derryl

Thirteen Aspects of Our Current Economic Situation

Legislative jurisdiction for banking remains with the states, not the federal government, so California could set its own terms for its state bank. A "State Bank of California" (SBC) could lend US$ to Sacramento by creating a deposit, which is what commercial "banks" do. The SBC could use extreme leverage to essentially create and lend as much money as the state needed.

The state would capitalize the bank by selling itself shares in the bank on an IOU, then once the bank was chartered it would use that pledged capital to lever out loans to the state, some of which the state would use to pay in its capital commitment. This is how the US Federal Reserve got started, on IOUs from member banks, so it's not as if it's 'fraudulent' or anything like that.

Once the bank is up and running there is no limit to its asset-to-capital ratio as long as it does not accept FDIC insured deposits. So 10:1, 50:1, 100:1, the sky's the limit in money creation land. Ben Bernanke's doing it. Arnie can too.