How to Cut Infrastructure Costs in Half

Americans could save $1 trillion over 10 years by financing infrastructure through publicly-owned banks like the one that has long been operating in North Dakota.

President Donald Trump has promised to rebuild America’s airports, bridges, tunnels, roads and other infrastructure, something both Democrats and Republicans agree should be done. The country needs a full $3 trillion in infrastructure over the next decade. The $1 trillion plan revealed by Trump’s economic advisers relies heavily on public-private partnerships, and private equity firms are lining up for these plumbing investments. In the typical private equity water deal, for example, higher user rates help the firms earn annual returns of anywhere from 8 to 18 percent – more even than a regular for-profit water company might expect. But the price tag can come as a rude surprise for local ratepayers.

Private equity investment now generates an average return of about 11.8% annually on a 10-year basis. For infrastructure investment, those profits are made on tolls and fees paid by the public. Even at simple interest, that puts the cost to the public of financing $1 trillion in infrastructure projects at $1.18 trillion, more than doubling the cost. Cities often make these desperate deals because they are heavily in debt and the arrangement can give them cash up front. But as a 2008 Government Accountability Office report warned, “there is no ‘free’ money in public-private partnerships.” Local residents wind up picking up the tab.

There is a more cost-effective alternative. The conservative state of North Dakota is funding infrastructure through the state-owned Bank of North Dakota (BND) at 2% annually. In 2015, the North Dakota legislature established a BND Infrastructure Loan Fund program that made $50 million in funds available to communities with a population of less than 2,000, and $100 million available to communities with a population greater than 2,000. These loans have a 2% fixed interest rate and a term of up to 30 years. The proceeds can be used for the new construction of water and treatment plants, sewer and water lines, transportation infrastructure and other infrastructure needs to support new growth in a community.

If the Trump $1 trillion infrastructure plan were funded at 2% over 10 years, the interest tab would come to only $200 billion, nearly $1 trillion less than the $1.18 trillion expected by private equity investors. Not only could residents save $1 trillion over 10 years on tolls and fees, but they could save on taxes, since the interest would return to the government, which owned the bank. In effect, the loans would be nearly interest-free to the government.

New Money for Local Economies

Legislators in cash-strapped communities are likely to object, “We can’t afford to lend our revenues. We need them for our budget.” But banks do not lend their deposits. They actually create new money in the form of bank credit when they make loans. That means borrowing from its own bank is not just interest-free to the local government but actually creates new money for the local economy.

As economists at the Bank of England acknowledged in a March 2014 report titled “Money Creation in the Modern Economy”, the vast majority of the money supply is now created by banks when they make loans. The authors wrote:

The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. . . . Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. [Emphasis added.]

Money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The BOE report said that private banks now create nearly 97 percent of the money supply in this way.

Richard Werner, Chair of International Banking at the University of Southampton in the UK, argues that to get much-needed new money into local economies, rather than borrowing from private investors who cannot create the money they lend, governments should borrow from banks, which create money in the form of deposits when they make loans. And to get that money interest-free, a government should borrow from its own bank, which returns the interest to the government.

Besides North Dakota, many other states and cities are now exploring the public bank option. Feasibility studies done at both state and local levels show that small businesses, employment, low-cost student loans, affordable housing and greater economic stability will result from keeping local public dollars out of the global banking casinos and in the local community. Legislation for public banks is actively being pursued in Washington State, Michigan, Arizona, Philadelphia, Santa Fe, and elsewhere. Phil Murphy, the front-running Democratic candidate for New Jersey governor, is basing his platform on a state-owned bank, which he says could fund much-needed infrastructure and other projects.

New Money for a Federal Infrastructure Program

What about funding a federal infrastructure program with interest-free money? Tim Canova, Professor of Law and Public Finance at Nova Southeastern University, argues that the Federal Reserve could capitalize a national infrastructure bank with money generated on its books as “quantitative easing.” (Canova calls it “qualitative easing” – central bank-generated money that actually gets into the real economy.) The Federal Reserve could purchase shares, whether as common stock, preferred stock or debt, either in a national infrastructure bank or in a system of state-owned banks that funded infrastructure in their states. This could be done, says Canova, without increasing taxes, adding to the federal debt or hyperinflating prices.

