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how California can increase money supply from its GDP without borrowing ? example: California budget : 85 billions  , California GDP: 1.9 trillion . California wants its budget to become 1 trillion . how can they do it ? ( without borrowing )

First, make sure you don't confuse money supply with government spending; they are two very different things.  Government spending is the amount of money the government spends, while money supply is the total amount of money in circulation whether that's for governments, people, businesses, import/export, or even for banks to use in lending.  The government doesn't change the money supply; that's done by the federal reserve either by decreasing total bills outstanding, or by increasing bank reserve requirements.

That being said, governments can fund their spending in two ways, either through generating revenues (i.e.: taxes and fees) or by borrowing money through debt.  The money that a government budgets for spending is equal to or less than the amount projected to be generated through revenues.  If a government spends more than it makes, either by spending too much or by making too little, then they must fund any budget deficits by issuing debt in the form of bonds, notes, or bills, which the government must pay back with interest.  Investors like these investments because they want to make interest income, and government investments are usually considered low-risk (usually, but not always).

If California wants to increase spending without increasing debt, there's a few ways they can do it, and they can choose any of them, any combination, or even all of them.
1) Increase rates for existing taxes and fees.
2) Create new taxes and fees.
3) Create growth in areas currently charged taxes or fees.  Let's say, just as a very simple example, that in California the only tax is a tax on business income with a rate of 10%.  If business income in the state increases from $1 million to $2 million, then the total tax income generated will also increase from $100,000 to $200,000.  Since it is the job of a government to facilitate and ensure the success of its citizens, I tend to emphasize a focus on using government spending to increase national returns as measured through increased tax revenues at a constant rate in order to measure whether a government is successful.

I hope this helps.


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Michael Taillard


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Consulting with major corporations, government agencies, political organizations, small businesses, non-profits, start-ups, and even individual people. Teaching at universities around the world, and developing original coursework. Performing original research and analysis. Writing books and scientific studies.

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PhD (Financial Economics; honors) -- MBA (International Business Finance; honors) -- Grad School Certificate (International Business Management; honors) -- BS (International Business Economics; honors) -- AA (Business Administration; honors) -- Certificate (Chinese Language and Culture) -- Trade School (Transportation Logistics; honors)

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