How the US Federal Government Restricts the Money Creation Function from States and Local Governments

ByPrimary Researcher

Executive Summary

  • Why does the federal government keep the money creation ability from US states while it gives it freely to private banks?

Introduction

There is an oddity at work with government funding in that the federal government has the right to create money, but the states and local governments do not. What is odd about this is that there is no reason for the states and local governments to be inferior to the federal government concerning money creation and inferior to all banks. Just think of any bank around you, and that bank has more privileges regarding money than the state or local government. When the state and local governments need to borrow money for an infrastructure project, they must go to the bond market. This greatly increases the costs of all projects. There is nothing to stop the federal government from allowing state banks to create that eliminate the need for state and local governments to borrow money. However, currently in the US, only one state, North Dakota, has a state bank. State and local governments hold elections, while private banks do not. The money creation function is entirely a power that is part of the federal government. However, state and local governments are denied this power, even though they are just a smaller form of government. It is extraordinary indeed that the hierarchy regarding money creation goes.

  1. Federal Government
  2. Private Banks
  3. State and local governments.

This entire scenario is virtually unquestioned. The federal government could provide money creation powers with states and local governments but does not and forces states and local governments to pay interest on what is the government’s money is bizarre.