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.
We need trillions in long-term investments
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. We can not simply pay these costs on-budget, which would add $600 Billion per year, costing the American taxpayer more than Medicare. A pay-as-you-go approach on the scale we require is not only politically unrealistic, it would place an excessive burden on the federal budget, thus creating a vulnerability to speculative attacks on the dollar.
Why we can't borrow the money from Wall Street
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.
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 interest payments will be foisted upon local taxpayers.
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 will work ever harder to pay for the unearned luxuries of super-rich financiers rather than their own needs.
Seize the Fed: Federal lending, not Federal spending
We propose to seize the functions of the Federal Reserve System and use it as a national bank to finance the long-term needs of the American people. The policy of federal lending, as distinct from federal spending, can be used to break the current political impasse. Federal lending allows us to make massive long-term commitments at modest short-term costs. For states and businesses, the cost of capital can be radically lowered – down to 0% for public infrastructure, 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 and historical validation 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 $3.6 trillion of state bonds within the next 10 years, with the proceeds devoted exclusively to rebuilding the public 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 $3.6 trillion is expended, subsequent tranches of $1 trillion each 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 (such as contributing more resources to nuclear fusion research, and the long-overdue development and deployment of thorium reactors) and biomedical research – to restarting the space program for exploration and colonization.
Federal Credit for Production
We must offer low-interest and interest-free 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. Massive demand will be created for American-made materials and goods in the rebuilding of infrastructure. 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.
Federal Credit for Student Loans and Home Mortgages
In May 2013, Senator Elizabeth Warren (MA) introduced the "Bank On Students Loan Fairness Act," a historic breakthrough in the effort to nationalize the Federal Reserve. In light of the July 2013 doubling of Federal Stafford loan rates, Warren's bill, S.897, would refinance these loans through the Department of Education at 0.75%. Quality, affordable education and housing are essential to the health of the nation, and can both be secured with low-interest financing from a national bank. By removing the burden of usury from the necessities of the American people, we free them in their pursuit of happiness.
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.
Isn't the Federal Reserve a branch of government?
You may be surprised to learn that America's central bank is actually a private consortium representing the interests of Wall Street speculators. While the 7 members of the Fed's Board of Governors are political appointees, they are able to conduct the nation's monetary and credit policies (like the many credit windows opened to banks during the 2008-9 "bailout") without any authorization or oversight from our elected representatives.
How can a national bank loan money it doesn't have?
The US Constitution (Article I: Section 8) provides to Congress the rights to provide for the general welfare of the United States, to borrow Money on the credit of the United States, and to regulate the value of money. The first Bank of the United States, designed by Alexander Hamilton, was chartered in 1791, just two years after the ratification of the Constitution. This Bank used a national debt – not simple spending or money-printing – to pay for America's crushing war debts and an ambitious infrastructure program.
The founders rightly understood that money was not a substitute for gold, acting merely as a barter instrument, but a certificate of credit. A dollar accounts for a dollar’s worth of value in the economy. When the national bank makes long-term commitments – say $3.6 trillion for infrastructure upgrades – it introduces this new credit as money into circulation, and that credit is recirculated over the long term as taxes paid back to the Federal Treasury.
When a national bank creates such new credit to improve the underlying infrastructure in the nation, or to increase production in agriculture and industry, the values created exceed the debts assumed. The new money in circulation can be exchanged for more than its former use-value in new goods and services, and inflation is kept under control by economic growth.
Keynes was wrong to say, "The government should pay people to dig holes in the ground and then fill them up." Credit must be reserved for credit-worthy uses, characterized by infrastructure, production and limited categories (ie housing and education) pertaining to what the founders called “the general welfare.”
Why shouldn’t we “End the Fed?”
If we simply end the Federal Reserve, as many libertarians would have it, the US economy will quickly collapse as there will be no buyer of last resort for US national debt. The government will lack the source of funding to operate, let alone to make long-term investments. The problem with the Fed is not that it “creates money out of thin air,” but that it does so primarily for Wall Street’s toxic assets rather than for the needs of the American people. To nationalize the Fed means to make the volume and purpose of credit a matter of public law, accountable to the public interest.