“We’ll Look at Everything”: More Thoughts on Trump’s $1 Trillion Infrastructure Plan

To stimulate the economy, create new jobs and generate new GDP requires an injection of new money. Borrowing from the bond markets or off-balance-sheet in public/private partnerships won’t do it. If Congress won’t issue money directly, it should borrow from banks, which create money on their books when they make loans.

The Trump agenda, it seems, is not set in stone. The president-elect has a range of advisors with as many ideas. Steven Mnuchin, his nominee for Treasury Secretary, said in November that “we’ll take a look at everything,”even the possibility of extending the maturity of the federal debt with 50-year or 100-year bonds to take advantage of unusually low interest rates.

Steve Bannon, appointed chief White House strategist, seems to be envisioning Roosevelt-style experimentation with whatever works. Continue reading

Trump’s $1 Trillion Infrastructure Plan: Lincoln Had a Bolder Solution

Donald Trump was an outsider who boldly stormed the citadel of Washington DC and won. He has promised real change, but his infrastructure plan appears to be just more of the same – privatizing public assets and delivering unearned profits to investors at the expense of the people. He needs to try something new; and for this he could look to Abraham Lincoln, whose bold solution was very similar to one now being considered in Europe: just print the money.

In Donald Trump’s victory speech after the presidential election, he vowed:

We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.

It sounds great; but as usual, the devil is in the details. Continue reading

Prop. 51 Versus a State-Owned Bank: How California Can Save $10 Billion on a $9 Billion Loan

School districts are notoriously short of funding – so short that some California districts have succumbed to Capital Appreciation Bonds that will cost taxpayers as much is 10 to 15 times principal by the time they are paid off. By comparison, California’s Prop. 51, the school bond proposal currently on the ballot, looks like a good deal. It would allow the state to borrow an additional $9 billion for educational purposes by selling general obligation bonds to investors at an assumed interest rate of 5%, with the bonds issued over a five-year period and repaid over 30 years. $9 billion × 5% × 35 equals $15.75 billion in interest – nearly twice principal, but not too bad compared to the Capital Appreciation Bond figures.

However, there is a much cheaper way to fund this $9 billion school debt. By borrowing from its own state-chartered, state-owned bank, the state could save over $10 billion – on a $9 billion loan. Here is how. Continue reading

Infrastructure Sticker Shock: Financing Costs More than Construction

Funding infrastructure through bonds doubles the price or worse. Costs can be cut in half by funding through the state’s own bank.

“The numbers are big. There is sticker shock,” said Jason Peltier, deputy manager of the Westlands Water District, describing Governor Jerry Brown’s plan to build two massive water tunnels through the California Delta. “But consider your other scenarios. How much more groundwater can we pump?”

Whether the tunnels are the best way to get water to the Delta is controversial, but the issue here is the cost. The tunnels were billed to voters as a $25 billion project. That estimate, however, omitted interest and fees. Construction itself is estimated at a relatively modest $18 billion. But financing through bonds issued at 5% for 30 years adds $24-40 billion to the tab. Another $9 billion will go to wetlands restoration, monitoring and other costs, bringing the grand total to $51-67 billion – three or four times the cost of construction.

A general rule for government bonds is that they double the cost of projects, once interest has been paid. Continue reading