The Midas Touch: How States Can Make Money, Create Jobs and Get Out of Debt | Walter I Baltzley

MIDAS

If you are like me, then you are probably worried about the economy. In the media, everybody talks about “recovery”– but in reality we all know the economy SUCKS. Unemployment — REAL Unemployment — is at an all-time high, and most of the people who ARE working do so either for minimum wage or part-time. People can’t survive like that, and neither can the rest of the economy.

Businesses require customers, and customers cannot buy things without money. To get money, people need jobs — Real, honest-to-goodness, paying JOBS. After all, we don’t just GIVE stuff away–that would be (gasp) SOCIALIST! And where would all that money come from?

• TAXES? — Heck NO, that would be SOCIALIST!
• BORROWING? — OMG are you trying to BANKRUPT the nation?
• PRINTING MONEY? — But that would cause INFLATION!

But what if there was a way to create jobs, lower taxes, reduce the debt, and NOT have inflation — and what if it could be done at the STATE level? What if STATES could pay for their own projects without raising taxes or turning to the Federal Government for handouts, and in so doing actually get OUT OF DEBT? Sound impossible? Hang on to your hats kids, this is going to blow your mind!

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CONTENTS
I. Making Money
1. Fed Legal Shenanigans
2. Fractional Reserve Lending
(Monetary Inception)
3. Bank Credit is Money
4. The Problem With Debt Money
5. The Loophole–STATE BANKS
6. Wealth Money

II. Creating Jobs
1. Infrastructure
2. Facilities
3. Information Technology

III. Getting Out of Debt FREE
1. Zero Inflation
2. Decrease Taxes

Appendix 1: Sample Case–Texas

Appendix 2: A More General Case

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I. Making Money

When I talk about states making money, I literally mean MAKING money…BUT WAIT you might say, doesn’t the Constitution forbid this? YES, Article One, Section 10 of the United States Constitution states–“No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts…” However, thanks to Congress, the states now have a loophole they can exploit to do just that. Ironically, States can use the same system as the Federal Reserve Bank (FED) to create all the money they need, and do so without DEBT or INFLATION.

1. FED Legal Shenanigans

How can States create money when the Constitution forbids it? By using the same trick the Federal Government has used since 1913 — doing it through a private bank! You see, Article 1 Section 8 of the Constitution grants Congress the authority to “…coin money, regulate the value thereof…” However, Congress does not do so directly, but through a PRIVATE bank–The Federal Reserve Bank (FED). And how can Congress do this when the Constitution does not grant them the authority to do so? The same way any “good” group of LAWYERS does anything–they find a LOOPHOLE.

First, the Constitution allows Congress to establish a district–not to exceed ten miles square–for the seat of government (Washington DC). This district is independent of any state, and Congress is given complete discretion to make ANY law within that district–basically giving them a dictatorship over the Capitol. Congress used this absolute authority in 1871 to file articles of incorporation in Delaware to form the United States Corporation (US Inc.) They filed the CONSTITUTION OF THE UNITED STATES as its charter; they registered Congress as its board of directors, and the President of the United States as its CEO.

Thus, the United States Government gained all the rights and privileges of an incorporated entity; anything a corporation can do–so can the Federal Government. Is it any wonder that corporate power has been gradually expanded ever since? And as a corporation, the government is allowed to outsource its operations to other companies. The FED is a private bank that has been contracted to “…coin money and regulate the value thereof…” on behalf of the Board of United States Incorporated–Congress–and has been given almost unlimited discretion how to carry that out. When it comes to money, The FED sets the rules…PERIOD.

2. Fractional Reserve Lending (Monetary Inception)

The Federal Reserve Bank (FED) has been granted almost unlimited power to “…coin money and regulate the power thereof…” by Congress. However, they have delegated much of this authority to the banking system. They have permitted banks to create money through FRACTIONAL RESERVE LENDING–or what I like to call Monetary Inception. How is this done? Hang on tight…this is going to blow you away!

• STEP 1: You deposit money in the bank: This is the part that makes the most sense to people because they see it happen every day…no further explanation required.

