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Cash-starved States Need to Play the Banking Game: North Dakota Shows How

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"He that will not apply new remedies must expect new evils; for time is the greatest innovator."

-- Francis Bacon

On February 19, 2009, California narrowly escaped bankruptcy, when Governor Arnold Schwarzenneger put on his Terminator hat and held the state senate in lockdown mode until they signed a very controversial budget. 1 If the vote had failed, the state was going to be reduced to paying its employees in I.O.U.s. California avoided bankruptcy for the time being, but 46 of 50 states are insolvent and could be filing Chapter 9 bankruptcy proceedings in the next two years. 2

One of the four states that is not insolvent is an unlikely candidate for the distinction North Dakota. As Michigan management consultant Charles Fleetham observed last month in an article distributed to his local media:

"North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie Fargo. Yet, for some reason it defies the real estate cliche' of location, location, location. Since 2000, the state's GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!"

What does the State of North Dakota have that other states don't? The answer seems to be: its own bank. In fact, North Dakota has the only state-owned bank in the nation. The state legislature established the Bank of North Dakota in 1919. Fleetham writes that the bank was set up to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. Three elected officials oversee the bank: the governor, the attorney general, and the commissioner of agriculture. The bank's stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota. The bank operates as a bankers' bank, partnering with private banks to loan money to farmers, real estate developers, schools and small businesses. It loans money to students (over 184,000 outstanding loans), and it purchases municipal bonds from public institutions.

Still, you may ask, how does that solve the solvency problem? Isn't the state still limited to spending only the money it has? The answer is no. Certified, card-carrying bankers are allowed to do something nobody else can do: they can create "credit" with accounting entries on their books.

A License to Create Money

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)
 

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