My Blog List

Tuesday, August 30, 2016

Sustainable Economic Policy IV

Adding to the Federal Reserve "Toolkit"

Janet Yellen is having a meeting at Woods Hole:

"The Fed's annual conference in Jackson Hole, Wyoming, where Yellen speaks on Friday, is due to focus on how to improve central banks' "toolkit," but the unanimous message from the Fed's top policymakers is that those tools are not enough." [Reserve Meeting]

And you hear the usual complaints from the Federal Reserve that:

"Monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth," Fed vice chair Stanley Fischer said on Sunday. He said it was up to the administration to invest more in infrastructure and education."[Reserve Meeting]

It is Up To Congress!

Fischer is expressing the World Banker conventional view. However, if the Federal Government appropriates money for Infrastructure and Education, under current law, it is forced to either borrow money at interest ("deficit spending") or to raise taxes to "offset such spending". Raising Taxes means the government must rob Peter to Pay Paul. Borrowing money means that any profits from infrastructure investment will go to Investors and not to the people "as a whole."

Congress Can Authorize an Infrastructure Bank and Delegate that function!

Congress Can Do this!

Fischer is also wrong. It's not up to the Administration to increase Infrastructure or Education spending, it is up to Congress. In part one of this discussion, (Sustainable Economic Policy I), I noted that the Federal Reserve has a mandate to:

A maximize Employment,
B Stablize Prices,
C Moderate Long Term Interest Rates and
D sustain Long Run Productivity.

I also noted that they couldn't fulfill that mandate as long as their primary purpose was to support the privateering Banking system we have presently.

However, these mandates are really Congress's mandate, which Congress in their sometimes wise and sometimes benighted decision making has delegated to the Federal Reserve. Congress could easily resolve this issue. They can do that by delegating some fiscal control powers to new banks, whose job would be to support State and local Government.

Supporting an Infrastructure Bank

If we created an Infrastructure Bank, it's purpose would be to vet, control, oversee and review Infrastructure investments by State and Local Government. The Fed would have the power to issue letters of credit (money) to support these projects, and Congress would set limits on borrowing and spending for the bank and delegate sufficient authority to it so that the Fed could also balance the money supply.

Creating Branches of an Infrastructure Bank

The Infrastructure Bank would be created with one Regional Branch for each Federal Reserve Region. And subsidiary branches for each State. The Regional Branches of the Infrastructure Bank would coordinate and manage, in cooperation with the USA Department of Transportation and Commerce, regional infrastructure projects. And the State Branches would be joint operations for managing financing of local infrastructure projects.

An Education Bank would be created on similar structure.

Oversight and Controls

The Infrastructure Bank and it's branches would have Five powers:

One:

It would grant funds for designated immediate infrastructure investment and sustainment needs in the form of grants as designated by Congress and Money supply needs.

Two:

It would make zero interest short term or long term loans to State and Local Governments to cover the cost of these projects.

Three:

It would be authorized to buyback bonds either to discharge or relieve State and local loans, or to exchange at interest loans for zero interest loans in order to shore up the credit worthiness of State and Local Government Agencies, or reward State and local Government for performance.

Four:

It would be responsible for vetting the creditworthiness and worth of projects applied for by State and Local Governments before granting them.

Five:

It would have the power to audit performance, compel compliance with best practices, and punish misuse of money, conversion or law-breaking through a law-enforcement bureau. All such actions would be taken through the ordinary court system.

National Infrastructure Bank Constitution

The National Branch of the National Infrastructure Bank would have a board of Governors with members selected by Congress. The Regional Branches of the National Infrastructure bank would have 1/3 their governors from Congress and the rest with one from each of the States in the Region. The CEO would be approved by Congress and nominated by the Board of Governors.

Rationale

The details of such an operation would belong to congress. But such banks would allow the Federal Reserve to fulfill it's mission. And because most of its operation would be in the form of zero interest loans or the creation of zero interest notes, it would not ad to the deficit.

The Constitution allowed Alexander Hamilton to monetize the debt of the States in the initial formation of the Country. This allowed him to considerably improve the financial position of the country. Based on what was said at this weeks Federal Reserve meeting, the time for an Infrastructure Bank is overdue. Engineers want this for sustaining our system. Politicians need this to take the heat off of them to "balance" insane budgets. Monetary Reformers will sigh in relief. Nobody will be hurt by it. So why not do it?

Next Post: Sustainable Economic Policy V

Further Reading

Sustainable Economic Policy To Date:
Sustainable Economic Policy I
Sustainable Economic Policy II
Sustainable Economic Policy III
Sustainable Economic Policy IV
Sustainable Economic Policy V
Sustainable Economic Policy VI
Federal Reserve Meeting:
http://www.businessinsider.com/r-central-bankers-eye-public-spending-to-plug-1-trillion-investment-gap-2016-8
Related Articles & Publications:
http://positivemoney.org/2016/04/canada-nz-a-history-of-qe-for-people-part-8/
Image from: [http://www.enterrasolutions.com/2015/02/investing-infrastructure-investing-future.html]
Third Way Report: [http://www.thirdway.org/report/a-national-infrastructure-bank]
Rosa DeLauro's Bill
American Progress:https://www.americanprogress.org/wp-content/uploads/2012/09/InfrastructureBankReport.pdf
ASCE Statement
Control Concepts:
https://en.wikipedia.org/wiki/Dokimasia
http://www.stoa.org/projects/demos/article_law_glossary?page=33&greekEncoding=

No comments:

Post a Comment