• STEP 2: The Bank Deposits CREDIT in your account: This is the part most people do not understand–NO MONEY actually goes into your account; the bank deposits an IOU in your account that can be redeemed for money at any time. But 95% of the time people DO NOT redeem their credit for actual money.

• STEP 3: The Bank Makes Loans: Once again, people do not understand how this part of the process works. Once you sign a promissory note, the bank uses that as collateral and deposits CREDIT into your account. No money is taken from any account, and no money leaves the Bank. POOF…New Money is created!

• STEP 4: The Bank Makes MORE Loans: This process is repeated–the bank uses the promissory note as collateral to make loans to other people. Each time a new promissory note is created, new money is created, and it enables the Bank to create more loans.

This process of loans being used to make loans could go on FOREVER, except that the FED sets a limit to how many times banks can make loans off of the same money–this is done using the “Reserve Limit”. However, explaining this process is complicated and better suited for its own book. If you want the gory details, I suggest watching “Money As Debt” on YouTube, or reading “The Creature from Jekyll Island” by G. Edward Griffin.

3. Bank Credit IS MONEY

In case you are wondering, Bank Credit IS MONEY…sort of…technically it is NOT money–it is not LEGAL TENDER–meaning that nobody can be forced to accept it. However, most places do accept Bank Credit because it is convenient to use. Every time a person writes or deposits a check–that is bank credit. Every time they swipe their debit or credit card–that is also bank credit. When your employer deposits your paycheck–that too is bank credit. Today, Bank Credit is accepted by most stores, rental companies, and even the government. You can use it to pay your TAXES, and it accounts for 95% of all money currently in circulation.

4. The Problem With Debt Money

The problem with “Debt Money”–money created by making loans–is that it must eventually be paid back WITH INTEREST. If everyone tried to pay all at once, there would not be enough money to pay back all the loans PLUS the INTEREST. Therefore, in order to make the interest payments, we have to borrow even more money, or get a bail-out, or go bankrupt. AND because the Government has made itself “The Lender of Last Resort” it ends up buying all that bad debt–and does so by BORROWING more money. Is it any wonder our national debt is over $16 Trillion and grows every year? And there is NO WAY to pay it off…EVER…or is there?

5. The Loophole–STATE BANKS

This seems like an impossible situation–the only way to get more money is to borrow it, and then we end up owing more money. However, just as the Federal Government used a legal loophole to get us into this mess–STATE GOVERNMENTS can use a legal loophole to get us out of it. You see, by giving banks the ability to create money, the FED inadvertently gave each STATE that same power. Why? Because, like the Federal Government, each of the States have also filed articles of incorporation in Delaware–and just like the Federal Government they have all the rights and privileges that come from being a corporation.

In addition to this power, each State has the right to charter PRIVATE BANKS, and to set the rules for how those banks operate. These are STATE BANKS, and nearly every state has them. In addition, under the United States Constitution, states have the power to MAKE MONEY–in the form of gold and silver coins. These two powers are all they need to create all the money they could ever want, get out of debt, and become financially independent.

6. Wealth Money

The key to create money and eliminate debt is for the State Government to make a slight change in its banking laws to allow State Banks to make INVESTMENTS using the same fractional reserve process as it does for loans. The system would work as follows:

• STEP 1: People Deposit Money In The State Bank: Once again, this is self-explanatory

• STEP 2: The Bank Makes State Investments: The State signs a promissory note for a given state infrastructure project (bridge, building, etc…) and its value is listed at its building cost; the bank then deposits BANK CREDIT into an investment account, and the state uses those funds to complete the project.

• STEP 3: The Bank Makes MORE Investments: Using the same rules for fractional reserve lending, the State Bank uses the note for the project as collateral to make other investments in State Infrastructure. Also, the completed project is counted as an asset and used to make further investments.

• STEP 4: The State Makes Improvements: Each year, the value of state infrastructure is re-assessed–this encourages the state to keep up and improve the quality of its infrastructure because it affects their ability to create money in the future.

BUT, it gets BETTER…Because each state has the power to create money in the form of gold and silver coins, the state could buy gold and silver, mint it into coins, and then deposit those coins into the state bank. These coins would then be counted as reserves, and could be used to generate notes for investment. In addition, because the Constitution does not restrict the state when it comes to denominating those coins, they can easily create an unlimited amount of money in this fashion.

