Could California learn from Guernsey in the 19th century, Germany in the thirties, and China today?
A state-owned bank could be fast-tracked into operation in a matter of weeks. With over $17 billion available to deposit in its own bank, California could create $170 billion or more in credit — enough not only to meet its budget shortfall but to fund many other much-needed projects; and rather than feeding an ungrateful Wall Street, the bank’s profits would return to the state and its people.
California is in a crippling fiscal crisis that is gutting its public services, because its IOU’s are not accepted by private banks.
Yet, there is the solution that is hinted to above, proposed by Ellen Hodgson Brown of www.webofdebt.com. Read her detailed explanation here.
If you think it sounds farfetched, see the historical experience of Guernsey island here.
1. GUERNSEY, AFTER THE NAPOLEONIC WARS
“Guernsey is a small island located in the English Channel. An Anglo-Norman population. This island is located closer to the French coast than to the English one.
At the close of the Napoleonic wars, the island, like several countries, was in pitiful condition.
Sea walls, roads, markets were needed.There was no manpower shortage. but there was no money to pay for these works.
The money used by the people on the island was the money from England, the pound sterling. But, like after any war, the financiers were calling back the money advanced to finance the slaughter, and the pounds sterling were very scarce everywhere.
The island had an autonomous government, “the States of Guernsey.” So it had the rights inherent in all sovereign government, among other rights, that of regulating the volume of money incirculation in the country. But, no more ethan any other country, the States of Guernsey had thought of exercising this sovereign prerogative.
The island was especially in need of a new market house, and a committee was set up to take care of it. The committee went to see the governor to explain the situation to him:
“We need a new market, but we have no money to build it.”
“With what material are you going to build a market?” asked the governor.
“With stone and wood.”
“Do you have it in the island?”
“Certainly, and in plenty.”
“Do you have workers?”
“Yes again. But it is money that is lacking.”
“Could not your parliament issue money?” asked the governor.
This idea had never occurred to the committeemen, who had never analysed the money question. They knew where to get money when there was some: but they never wondered where money begins or can begin.
The method of taxing when there was money was quite familiar. But the method of injecting the money that is lacking, and of taxing only after, was something new to our administrators.
An estimate of the cost was prepared and the States printed the money required, which was paid to those who either worked on the project or furnished materials for it.
As the new currency was paid out into circulation among the people, exchanges were being expedited. The wage-earners went to the shopkeepers, the shopkeepers went to the producers, the producers bought enough to increase their production.
The currency was accepted everywhere. The government took measures against inflation by decreeing that money would be withdrawn by taxes, so it does not accumulate. And, in fact, the money was retired on schedule by taxes. But, as the increasing activity required a corresponding volume of money, other issues were brought out by the government for other works.
On October 12, 1822, the new Market house was completed and opened. Not a penny of public debt on this public enterprise.
At the time of the original issue, there was no bank upon the island. This explain, without doubt, why there was no opposition to the issue of State money.
But ten years after the first issue, the island had become so prosperous, thanks to the activity allowed by a sufficient volume of money, that the banks of England had en eye on this island.
English bankers set up branches in the island and brought the population around to orthodox rules. “It was unsound,“ they said, “to let the government finance its enterprises without getting into debt.”
The bankers did everything to stop further issues to introduce the system of interest-bearing loans to the government and to withdraw from the island the State money that had been paid out into circulation.
There was some resistance, but the bankers won their point, with their usual methods, and on October 9, 1836, the States of Guernsey had abdicated their sovereign prerogative over the control of the volume of money. From then on, the amount of the national currency decreased gradually, and was replaced by money issued by private bankers in the form of loans getting the island into debt.
Nevertheless, there is still about 40,000 pounds sterling ($200,000) of national currency outstanding at this date in the island. (According to Gertrude M. Coogan in Money Creators, published in 1935.)”
2. GERMANY, AFTER THE HYPER-INFLATION
This was also, by the way, the method used by Germany to get out of its own hyper-inflation crisis (as unsavory as the example of the otherwise atrocious Nazi policy may seem):
“Economist Henry C. K. Liu calls this form of financing “sovereign credit.” He writes of Germany’s remarkable transformation:
“The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began.”
While Hitler clearly deserves the opprobrium heaped on him for his later atrocities, he was enormously popular with his own people, at least for a time. This was evidently because he rescued Germany from the throes of a worldwide depression – and he did it through a plan of public works paid for with currency generated by the government itself. Projects were first earmarked for funding, including flood control, repair of public buildings and private residences, and construction of new buildings, roads, bridges, canals, and port facilities. The projected cost of the various programs was fixed at one billion units of the national currency. One billion non-inflationary bills of exchange called Labor Treasury Certificates were then issued against this cost. Millions of people were put to work on these projects, and the workers were paid with the Treasury Certificates. The workers then spent the certificates on goods and services, creating more jobs for more people. These certificates were not actually debt-free but were issued as bonds, and the government paid interest on them to the bearers. But the certificates circulated as money and were renewable indefinitely, making them a de facto currency; and they avoided the need to borrow from international lenders or to pay off international debts.6 The Treasury Certificates did not trade on foreign currency markets, so they were beyond the reach of the currency speculators. They could not be sold short because there was no one to sell them to, so they retained their value.
Within two years, Germany’s unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency, and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare. Germany even managed to restore foreign trade, although it was denied foreign credit and was faced with an economic boycott abroad. It did this by using a barter system: equipment and commodities were exchanged directly with other countries, circumventing the international banks. This system of direct exchange occurred without debt and without trade deficits. Although Germany’s economic experiment was short-lived, it left some lasting monuments to its success, including the famous Autobahn, the world’s first extensive superhighway.”
3. CHINA, AFTER THE MELTDOWN
And China is in fact doing the same thing, which goes a long way to explain why it’s economy is doing well, argues Ellen here.
(However, in the case of China, it may be built on unsustainable debt, as argued here)