By Nancy Spannaus
Dec. 21, 2019—As of this writing, the Federal Reserve continues to pour out tens of billions of dollars a day into the Wall Street-centered banks, in the alleged interest of “providing liquidity” in the repo market. Yet, when it comes to providing funds (call it credit) for states to invest in their collapsing roads and rotting bridges, their contaminated water supplies, and other elements of our vital infrastructure, the Federal authorities are adamant: we don’t have the money. They have trillions for Wall Street, but zip for infrastructure in desperate states like Michigan.
While Michigan has been touted as having made a surprising recovery after the 2009 collapse, the reality is quite otherwise. More than 20 communities have dangerous levels of lead in their water—and thus require millions for replacement. One-third of Detroit’s schools are in poor or unsatisfactory repair—and undoubtedly schools in rural areas are worse. More than $2 billion is needed to repair crumbling roads. In other words, Michigan has an infrastructure crisis that cries out for billions of dollars in investment now. But affordable credit can’t be found.
Yet, as the Fed actions show, there is no shortage of funds, which could be used to deal with America’s shameful and dangerous infrastructure crisis. There is only the lack of courage to take on the Wall Street bankers, and their accomplices at the Fed and in Washington, to do so.
Trillions for Wall Street
The statistics are staggering. According to the authoritative financial blog Wall Street on Parade in its Dec. 17 post: “The Federal Reserve Bank of New York (New York Fed) made the astonishing announcement last Thursday that it will be pumping a cumulative $2.93 trillion into Wall Street trading houses (primary dealers) between December 16 and January 14. That’s on top of the $360 billion of liquidity it is pumping into the markets by buying back $60 billion a month in Treasury bills from its primary dealers.”
Needless to say, the money these Wall Street banks is receiving is not being lent out to desperate cities and states to provide for their infrastructure needs, or even to industries. As the figures on record stock buybacks and derivatives speculation underscore, this money is simply going into a speculative bubble that will, of course, some day pop.
Contrast the Fed’s big bailout of Wall Street with what the American Society of Civil Engineers says is a $4 trillion dollar plus deficit in funds for vital U.S. infrastructure repair. Could not the Fed be funneling its billions into dealing with that crying need, in the process creating millions of needed jobs, and demand for the manufacturing industry which continues to sputter despite some tariff relief?
Of course it could. Contrary to the standard assertions, the Federal Reserve’s Section 13 permits it to lend not only into the banking system, but also into “commercial, agricultural, and industrial paper.” Under conditions of a declared emergency (for which infrastructure failures like that of the rotting New York-New Jersey bridges, or the health-threatening Detroit or Newark water systems certainly qualify), the Fed could lend to the cities and states.
The best solution to provide for such lending is the creation of a new National Infrastructure Bank (NIB) specifically to fund long-term infrastructure projects. Yet, in the immediate situation, the Fed can and should take action. We only need sufficient political pressure to get them to do so.
The Case of Michigan
There is no state in the country which does not have urgent infrastructure needs, but I am going to focus here on the state of Michigan. That state is just coming out of a budget stalemate caused by a clash between Democratic Governor Gretchen Whitmer and the Republican-dominated legislature. Governor Whitmer won her election in 2018 on the slogan “Fix the damn roads!” In fact, nothing has been done.
Michigan’s roads are indeed disastrous. The Civil Engineers give them a D- rating, and a more recent study asserts that only 18% of the roads in the state are in good shape. In the home of the national auto industry, this is ironic, to say the least.
Lacking Federal credit, like that which would be provided by a NIB, or could be provided by the Fed, Whitmer sought to fund her road-fixing program with a 45 cent increase in the state gas tax, whose proceeds would be funneled into a special fund for that purpose. In that way, she hoped to raise $2.5 billion to upgrade the roads. She ran into a political stone wall, and has as of now dropped the idea. Meanwhile, there’s no money for the roads (not to mention other crying needs, like the undrinkable water in many Detroit schools).
Michigan, like most other states, also faces a huge poverty problem, which the Governor is seeking to address by setting up a Poverty Task Force. Statistics amassed by the United Way have indicated that hundreds of thousands of Michiganders—as much as 43% of the Michigan population–is living hand-to-mouth. Their condition is characterized by the United Way as ALICE, which stands for Asset Limited, Income Constrained, Employed, and means that, although having an income above the official poverty level, these people cannot afford the basics of a decent standard of living. They face constant scrambles for covering the costs of food, rent, transportation, and health care—often trading off one for the other.
Gov. Whitmer’s taskforce is going to try to come up with more analysis, and proposed solutions, to the problem. While this is a noble endeavor, the road toward a solution is staring us in the face. The United States as a whole needs a mobilization to rebuild and upgrade our basic infrastructure, complete with major training programs for under-educated youth (like FDR’s CCC), advanced scientific programs for new technologies like fusion power, and funding of major projects like a national network of high-speed rail. To do this, our country needs inspiring leadership, and long-term, federally-backed credit.
Our nation’s best leaders and presidents understood this requirement. They drew upon the principles of the American System of Economics, which was begun by Alexander Hamilton, and amplified through Presidents Lincoln and Franklin Roosevelt. They knew that the function of money was not to support a bunch of Wall Street financiers, but to invest in physical production, education, and scientific advance.
This is the lesson we have to get through the heads of our politicians in Washington and elsewhere.