The miracle of North Dakota’s Fed-free bank

Keeping the State’s Money in the State: An
Alternative Solution to the Budget Crisis” By Ellen Brown,
Originally Posted by “Yes! Magazine”

Ellen Brown is most recently the author of Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free (2007, 2010). And from this amazing book, I derived my article The Fed’s War on America’s People.

I called it a war based on the Fed’s fractional-reserve lending system that generates money out of air, i.e. credit. And it goes back to the days of the 17th century goldsmiths who held gold for the community because they had the strongest safes. But the goldsmiths realized soon enough that only 10 percent to 20 percent of the total gold would be out at any given time. Consequently, this freed them to lend up to 90 percent of the remaining gold, making interest on gold deposit many times over, generating money via credit and interest out of air.

Unfortunately, the perfect storm occasionally rises like the Great Depression of 1929 from over extended credit when everybody wants their money at once and the Ponzi scheme behind it comes crumbling down on everyone’s head. One option would be to do what Lincoln did and create USG Greenbacks, with which he paid for the Civil War. After his assassination, we returned to fractional-reserve lending system, again mortgaging our own currency for little reason but Fed greed.

Unfortunately, this became the general banking formula internationally from the Fed on down that has led to financial ruin in the United States. The Fed in essence lends us our own money with interest for our currency. It is bankrupting the federal government, causing it to raise taxes (on the middle class and poor), cutting taxes for the rich. It is cutting spending mostly to entitlement programs like Social Security, Medicare and Medicaid, though it also has cut the budget to the crucial NSNFP of the Idaho National Laboratory, which monitors the collection of nuclear waste. Of course, many worthy government programs like this will be cited for cuts and/or extinction as long as we keep the Fed and its interest on our currency’s back.

This has resulted in the unfortunate solutions currently being debated to create more cash, including denying municipal employees the right to collective bargaining by the Wisconsin State Legislature, setting back labor’s right to a voice by 50 years. But labor and a long list of other vital institutions, are being hit by the Wall Street credit freeze, thanks in large part to the Fed’s Quantitative Easements, instant creation of money on computers by playing with debts as assets or fraudulently allowing sub-prime loans to take place and worse to let these failed loans be bundled into securities to be sold as legitimate financial products to consumers.

This said, Brown points out that “In the wake of the 2009 financial market collapse, banks curtailing their lending more sharply than in any year since 1942 [a year after WW II began], driving massive unemployment and causing local tax revenues to plummet.” P.S. It was only the production of armaments for war and ultimately victory that brought many jobs and the economy back to life, though 400,000 American soldiers’ lives were lost. So that’s a lot of bloodshed to get liquidity, unfortunately a policy the US Government relies on too often for wealth-gathering, i.e. war.

“The logical solution, then,” Brown points out, “is to restore credit to the local economy,” i.e. if the Fed or federal government can’t do it, allow the smaller entities of the states to do it. “Yes,” continues Brown, “the Federal Reserve could provide the capital and liquidity necessary to create bank credit, in the same way that it provided $12.3 trillion in liquidity and short-term loans to the large money center banks.”

Ouch, “But Fed Chairman Ben Bernanke declared in January 2011 that the Fed had no intention of doing that—not because it would be too costly (the total deficit of all the states comes to less than 2% of the credit advanced for the bank bailout) but because it is not part of the Fed’s mandate. If Congress wants the Fed to advance credit to local governments,” he said, “It will have to change the law.” Barring changing the law and nationalizing the Fed, there is another way . . .

Brown writes that “States are on their own,” so their policymakers are free to consider all kinds of reforms designed to increase bank lending, especially to small businesses, hardest hit by strangling credit standards. “One measure . . . drawing increasing interest is the creation of a bank modeled on the Bank of North Dakota (BNC).” It is currently the one state-owned bank in the USA, and it has a 92-year history of safe, secure and very profitable banking.” It almost makes me want to genuflect. As a result, “North Dakota has the lowest unemployment rate in the country; and in 2009, when other states were floundering it had the largest budget surplus it ever had.” It did so with no sleight of hand, no casino gambling, and no Wall Street scamming.

It’s no wonder eight states now have bills pending to actually form state-owned banks or do feasibility studies to find out a “State Bank’s” potential. This year bills showed up in the Oregon State legislature on January 11; in Washington State on January; in Massachusetts on January 20 (after a 2010 bill that had lapsed); and in the Maryland legislature on February 4. Add these to Illinois, Virginia, Hawaii, and Louisiana. Ironically, the Center for Stated Innovation, based in the now infamous Madison, Wisconsin, was commissioned to do detailed analyses for Washington and Oregon, but not, duh for, Wisconsin.

Wisconsin was once the richest state in the union and now is the poorest; trying to bust the unions to perk up the budget. I doubt that the lost income and jobs will go a long way to pumping up the economy, as well as the millions in tax cuts to private companies to privatize state services, and attempts to privatize the very solvent Wisconsin Retirement Fund of $75 billion, which pays out handsome pensions to public retirees, without needing new public subsidy to pay for further tax cuts to rich property owners, and then throw Wall Street a juicy bone as employees would be shifted to 401k plans handled by ‘money managers’ on commission. Good luck.