Another alternative was proposed in 2013 by US Sen. Bernie Sanders and US Rep. Peter DeFazio. They called for a national infrastructure bank funded by the US Postal Service (which did provide basic banking services from 1911 to 1967). With post offices in nearly every community, the USPS has the physical infrastructure for a system of national public banks. In the Sanders/DeFazio plan, deposits would be invested in government securities used to finance infrastructure projects. Besides financing infrastructure without raising taxes, the plan could save the embattled USPS itself, while providing banking services for the one in four households that are unbanked or under-banked.

Reliance on costly private capital for financing public needs has limited municipal growth and reduced public services, while strapping future generations with unsustainable debt. By eliminating the unnecessary expense of turning public dollars into profits for private equity interests, publicly-owned banks can allow the public to retain ownership of its infrastructure while cutting costs nearly in half.

___________

Ellen Brown is the founder of the Public Banking Institute and a Fellow at the Democracy Collaborative. She is the author of a dozen books including the best-selling Web of Debt, on how the power to create money was usurped by a private banking cartel, and The Public Bank Solution, on how the people can reclaim that power through a network of publicly-owned banks.

27 Responses

  1. Governments can do easily what you suggest. Since they control the money supply they have no need to use any commercial bank. After all why borrow one’s own money???. Instead of organising contractors to go to banks for funding, the government can pay them directly.
    Simple! [unpopular with the banksters], but it’s time to grow a spine and do it directly.

  2. Reblogged this on amnesiaclinic and commented:
    Excellent! Share far and wide and get this out into the public arena. Money is so misunderstood but if people realized that they could have the infrastructure and the booming local economies then change would happen overnight.

  3. Ms. Brown,

    Have you communicated about this with Steve Bannon or Steve Mnuchin?

  4. Shared with ~2,000 AP Econ teachers. We’ll do our part to point to game-changing data. So far (if I can still use “so far” after 8 years), these ideas have fallen upon deaf ears.

  5. The basic problem here isn’t the mechanics of money creation, it’s that the result would disempower the plutocrats. A more robust public realm is what such public lending would create, but that’s anathema to everyone who wants to privatize and create an economy of toll booths and debt peons…and not incidentally a despoiled environment (sort of the ultimate public realm). Economist Michal Kalecki points out that business interests would object to things like a job guarantee for the same reason; it would disempower them.

    This is not exactly new, either. See Michael Hudson’s talk about the precedents in the ancient world here: http://michael-hudson.com/2017/01/the-land-belongs-to-god/

    • “Disempowering the plutocrats” got it in one. Still they are alerted now what with Brexit and Trump and annulling the TPP. We’ll see what pans out.

  6. Excellent article Ms. Brown. Your books have been enlightening to me.

  7. […] By Ellen Brown / Web of Debt […]

  8. How about this Ellen. The banks that were bailed out in 2008 get to fund a trillion dollars on infrastructure rebuild. Since 2008 their derivatives have increased by plenty, have President Trump get those guys in his oval office and sell the art of the deal that they are going to fund a trillion dollars at 2% with no fees or anything else. So the five banks have to contribute 200 billion each over a 4 year period, only 50 billion a year. If not, trump taxes them at 85% on all their derivatives. It’s only a trillion, but its a start and them the banks will be so well liked again. It’s payback time baby!

  9. By infrastructure Ellen Brown means the Dakota Access Pipeline.The Sioux Protesters were Attacked by Sheriffs funded by the North Dakota Public Bank. Now Trump has OKd the Pipelines the Governor Dalrymple will buy more Oil Shares.

