This short story is to illustrate the difference between monetizing the debt and monetizing an asset.
A tale of two bridges
Two bridges are needed to be built in Ohio. One in Richland County and the other in Huron County. Each bridge costs 10 million dollars.
Ohio legislators are in charge of the Richland bridge. To built the bridge in Richland County, they decide to start a new bond program. The bridge will be built by the Ohio Department of Transportation. The bonds are rated for a large fee, by a highly reputable bond rating firm outside of Ohio. The bonds are sold to investors for the principal of 10 million dollars, plus interest.
The State Bank of Ohio has control of the Huron bridge. The bridge in Huron County will be financed by money given to the Ohio Department of Transportation by the State Bank of Ohio. The amount is 10 million dollars.
The Ohio legislation and the State Bank of Ohio, expect the Ohio Department of Transportation to repay the money used. The Ohio legislation and the State Bank of Ohio are both concerned. ODOT is considered a very shady and unreliable group. After all, they are citizens of Ohio. And it is assumed that Ohio resources will be used to built the bridges. The Ohio legislation and the State Bank of Ohio feel that Ohio resources are inferior to any other resources.
Both bridges are built, but the Ohio Department of Transportation refuses to pay back the money used. They claim that the funds are not available. It is rumored that the funds were taken by other Ohio legislators for another Ohio State programs. The bond holders are angry and demand payment of principal and interest. They want Ohio to sell Ohio assets in lure of payment. They claim Ohio is shady and unreliable, and may go into default.
The Ohio legislation is in a panic. They try to issue new bonds to pay the old bonds, but higher rates of interest are demanded, because of Ohio's shady reputation to bond holders. The Ohio legislation manages to sell some higher interest bonds, but to make up the difference, they must also raise gas taxes, increase license plate fees and cut back on several state services. To generate more revenue, the Ohio legislation takes possession of the Richland bridge and leases it to a private company that charges tolls to cross the bridge.
The State Bank of Ohio is also in a panic. If the money for the Huron bridge is not repaid, The State Bank of Ohio threatens to place liens on ODOT equipment and garnish the wages of ODOT employees. The State Bank of Ohio even considers a repayment of the principal only, and forgive all interest charges. The Ohio Department of Transportation still refuses to make payment, claiming the funds are not available.
After intense negotiations, the Ohio Department of Transportation offers to GIVE the Huron county bridge to the State Bank of Ohio in lure of payment. Since the bridge is: brand new, Ohio craftsmen were used, Ohio revenue was generated through wages, Ohio sales taxes were generated from the purchase of resources from Ohioans, Ohio income tax increased through higher income, Ohio resources were used and are not inferior, The State Bank of Ohio is owned by the citizens of Ohio, and the bridge is exactly where the citizens of Ohio wanted and needed the bridge to be, the State Bank of Ohio ACCEPTS the ODOT offer.
The Ohio legislators have monetized the debt. The State Bank of Ohio have monetized the asset.
The sad end of this tale is that the State Bank of Ohio does not exist. The citizens of Ohio do not own a State Bank. Bonds will continue to be used to build both bridges. And, the Ohio legislation could create a State Bank of Ohio immediately.
If a State Bank of Ohio financing method makes more sense to you, for bridges, road maintenance or any other state infrastructure improvement, please contact your Ohio Representative. Ask them why they are against a State Bank system that has provide the State of North Dakota a surplus for the last 90 years. And ask them to contact me or return my emails. Thank you.