Bottom line, Brown’s conclusion on the ten states mentioned above was “that state owned banks . . . would have a substantial positive impact on employment, new lending, and state and local government revenue.” How about that, Governor Walker? How about defecting and giving it a try? Brown adds, “State-owned banks could be a win-win for everyone interested in thriving local economy. Objections are usually based on misconceptions or a lack of information. Proponents stress that:

“1. A state-owned bank on the BND model would not compete with community banks. Rather, it would partner with them and support them, in making loans. The BND serves the role of a mini-Fed for the state. It provides correspondent banking services to virtually every financial institution in North Dakota and offers a Federal Funds program with daily volume of $330 million. It also provides check clearing, cash management services, and automated clearing house services. It leverages state funds into credit for local purposes, funds that would otherwise leave the state and be leveraged for investing abroad, drawing away jobs that could go to locals.”

This is what State Banks were originally intended to do until the law was repealed and Interstate banking was introduced to the U.S. This is because the first Interstate banks were foreign, and the U.S. State banks wanted to be just like their brethren. What a mistake.

“2. The BND not only does not compete for loans or for commercial deposits. Less than 2% of its deposits come from consumers. Municipal government deposits are also reserved for local community banks, then able to use these funds for loans specifically because the BND provides letters of credit guaranteeing them. Virtually all of the BND’s deposits come from the state itself, all of whose revenues are deposited in the BND by law.”

In the words of Keats, the Bank of North Dakota “is a thing of beauty and a joy forever.”

“3. Although the BND is a member of the Federal Reserve System, it is insured by the state rather than by the FDIC.” Take note: “This does not, however, put deposits at risk. Rather, it helps avoid risk and unnecessary expense, since the BND’s chief depositor is the state, and the state has far more to deposit than $250,000, the maximum covered by FDIC insurance.

“FDIC insurance is not only expensive but straightjackets members in FDIC regulation, making the state subservient to a semi-private national banking association, [and a shady one at that]. (“The FDIC calls itself an independent agency of the federal government, but it receives no Congressional appropriations. Rather, it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.) North Dakota prefers to maintain its financial independence.” And bless their wisdom for it.

“4. BND officials stress that the bank is run by bankers, not politicians bent on funding their favorite development projects or bestowing political favors [I feel like I’ve died and gone to heaven]. The bank is run very conservatively, doing only creditworthy deals and avoiding speculation in derivatives and risky subprime loans. By partnering with local banks, the BND actually shields itself from risk, since the local bank takes the initial loss if the borrower fails to pay.” This is as it should be. Be careful to whom you lend OPM (other people’s money).

5. [It gets better and better] “The BND does not imperil state funds or tax money but is self-funding and self-sustaining. It manages VA, FHA and forms of loans that are federally guaranteed and would otherwise go to large out-of-state-banks. Profits on these federally-guaranteed loans are then used to build a capital surplus from which riskier loans can be made to local businesses and development projects.”

AND “the BND has a return on equity of 25–26% and has contributed over $300 million to the state (its only shareholder) in the past decade—a notable achievement for a state with a population less than one-tenth the size of Los Angeles County. This is a notable achievement for any government anywhere. “Compare California’s public pension funds, which entrust their money to Wall Street, and are down more than $100 billion, or close to half the fund’s holdings, following the banking debacle of 2008.” Somebody get Ahhhnold on the phone! Or send him to North Dakota for a week.

“6. Partnering with the BND allows community banks to fund local projects in which Wall Street is not interested, leveraging municipal government funds that would otherwise not be available for loans. Further, infrastructure projects can be funded through the state bank at substantially less cost, since the state owns the bank and gets the interest back. Studies have shown that interest composes 30–50% of public projects.” That’s why they end up falling apart because the work is done on the cheap to grab the pork.

“8. The North Dakota Bankers’ Association does not oppose the BND but rather endorses it. North Dakota has the most local banks per capita and the lowest default rate of any state.” Who says banks have to be crooked to succeed. Chairman Ben, I hope you’re reading every word of this.

Brown States, “Other states could realize similar benefits, if they were to form banks on the BND model.” [Would it work for really high population states? Governor Cuomo, give it a look. We’re billions in the red and this could help New York State. Governor Chris Christie of New Jersey: same advice].

In conclusion, Brown writes, “Paying interest to coupon clippers on state and municipal bonds means sending money out of the state on a one-way trip to Wall Street. Having a state-owned bank allows the state to keep its money local, flowing into the state treasury and the local economy.” Having that kind of liquidity is the best kind of insurance a state and its nation can have. A hearty pat on the back to Ellen Brown for pointing all this out and North Dakota for actually doing it!

Jerry Mazza is a freelance writer, life-long resident of New York City. An EBook version of his book of poems “State Of Shock,” on 9/11 and its after effects is now available at and He has also written hundreds of articles on politics and government as Associate Editor of (formerly Online Journal). Reach him at

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