The Fed Can Now Give States and Cities Money Power to Fund Essential Social Programs

To fully understand this post, you have to know that the US has privatized the bulk of currency creation to (private) banks. Banks create "credit" (i.e. money) by making loans. If you borrow $20,000 to buy a car, the bank will create an asset (checking) account for you with $20K recorded in it. It will also create a liability (debt, IOU) account for you to pay payments into. Notice that no deposits were touched in this transaction. If the car dealer has an account at the same bank, the scorekeeping (money) will shift from your checking account to the dealer's account. Again, no deposits touched. If the dealer has an account with a different bank, then the central bank (the Fed, which makes government money, or dollars) settles claims between banks at the end of the day. If the lending bank is short of cash to transfer to the dealer's bank, the Fed can lend it to them, literally without limit.

This is why Henry Ford said that if people knew how banks operated, there would be a revolution tomorrow. The revised policy gives small, local and state governments broader access to the credit creation that we call money, especially if they empower public banks.

The Fed Can Give States and Cities Money Power to Fund Essential Social Programs

by Michael Brennan, June 22, 2025 [CommonDreams]

…States, cities, and universities fiscal policy exists downstream from government money and bank money. Their lack of access to money power is a fundamental political problem by design. The federal government retaining the sole power to create government money keeps states and cities subordinate to Washington as a power center; the Federal Reserve granting access only to privately owned banks means our society prioritizes private wealth accumulation first above social needs. As Congress and the president push to stop the flow of new government money, states and cities can use this as an opportunity to refocus on bank money and the discrepancy between giving private banks the money power instead of the public.

The Federal Reserve can resolve this unjust dynamic by opening up the money power to states, cities, and universities directly. Just as it offers credit to banks at policy-dictated interest rates, the Fed can create credit facilities for states and cities at a policy rate that will further its mandate of price stability and maximum employment. Toward that end, the best default interest rate would be permanently at 0%.

The Fed did open credit access to states and cities during the Covid-19 pandemic via the Municipal Liquidity Facility (MLF)….