  10. […] Fonte: Como cortar custos de infra-estrutura em Half | WEB DO BLOG DE DÍVIDA […]

  11. […] Source Web of Debt Jan. […]

  12. Reblogged this on The Most Revolutionary Act and commented:
    *
    *
    The publicly owned bank Brown refers to – The Bank of North Dakota – is probably the most important legacy of the 19th century populist movement. See https://stuartjeannebramhall.com/2017/01/27/populism-americas-largest-mass-democratic-movement/

  13. Reblogged this on Asian Pacific Times .

  14. ELLEN,Please a new article: “How Cut Infrastructure costs o ZERO
    and REDUCE National Debt”
    Tweeck “New Money for a Federal Infrastructure Program
    What about funding a federal infrastructure program with interest-free money? Tim Canova, Professor of Law and Public Finance at Nova Southeastern University, argues that the Federal Reserve could capitalize a national infrastructure bank with money generated on its books as “quantitative easing.” (Canova calls it “qualitative easing” – central bank-generated money that actually gets into the real economy.) The Federal Reserve could purchase shares, whether as common stock, preferred stock or debt, either in a national infrastructure bank or in a system of state-owned banks that funded infrastructure in their states. This could be done, says Canova, without increasing taxes, adding to the federal debt or hyperinflating prices.
    Another alternative was proposed in 2013 by US Sen. Bernie Sanders and US Rep. Peter DeFazio. They called for a national infrastructure bank…”
    MAKE IT SIMPLE:
    Not a bailout.
    Not a cost to all the taxpayers.
    Not an increase in deficit spending.
    Rather a magic economic proven golden bullet.
    The FEDS made direct purchase of bank assets.The Fed has already proven that it can do this; with a profit to the US Treasury and with no increase in the debt (it is an asset purchase).
    We must have Congress legislate that the Federal Reserve Bank shall make purchases of Public State Bonds For Infrastructure (PSBFI).
    Each state will have as a member of the Federal Reserve a pubic state bank along with one additional member for the District of Columbia.
    Each member (Public State Bank) will be entitled to issue $10 billion/ electoral vote. All bonds will have the same terms and conditions and will be available
    to the Federal Reserve for that year of issue.(https://bestsolutionsfl.wordpress.com/2017/01/23/its-time-to-rewrite-the-rules)

  15. […] "Americans could save $1 trillion over 10 years by financing infrastructure through publicly-owned banks" https://ellenbrown.com/2017/01/26/how-to-cut-infrastructure-costs-in-half/ […]

  16. […] How to Cut Infrastructure Costs in Half […]

  17. […] How to Cut Infrastructure Costs in Half […]

  18. Excellent article, Ellen. It seems to be getting traction. Your book “The Public Banking Solution”, Chapter 6, explains in more detail. Highly recommended.

  19. […] Ellen Brown at The Web of Debt blog writes—How to Cut Infrastructure Costs in Half: […]

  20. […] Ellen Brown at The Web of Debt blog writes—How to Cut Infrastructure Costs in Half: […]

  21. […] Ellen Brown at The Web of Debt blog writes—How to Cut Infrastructure Costs in Half: […]

  22. A Real Recovery to Begin the Infrastucture Rebuilding Starts With Passing the Bill for Prudent Banking by Re-instating the Firewall between productive and speculative banking contained in the Glass-Steagall legislation. A growing number of people in both houses of the US Congress AND President Trump are on the record supporting Glass-Steagall reinstatement. Here is the video link press conference held in Washington, D.C., by Tulsi Gabbard, Tim Ryan, Marcy Kaptur, and Walter Jones on Wednesday, Feb. 1, 2017 Please watch and share it and call your Congresspeople on it!! Thanks, Gerald Pechenuk, LaRouche PAC

    https://larouchepac.com/20170202/glass-steagall-bill-placed-congress-now-assure-its-passage-along-larouches-four-laws

  23. Ellen hits on the obvious solution(s), and we all know the current debt as money system works very well for a very few, but those few control the media and military so it will take everybody to push these ideas forward.
    Thanks again Ellen and here is a related article by me on infrastructure vs. military spending.

    http://youtopia.guru/023-oroville-dam-and-americas-infrastructure-collateral-damage-of-massive-military-spending/

  24. […] READ ENTIRE ARTICLE HERE […]

  25. […] — source ellenbrown.com […]

  26. Make the Arms Co’s provide infrastructure instead of death machines. They would go along because they still get paid, but no-one has to die!

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