The money created by this process is in no way different from money generated from fractional reserve lending–except that it does not have to be paid back, and it carries no interest–the asset generated by the project is the payment for the note. Also, it is not a local currency, but can be used any place where bank credit is accepted. It can be used to buy groceries, pay your bills, pay your taxes, and most importantly–to pay off DEBT. And the money is backed by ASSETS generated by state investment. It is honest-to-goodness WEALTH MONEY.

II Creating Jobs

Unlike the Federal Reserve Bank (FED), States CANNOT create money out of thin air; The State Bank can only create new money if the State produces some kind of valuable asset–a roadway, bridge, building, etc… Thus, their money is backed by those assets. At the very least, the state needs to produce gold and silver coins to create their new money. This prevents state governments from using the newly created funds to pay for entitlement programs, salaries, or pensions. Newly coined money may only be used to create assets–and this creates JOBS!

1. Infrastructure

State infrastructure is in bad need of an upgrade. Our roads and bridges need to be replaced and upgraded to be smarter, stronger, and more durable. We need to improve water drainage along our highways and add tunnels for communication and power lines. We also need to upgrade our water, oil, and gas pipelines and install them with sensors to identify problems and avoid potential disasters before they start. We need to build new power plants and upgrade our power grid to handle distributed production from solar, wind, and other forms of renewable energy. We need to build new fuelling stations for electric and gas-powered cars. Finally, we need to install high-speed fiber-optic and wireless communication lines.

2. Facilities

In addition to infrastructure, States also need to build new facilities–Schools, Hospitals, Police, and Fire Stations updated with the latest technologies. New waste-management facilities that produce power at a profit; and new water-purification plants that use a tenth of the power. The States could also build giant data-centers to provide computing power as a public service, and rent space to private companies at a profit. They could also build industrial parks–with manufacturing, housing, and recreational space laid out–and again, rent space to private companies for a profit. Vertical Farms that produce 100 times the output with only a tenth of the land, water, and fertilizer. Warehouses, storage facilities, parking garages –again all rented at a profit.

3. Information Technology

The States could also make investments in Information Technology–they could create systems to automate government services, patent them, and market them to other states. They could build IT Training Parks to expand education and develop intellectual property. The States could also build drone stations to collect data for land surveys, resource mapping, property assessments, and many other purposes . They could market this data, or rent drone services to private companies at a profit.

4. Ongoing Employment Opportunities

Not only do these projects create jobs in the short-term, they also create jobs over the long-term because infrastructure and facilities require upkeep. However, Wealth-Money can only be created when assets are created and thus cannot be used to pay for upkeep. It can be used to build a school, but it cannot be used for repairs or pay teacher salaries. And if the asset falls into disrepair, its value is reduced, along with the amount of money the State can create for new projects. The only time new money can be used for upkeep is if the renovation would increase the value of the asset beyond the cost of the renovation itself.

In spite of this limitation, state building projects create ongoing jobs by attracting businesses and encouraging entrepreneurial activities within the state. Schools and training parks provide educated workers; Police and Fire Stations increase safety; and updated Public Utilities such as power, water, and waste management reduce the cost of doing business in the state–all of which spurs private investment and economic growth.

III. Getting Out of Debt FREE

Although states cannot use this loophole to pay their debts directly, using newly minted money to pay for infrastructure frees State Funds to be used for other things–including paying off debt. In addition, building infrastructure creates JOBS–which in turn increases tax revenue. Thus, with proper investment, states can get out of debt without increasing taxes or reducing expenditures. In addition, as construction workers spend their earnings, those funds flow out into the economy so that others can make a living. This money will eventually make its way back to the banks to pay off debt.

1. Zero Inflation

Bank Credit used to pay debt is extinguished — POOF… its GONE… WHY? Because the bank cannot use its own IOU to make more loans. According to FED Rules, the bank can only use CASH or ASSETS (including loans) to create loans. Thus, Wealth Money is extinguished with the debt, and the total amount of money in the system stays the same. And WHY is this important? Because if the money supply increases too fast, the result is INFLATION. Wealth-money cannot cause inflation so long as it is annihilated by debt. And considering that American Consumers are roughly $11.4 Trillion in debt, it could take a while to pay it off. The same can also be said for the $16 Trillion national debt.

