What stops states from creating money out of thin air?
<p>When a private bank creates money, it obeys reserve accounting, and can't create more. But when I get paid from the state of California, it comes from their treasury account, it isn't a private bank that has a regulation or anything.
What stops California from creating infinite free money from its state accounts? It's not like they open a Chase account and are limited by their balance.</p>

<p>It depends in part on what you mean by &quot;money&quot;. US $100 bills are a prime example of &quot;money&quot;. <a href="https://constitution.congress.gov/browse/article-1/section-10/" rel="nofollow noreferrer">Art 1 §10 Cl. 1</a> of the US Constitution says</p>
<blockquote>
<p>No State shall ...<a href="https://constitution.congress.gov/browse/essay/artI-S10-C1-2-1/ALDE_00001098/" rel="nofollow noreferrer">coin Money</a>; emit Bills of Credit; <a href="https://constitution.congress.gov/browse/essay/artI-S10-C1-2-2-1/ALDE_00001099/" rel="nofollow noreferrer">make any
Thing but gold and silver Coin a Tender</a> in Payment of Debts...</p>
</blockquote>
<p>Under the constitution, only the federal government can &quot;print money&quot; in the &quot;universally usable&quot; sense. Anyone can print or otherwise &quot;emit&quot; objects with economic value, and such objects can be voluntarily accepted in trade. State and local governments can incur debts and thus spend money now that they do not yet have, as long as there is no legal limit on a government's ability to go into debt. California could issue IOU-bucks with the intent that a holder could redeem them as real federal money or as gold or silver at some point.</p>
<p>This limits the ability of a state treasury to print money, since in principle and practice
it is redeemable in gold or silver. Each state has some set of laws and constitutional provisions that prevent writing rubber checks <em>ad infinitum</em>, for example only allowing debt for large capital projects (building) and requiring voter approval; requiring expenditures to not exceed projected revenues; granting emergency debt-mitigation powers (e.g. hiring freezes) to the governor when a state does go into unauthorized debt. In California, <a href="https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CONS&amp;sectionNum=SEC.%2012.&amp;article=IV" rel="nofollow noreferrer">Art IV §12</a> of the state constitution requires a balanced budget, meaning that the state cannot create infinite obligations without infinite revenues.</p>
<p>From the legal perspective, private banks do not create money, although non-legally, <a href="https://en.wikipedia.org/wiki/Money_creation" rel="nofollow noreferrer">people may talk about</a> what banks do as &quot;creating money&quot;. At that point in the discussion, we will have left law and moved to the realm of economic theory.</p>

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