States can use this one simple trick to turn the tables on the FED and make all the money they need to pay for their projects. It takes the FED’s own trick and turns it around to replace their Debt Money with debt-free cash. You see, just as the FED can create money out of thin air–and just as private banks can create money by making loans–STATE Banks can create money too…
Few people know that banks can create money by making loans–the money never actually leaves the bank, but credit is put into your account that you can spend using checks or debit cards. This “credit” is simply a number in a computer. However, even FEWER people know is that the same process can be used to make INVESTMENTS–a bank can simply deposit credit into an account for investment. Unfortunately, commercial banks don’t do this because making loans is A LOT more profitable.
States, on the other hand, can use this to their advantage–they have the ability to charter banks, and those banks have the same power as commercial banks. However, in order to have State Banks create money for investment, they are required by the FDIC to do the following:
1) The State Legislature must pass a law that requires the State Bank to create accounts for all “Official State Investments”, and to credit those accounts with funds in accordance with the “Official Budget” for each project.
2) The State Legislature must pass a law to define “Official State Investments” as projects that produce lasting physical assets and provide a valuable public good or service. It should also contain rules for updating the list of “Official State Investments” each year.
3) The State Legislature must pass a law that declares rules for preparing an official budget for each project, and for managing the funds responsibly.
From an accounting standpoint, the process works as follows–the State Legislature votes on a project, its budget, and management. That budget is passed onto the State Bank, which creates an account for that project. In the debit column, the bank lists the project as an asset and sets its value equal to the budget; In the credit column the bank adds credit of equal amount. That credit is then withdrawn by the appropriate department as needed to pay for the project.
The State Bank is required to maintain a certain level of reserves, and each unfinished project should be counted against those reserves. Thus, the amount of money the State Legislature can create is limited by the amount deposited in the State Bank. Once a project is complete, it becomes an asset that increases this reserve limit. However, if the project fails, it is counted against the reserve limit. Thus, the State is rewarded for successful projects, and punished for failure–a strong incentive to invest wisely.