Wealth-Money is TAXED, and used by the government to pay its debts–or it is paid back out into the economy as wages, where it is used by consumers to pay their debts. Either way Wealth-Money eventually finds its way to the bank and is used to pay off debts.

2. Decrease Taxes

Using Wealth Money to build infrastructure actually encourages the state to DECREASE Taxes at the same time it gets out of debt. WHY? Because one-third of all investments in construction goes to pay LABOR costs. This money gets spent into the economy and according to the FED circulates 138 times before it is finally extinguished. Each one of those transactions is TAXED–creating revenue for the state. In addition, states will want to encourage people to put their money in the State Bank so that they have more reserves to use as the basis for investment. For every dollar a person deposits in the State Bank, the state can create ten dollars of New Money! The state might even start offering tax-deductions, or a high interest rate for depositing their money in the state bank. This in turn could be paid for by having the bank charge the State “origination fees” on the money created for their investments.

Appendix 1: Sample Case–TEXAS

Ok, let us take a look an example of how a state might actually use this trick to get out of debt and enrich their population. According to the US Debt Clock (usdebtclock.org), the Great State of Texas is roughly $300 Billion in debt with roughly a $40 Billion budget deficit–meaning their debt is growing by $40 Billion each year.

This sounds like a lot, but Texas has a GDP of $1.6 Trillion, and a tax-base of over $200 Billion–meaning that the debt accounts for only 18% of GDP. Texas also have a population of 26 Million, and a land area upwards of 268,000 square miles (171 million acres). The State has massive oil and gas deposits valued in the Hundreds of Trillions of Dollars, along with coal, asphalt, bauxite (aluminum oxide), clay, cement, and a variety of metals and minerals. Texas also has gold but only as the by-product of copper mining. Of particular interest are deposits of Pumicite (volcanic ash), Graphite, Titanium, Rare-Earth Minerals, and Thorium–a by-product of mining rare-earth minerals–which are essential to next-generation super-materials and technologies.

1. Getting Started

First, we assume that the Texas Legislature passes a law allowing the Texas State Bank to create Wealth Money. This is achieved with language like this:

“The Texas State Bank is authorized (or required) to generate BANK CREDIT on the Fractional Reserve System in accordance with Reserve Requirements set at the Federal Level– for the sole purpose of investing in State Infrastructure and Public Works Projects.”

Then, the Legislature can take the budget for any project they want funded to the bank, and if it is a worthy endeavor–no “bridges to nowhere”–the bank will have them sign a promissory note for the finished project and deposit the budgeted amount into an account. The Promissory Note can then be used as an asset to make other investments–up to the federally set limit. Now, lets look at how this might play out in real terms:

2. Resources and Limitations:

The Texas State Bank currently has $91 Billion on deposit in its many branches. However, to be conservative, I will start out with only one-third of that amount ($30 Billion). This amount can be multiplied up to TEN TIMES using Fractional Reserve Investing to create up to $300 Billion in infrastructure and public works projects–but no single project can exceed $30 Billion.

The State of Texas currently spends $5 Billion each year for Water and Transportation Infrastructure and roughly $7.8 Billion on building schools. The state also invests $24 Billion into Business and economic development each year. This totals out to $36.8 Billion–all of these expenses could be removed from the tax budget and paid for with Wealth Money. This nearly eliminates the state budget deficit! But, it GETS BETTER–because using Fractional Reserve Investing, the state could make an addition $263 Billion worth of investments that would create jobs and increase tax revenues. And, as projects are completed, they become the basis for more investment.

2.1 Creating Jobs and Increasing Revenues

Two-Thirds of the cost of construction is LABOR. All of that money is spent into the economy and TAXED, creating revenues for the State. According to the Federal Reserve Bank, because that money is in the form of BANK CREDIT, it will change hands 138 times in one year (on average)–meaning that bank credit gets spent that many times before it is used to pay debt and gets annihilated. This money gets TAXED on every exchange (8.25% in Texas). To make things (overly) simple, I will use 100 times in my calculation and assume that all projects complete in a single year.

