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To Rebuild America's Infrastructure, Stop Spending and Start Lending!

According to its 2013 Report Card for America's Infrastructure, the American Society of Civil Engineers (ASCE) estimates that America needs to invest $3.6 trillion in infrastructure by 2020.

This sum – targeted to roads, rail, bridges, power, water, schools and similar projects – is roughly equal to the entire US Federal budget for a year. Paid for on-budget, these upgrades would add $600 Billion per year, costing more to the American taxpayer than Medicare. Paid for by borrowing, the interest on the national debt, already expected to reach $1 trillion per year by 2020[1], would spiral further out of control.

But while short-term costs may be high, the long-term benefits of public infrastructure go without question. What would be the value of oil without the interstate highway system? Or the value of distant farms and mines without railroads to deliver their products? Or the value of your home without water, sewer and power grids? Infrastructure is by definition the basis for our standard of living.

Why we can't borrow the money – the case of the billion dollar school

In 2011, the Poway Unified School District near San Diego, CA needed $105 million to make needed upgrades to its aging public schools. Unable by law to increase property taxes, and unable to afford the cost of a short-term loan, the district used a controversial loan called a capital appreciation bond[2]

With this bond, an example of the schemes becoming all too common to keep cash-strapped infrastructure functioning, the District will delay repayment for 20 years, and pay over the following 20 years at a total cost of nearly 1 billion dollars. In addition to the costs of construction, this means another $900 million in usurious interest payments will be foisted upon local homeowners.

Imagine this scenario playing out with $3.6 trillion. Borrowing public money from private banks is not only obscenely expensive, it's terribly unjust to taxpayers, who are working ever harder to pay for the unearned luxuries of the super-rich rather than their own needs.

What is a dollar? From seed to apple

Whenever it comes to government spending, we hear the refrain, "Who will pay for that?" Indeed, the money is not available to pay for our current unmet needs, let alone next-generation opportunities in infrastructure, R&D and other matters of the general welfare. But what, we must ask, is money?

Contrary to the obsessions of "hard money" proponents, a dollar is not simply a medium of exchange, nor is there a fixed amount of wealth in the Universe that is simply to be traded back and forth in “the market”. Consider the following: is an apple seed worth anything to you? But how about an apple? Today's humble seed has no value until it is transformed by human creativity, labor, and "divine providence" into tomorrow's apple. The same can be said of the mind devising a machine, of sand transformed into glass, of raw minerals turned into power, and so forth.

A dollar is rightly a certificate of credit: a claim on future value: an IOU. In the case of infrastructure, we are giving credit to potential value that will not be realized for years in the future. Even a "bridge to nowhere" has value, since it alone allows "somewhere" to be created. We as a nation can not afford to mortgage this potential to private financiers who demand public guarantees of unreasonable profits.

National banking: an American tradition

One of the first acts of the US Congress, the work of Treasury Secretary Alexander Hamilton, was the first Bank of the United States. After the Revolutionary War, America did not have the money to pay its debts or meet its current obligations, and was fast becoming an international basket case. The purpose and effect of this first National Bank was to establish a funded public debt.

While 80% of the bank's stock (debt) was owned by private stockholders, 20% was owned by the US government, paid for by the very debt itself[3]. Hamilton's claim, proven by the success of the bank, was that a nation's credit was validated not by its current assets, but by its sovereign power to direct future events through the issuance of credit. Critically, the bank's loans were made chiefly for purposes of physical production - dams, bridges, buildings, even the Louisiana Purchase.

National banking came and went with America's political changes, but the method of funding public infrastructure with public money has always been responsible for America's greatest periods of growth and social mobility. Lincoln's "Greenback" built transcontinental railroads and the steel industry. FDR's New Deal turned a Great Depression into an industrial revolution by forcing the private Federal Reserve to fund infrastructure, industry and agriculture.

What we must do: Seize the Fed to rebuild America's infrastructure!

America no longer enjoys a national bank. The Federal Reserve, representing a cartel of private banks, was installed 100 years ago to give Wall Street privileged access to America's credit. The Fed is essentially a national bank with no accountability to public purpose. While today's Fed does nothing for manufacturers, it bailed out Wall Street's banks and hedge funds in 2008 to the tune of an estimated $29 trillion[4], and now continues to purchase $85 billion each month[5] in toxic financial assets.

This policy has not produced any recovery in the things that matter - employment, wages, savings, etc. Why? Because Wall Street's 2 quadrillion dollar tsunami of derivatives has no real value! The Fed is using your public credit to buy IOUs that can not be redeemed. The rescue of derivatives is the reason for President Obama’s "Grand Bargain" and the current climate of austerity. Had even a fraction of this credit instead been used to finance infrastructure, industry and agriculture, we would be on the road to full employment and reindustrialization.

While formal nationalization of the Fed – the reconstitution of the Bank of the United States – is indeed preferable, what we need most urgently is for the Fed's credit to be used for the production of physical infrastructure, which has unquestioned value and will initiate a recovery in employment and industrial production. A president of the caliber of FDR would take advantage of the fact that the Fed operates outside of political control, and publicly order Fed chairman Ben Bernanke  to do the following:

  • Issue an initial tender offer (offer to purchase bonds) of $3.6 trillion from states and regional authorities.

  • This credit would be issued in proportion to and strictly for the purposes outlined by the American Society of Civil Engineers – roads, rail, schools, etc.

  • These must be Century Bonds, with 100 year maturities and the coupon rate (interest) set at 0%.

The total $3.6 trillion will be added to the national debt, and paid over the next 100 years, at a rate proportionate to economic growth. After this $3.6 trillion is extinguished, the Fed will issue additional tranches of $1 trillion until full employment is achieved.

Century Bonds vs. Wall Street Loans

Returning to the Poway Unified School District, what would be the impact of a Century Bond on a typical infrastructure project?


Century Bond Wall Street Loan
Total principal (debt) $105,000,000 $105,000,000
Total interest $0 $895,000,000
Maturity (years) 100 40
Total payments $105,000,000 $1,000,000,000
Average payment $1,050,000 $25,000,000

One can clearly see the advantage of using interest-free, long-term public credit. By removing usury from the equation, only the actual cost of the project is paid, and the long-term values flow to the public who uses the infrastructure.

When we lend rather than spend for infrastructure, each dollar of national debt is reflected by more than a dollar of real or potential value – national debt is not a handout but the public acceptance of an IOU. Debts are paid as the new credit flows throughout the economy and increases tax revenue. The ultimate goal is not to pay off the debt, but as Hamilton said, to maintain a national debt that “if not excessive” will be a blessing to the nation.

In summary: stop spending and start lending!

While we don't have a national bank, we do have a central bank, and must seize it politically to perform a socially beneficial task. The policy of federal lending, as distinct from federal spending, can be used to kickstart a national economic recovery, and to break the current political impasse by circumventing the process of Congressional appropriations. The cost of capital will be radically lowered, and a competitive advantage of the United States in world markets can be secured. The overriding goal is not only to prepare our physical infrastructure for the century ahead, but the creation of 30+ million new jobs in production, with high capital investment, high energy intensity, high value added, and high technology.