” concept used in the Ithica Hours system. After all, labor is involved in the origins of all capital, and money should represent a claim on wealth. Labor is but the most basic form of wealth, and therefore the bedrock of all sound money.
At least it could serve as money within the economic jurisdiction (state or local) being served. For inter-economic transactions either exchanges could be formed, or commodities could be used.
Voila! We could have home-grown debt-free and low interest electronic “money” in the blink of an eye. There is nothing I can find in our constitution or valid laws that could prohibit such a system. These systems would immediately result in such a boon to the states and communities that used them that they would soon drive out the Fed and the international central and commercial banksters. The ground swell of citizen support for such a national system would force the money reform changes we seek.
You are free to use anything as a method of exchange, including Ithica Hours. I am free to refuse anything but money, and trust me, I would.
Labor is not the bedrock of wealth, the natural environment is the bedrock of wealth. Labor does not grow a tree, spawn a fish, cause the sun to shine, create gold, pay taxes or debts.
That you cannot find something in the Constitution as plain and bold as the following is just shocking:
"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."
That's the law that stops you, silly.
Natural resources are only part of social wealth. Usually, labour and intelligence has to do something with those raw materials.
Re silly quotation of old constitutional clause - obviously the whole country has breached that by using paper money. At the time, there was much uncertainty how to deal with the banking problem. That ( gold and silver coin bit ) was an entry that meant they could block the dangerous Fractional systems being used by other National ( England, Holland etc ) and private banks. But not for long.
That clause should stop the whole USA money system since 1816, when the corrupt Second ( private,central ) Bank of the United States was set up based on a 10 to 1 paper loan expansion from a 10% gold holding, in its satellite/member banks. It publicly threatened to create a Depression ( amazingly ) ....and did.
What is really needed is the nationalization of the Fed. That would put all US money creation under the public sovereignty and control, and make it accountable to the people again. Now it is accountable to no one, not even the congress that is supposed to have oversight over the Fed operations. The problem is that the Fed central banksters and their international crime syndicate are too wealthy to overcome with federal legislation. It is nearly impossible to pass a law requiring simple honesty in financial transactions, let alone systemic reforms.
Theoretically, grassroots congressional legislation might be possible to “correct” past legislation, such as the Federal Reserve Act of 1913, The 1913 FRA transferred the top level money-creation power from congress to the Fed and FRS. (The bankers always had the money multiplication power via the fractional reserve system – only the original issuing authority was at issue in the FRA of 1913.)
But IMO, real progress is more likely to come from working on state or community issued money, and getting state and local banking (or credit union) authorities established on a non-profit basis. These new or revised institutions could keep the debit/credit books on minimum-wage work hour deposits and withdrawals.
The same constitution, that prohibits state or community issued money. Congress originates money, at arms length through its constitutional creature, The Federal Reserve System, and this right is reserved to Congress.
There is nothing theoretical about legislative ability to modify the fed. It is the only legal way to modify the fed, it is not theoretical at all.
JP Morgan created the 1907 panic leading to the Fed creation...so they couldn't really cut him in - too obvious. When he died it turned out he was largely Rothschild owned.
The Fed creates , and took all profit on US money creation ( what a deal ? ), but after 1947 only kept 6% profit...in theory...probably more.
Congress does not originate any money. It could dissolve the Fed, but the best idea would be to Nationalise it properly and bring it under congressional control via a new charter. Then set up State ( development ) banks...especially in California.
The "Fed" could most certainly be "nationalized" precisely in the reverse of its creation 95 years ago. Or it could be abolished, and something better created to replace it. Something more accountable to congress and the people, and not just the banksters.
The US Constitution that "prohibits" states from issuing "bills of credit" was written that way under the provisions that congress would retain to itself that money creation authority, and not sell it for financial favors to the private banksters as they did in 1913. They prohibition in Chapter 10 would not hold up under close scrutiny by a fair and impartial supreme court.