CALIFORNIA DREAMIN’: HOW THE STATE CAN BEAT ITS BUDGET WOES

If private banks can create credit on their books, so can the world’s eighth largest economy. Indeed, there is longstanding precedent for this approach. The State of North Dakota has owned its own bank for nearly a century. North Dakota is one of only two States (along with Montana) that are not currently facing budget shortfalls. North Dakota has beaten the Wall Street credit freeze by generating its own credit. By law, ever since 1919 the State’s revenues have been deposited in its own bank, the Bank of North Dakota (BND). Using the “fractional reserve” lending scheme open to all banks, these deposits are then available to be used as the “reserves” for creating many times their face value in loans. Other banks in the State do not see the BND as a threat, because it partners with them and backstops them, serving as a sort of central bank for North Dakota. BND’s loans are not insured by the Federal Deposit Insurance Corporation (FDIC) but are guaranteed by the State.

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