Congress has not only reneged on its agreement to create the national money supply, but it has refused to front the funds to bail out California from its relatively modest $26 billion budget shortfall. Californians are justifiably upset, since Congress hardly batted an eye before earmarking some $700 billion in bailout money for the private banking system, and the Federal Reserve has committed trillions more for that dubious purpose. Nearly ten times the sum needed by California was allotted to bailing out AIG, a private insurance company; and half the sum needed by California went to pay off the gambling debts of AIG to Goldman Sachs, a single bank. California underwrites a substantial portion of the federal government’s budget, sending a dollar in tax revenue for every 80 cents it gets back. Yet the federal government has even rejected California’s request for a loan guarantee, which could have saved the State hundreds of millions of dollars in interest. The clear message is, “You’re on your own.”
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.