NOTE: The numbers that follow are GROSSLY oversimplified, but they paint a broad picture of how quickly Texas could rebuild its infrastructure and get out of debt using this technique.

TexasRoughTo be more realistic, we have to account for the fact that most projects will take more than a single year to complete. Schools and roadways require up to five-years to build. This means it will be five years before the promissory note matures and becomes an asset the bank can leverage to create new investments. Also, assets wear out over time and their value depreciates–reducing the amount of new investments the bank can make–and the State will eventually need to use investment funds to replace the worn-out asset. Assuming assets take five years to build and have a ten-year life-cycle (10% Depreciation per year) we get the following numbers:

Texas01PNG

Texas02

As we can see, the first five years don’t appear very impressive, except for the fact that we have removed $30 Billion from our budget–which in itself reduces our $40 Billion deficit to $10 Billion–and we have increased tax revenues by $82.5 Billion. That gives us a Budget SURPLUS of $72.5 Billion dollars in its first year alone! After five years, Texas will have paid off its entire $300 Billion State Debt and have an additional $62.5 Billion in its treasury! But it GETS BETTER!

Once the building projects start to complete, the amount of money the bank can generate increases by ten times that amount. Once the first school is complete, the State Bank can use that investment to build TEN MORE. However, those assets wear out over time, and so their value decreases (depreciates) steadily over time–thus decreasing how much the bank can invest. The end result is that the amount that the state can spend increases steadily at 90% of deposits each year. In the first five years alone, the state nearly doubles its GDP; then it doubles its GDP again nearly every year after that. By year ten, the State has a budget surplus of over $1.2 Trillion, and a GDP nearly the size of the entire United States Combined!

3.0 Don’t Mess With Texas!

With that much money, Texas could do anything it wanted without interference from the Federal Government. We could fund our own roads and schools, and we could build any infrastructure we want–including advanced oil and gas refineries, pipelines, and tankers. We could update our ship-channels to export liquefied natural gas (LNG). We could change over our fleets and install filling stations for natural-gas. We could also invest in wind and solar, and bring the cost of energy down to half its current rate. This would attract industry and manufacturing jobs.

Texas could build high-speed data networks and giant industrial parks to encourage growth in new industries like 3D Printing and Robotics. We could invest in “Vertical Farms” and produce our own fruits and vegetables. We could build desalination plants to produce fresh water. We could even build a fence to defend our southern border. We could truly become an independent, sovereign State!

Appendix 2: A More General Case

Fractional Reserve Investing allows the State Bank to create ten times as much Wealth Money as it holds in assets plus reserves (M=10*(A+R)). The Bank creates money and gives it to the State for infrastructure projects; when the project is finished, it becomes an asset on their books. However, assets depreciate over time. If it takes five years to complete construction projects, and if those assets take ten years to become obsolete–then after the first five years are up, the amount the bank can leverage will increase by 90% of the amount of reserves in the bank. For the first five years, there is no increase, and the bank only has ten times the amount they have on deposit. However, every year after that the amount they can multiply increases by 90% the amount deposited in the bank. The more money deposited in the bank, the faster their ability to invest will grow:

Leverage_01

The bank can invest up to ten times the amount listed in this table on infrastructure and public works projects, removing those costs from the State Budget. Because these are primarily construction projects, one-third of that money goes to pay workers. This money will circulate through the economy and change hands 100 times (on average) before it is finally used to extinguish debt–generating tax revenue every step of the way. To figure out how much money will be added to the economy, we use the following equation:

Leverage * 33.3 = Increase in GDP

IncreaseGDP

Then, to get the amount of tax revenue generated by all this activity simply multiply these values by the tax-rate. Even at a modest 3% tax-rate we get the following:

Taxes

Because of the sheer volume of activity created, most states could actually DECREASE their tax-rates and still see an INCREASE in revenue. In addition, all the money created eventually finds its way into a bank to pay off debt and is extinguished–thus NO INFLATION! Everybody WINS!

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