Alexander Hamilton, the architect of America’s First National Bank, proved that a national debt, if not excessive, is a great advantage to a modern nation. A sustained economic recovery requires a source of credit which can be neither zombie banks nor the federal budget.
Federal lending, not Federal spending
Paul Krugman and other Keynesians propose an economic recovery financed exclusively through the federal budget. Our objection to this method has nothing to do with the reactionary Republican demagogy about deficits and debt, but with a recognition of the difference between the operating debts represented by the annual Federal budget, and the long-term capital debts used historically to finance economic growth and development.
If applied today, Keynesian methods would result in excessive burden on the federal budget, thus creating a vulnerability to speculative attack on the Greek model. The Keynesians also do not understand that it is impossible to defeat a depression without a recovery in the capital goods industry. The consumer-led recovery was implicit in the Obama stimulus of 2009, which had positive effects, but which has failed to produce a sustained broad-based recovery
The policy of federal lending, as distinct from federal spending, can be used to break the current political impasse. The cost of capital can be radically lowered, and a competitive advantage of the United States in world markets can be secured. The overriding goal is the creation of 30+ million new jobs in production, with high capital investment, high energy intensity, high value added, and high technology.
The theoretical basis for the program advanced here is the traditional American System of Alexander Hamilton, Friedrich List, Henry Carey, Henry Clay, Abraham Lincoln, the populists, and the New Deal. The method of transforming the central bank into a national bank to finance a recovery derives from the work of Woytinsky and Lautenbach, interpreted in the light of the experience of the US Lend-Lease Program.
Century Bonds for Infrastructure and Science Drivers
Either through law or political pressure, the Federal Reserve must be forced to put out a tender offer to states and regional authorities like the New York-New Jersey Port Authority stating the Fed’s willingness to buy an initial $1 trillion of state bonds with the proceeds devoted exclusively to rebuilding the infrastructure of the United States. These must be century bonds, with 100 year maturities and the coupon rate must be set at 0%. Once the first tranche of $1 trillion is expended, another tranche should be offered, until the point at which full employment is reached. The states issuing the bonds can offer solid collateral of the infrastructure improvements that are being created.
These state and authority bonds will make possible the long overdue rebuilding of the entire US Interstate Highway System, including its bridges; the national passenger, freight, and commuter rail using the technology of the 21st century; the national electricity production and transmission grid; canals, ports, sewage and water systems; telecommunications; public housing; schools, hospitals, libraries, public buildings, etc.
This credit will also be applied to science drivers. From modernizing and expanding America’s national laboratories - including high-energy physics, power technologies and biomedical research – to restarting the space program for exploration and colonization.
0% Federal Credit for Production
At the same time, we will offer 0% federal credit to automobile manufacturers, Silicon Valley, biotech and pharmaceuticals, farmers, and any and all companies active in manufacturing, construction, mining, scientific research, energy production, and other forms of tangible, physical, commodity production. Cheap credit for productive activity must be available all the way down to the local auto repair shop, dry cleaner, plumber, electrician, or restaurant, since all of these represent tangible physical production. Financial services will no longer be eligible to be subsidized by cheap federal credit.
Nationalize the Federal Reserve
A president of the caliber of Franklin D. Roosevelt could implement the policy outlined here with a single phone call to the Federal Reserve chairman, informing him of what the national interest requires in the current emergency. The ultimate goal must be the nationalization of the Federal Reserve, meaning that its policies must no longer be set by secret cliques of bankers meeting in the paneled boardrooms, but rather by public laws approved by the House and Senate and signed by the president – the only conceivable method under the current system. These laws must determine the amount of credit to be made available, the interest rates to be applied, and the approved categories of lending.