Alternatives to Pat Quinn’s Short-Term Bond Suggestion

Federal Reserve Building

Talking about his proposal to borrow $8.75 billion ($6 billion or so to pay off overdue bills, the rest for what Democrats do best, new spending, I guess), Governor Pat Quinn said,

“Saying ‘No’ is not enough unless you are willing to offer real alternatives.”

Well, I’ve got a possibility.

Why not charter a state bank as North Dakota has?

As I understand the arrangement that the Federal Reserve has with banks is that it loans money to banks for very low interest rates.

Quinn and his budget advisers argue that paying 1% per month to vendors that cannot be paid on time is an expense that should be lowered.

Illinois State Capitol

He suggests doing so by floating a bond issue for the amount owed.  My guess is the interest rate would be cut approximately in half.

Why not try to cut it by closer to 99%?

That’s if the Fed Funds Rate is 0.25% and Illinois can access money at that rate.

I don’t know the ins and outs of banking.

Maybe there is a fatal flaw in this idea.

Another idea would be to lower the interest rate paid to vendors on overdue bills from 1% per month to one or two percentage points above the prime rate.  The prime rate is 3.75%.

That could be done by changing state law.

So, here are two ideas to chew on.

Anyone want a bite?


Alternatives to Pat Quinn’s Short-Term Bond Suggestion — 3 Comments

  1. The fatal flaw in your thinking is that banks post collateral when they borrow at the low rates that you quote. They post a pool of commercial and/or residential mortgage loans as collateral. There are no “free” loans to be had.

  2. I don’t know the ins and outs of banking.

    Then maybe you shouldn’t volunteer ideas?

  3. The State of Illinois has lots of solid assets that could put up as collateral, it seems to me.

    Think roads, buildings, parks.

Leave a Reply

Your email address will not be published. Required fields are marked *