California has the 12th largest economy in the world - bigger than all the BRIC economies except China. California's Empty Wallet: Turning Crisis into Opportunity. It's not only true that "As goes California, so goes the nation," it would not be
hyperbole to say that, "...so goes the world, too."
Right now, California faces a daunting $24.3 billion deficit, and just today, started issuing IOUs to pay its bills As deficit grows, Calif. prepares to issue IOUs. Due to a referendum-bound policy and a recalcitrant State Senate, the "Governator," AKA Arnold, AKA 'The Terminator,' is extremely limited in his ability to raise revenue. Senate Minority Leader Dennis Hollingsworth (R) said, unhelpfully, "It's unfortunate that we're at this point," before calling for yet more spending cuts. It seems as if the Republicans in California are finally seeing their wish to fulfill Grover Norquist's dream of shrinking government to the point where they can "Drown it in the bathtub" Starve the beast. California, and the country must move beyond these Neanderthals (I apologize, in advance, to Paleontologists everywhere for disparaging Neanderthals).
Already, California has cut its services past the bone, and into the marrow; schools will close, the state's 235,000 employees may have to take a third unpaid day off (during which many actually work, essentially for free), effectively amounting to a 14% pay cut As deficit grows, Calif. prepares to issue IOUs. If anyone still considers California to be a spendy state, compare the budgets of New York State, a smaller state with similar large cities, populations and
obligations. New York, with a population of 19,306,103 people (as of 2006), has a current state budget of $121 billion (and is in deep deficit as well, and also has a stalled Senate with Republicans and Democrats unable to do anything until leadership issues are resolved), while California, with a
population of 36,756,666 (as of 2008), nearly twice as much, has a budget of
only $100 billion, some 20% less.
California is already lean and, increasingly, mean.
California also has one of the highest foreclosure rates in the nation, an unemployment rate over 10%, and the absolute lowest bond ratings, meaning that whenever it does borrow money, it must do so at exorbitant rates.
While replacing the dollar with California IOUs sounds tempting, as a way to stick it to the irresponsible legislature (Cash that, why don't you!), the state's banks may not be willing to accept them in exchange for cash. Bank of America says they will - through July 10 anyway.
None of this sounds particularly promising if you're the Governator, trying to balance the budget, which Schwarzenegger must do under the state constitution. But, there is another option. There is a way to balance the budget, create a surplus, and tell the high interest charging banks 'Hasta La Vista, Baby.'
California should follow the model of North Dakota and Charter its own state bank.
North Dakota has had a state bank, which by charter, must contain all the state's funds, and which, Ellen Brown tells us, "was established by the legislature in 1919 to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men." The bank has met its purpose fabulously. Today, North Dakota is running its biggest surplus in history.
As Ellen Brown reminds us, today's capital reserve requirements are only 8% for banks, thanks to the myriad ways they have found to skirt the rules, except for the final rule set by Switzerland's Bank for International Settlements (I suppose if they could, they'd find a way to flout that too, and leverage until their reserves were 1%, or nothing at all). If we use that 8% as a baseline, then California could deposit its expected $128 billion in revenues this year into the state bank, and have over 1.28 Trillion to loan! The state's banks would howl. Let them. They set the rules, now they have to play by them. Besides, who do you trust more to fund a bank: the depositors and borrowers of the Wells Fargos of California, or the citizens of the state who must pay taxes every year? California has never defaulted on its obligations; Wells Fargo needed bailout money from the Federal Reserve (which itself, is neither Federal, nor a Reserve).
Now, if this new state bank - which could operate as a non-profit, with no shareholders to please - were to distribute its fund to the state's private banks, in order to issue new loans to strapped homeowners at, say 1% rates (like North Dakota's bank does), or even a more inflation-realistic rate of 3%, still far below current bank rates of 5% and higher on 30-year mortgages, they could refinance defaulting homeowners, fund startups, and even fund general government expenditures, all without paying a dime in interest to private bankers!
Whenever I tell people about the miracle of North Dakota's banking system, they say something like, "Well, that's a tiny state (about 640,000 people), full of farmers. It's not representative of the country." Well, this may be so, but the banking model could work in California, and if it did, most states would quickly follow suit. As goes California, so goes the nation. Then, we would nationalize most banking functions for essentials like mortgages - while leaving the Monetized Derivative Exchanges (which have as much to do with regular banking as a regular bank has to do with a piggy bank) like Citibank and J.P. Morgan free to place their speculative bets - but with far less money, certainly not enough to bankrupt the country. Other countries would follow the American example.
This is how the Terminator could Save the World.
If you agree with me, sign the petition to Help the Terminator Save California