- Important: All passwords were reset on 06/15/11. Old passwords will no longer work. Click here to retrieve your password.
- Subscribe to Our Free Dewsletter
We are non-commercial, all volunteer and supported by our readers. Please help sustain the Dew by making a donation.
Fixing the Ecomony #1
Open the Federal Reserve discount window to states and local government. This initiative uses no taxpayer money, requires no action from Congress, could be implemented immediately and should save state and local governments, as much as $80-$100 billion, each year while providing badly needed economic stimulus or tax relief. In DC, this would be spun, “a trillion dollar stimulus over ten years.”
We already give access to the Fed’s discount window to banks – even non-member foreign banks (yes, among many others, Gaddafi-controlled, Central Bank of Libya-owned, Arab Banking Corp.); Wall Street and insurers of Wall Street including Goldman-Sachs, Morgan Stanley and AIG; and pseudo-banks/auto lenders including GMAC. Why not allow access for our sovereign state governments that are bound by balanced budget amendments - many of whom now have higher credit ratings than the US government?
Can we do that? Sure. The Federal Reserve has long held the authority to lend to anyone or anything during unusual and exigent circumstances – and the Fed defines the circumstances. Under the 2010 Dodd-Frank Act, the Fed’s authority of extending credit has been changed from “specific individuals, partnerships and corporations” to also give access to “any program or facility with broad-based eligibility.”* Further, the Fed has authority to buy state and municipal securities directly (known as: quantitative easing).
Even without the emergency authority or the expanded authority, states have long been able to simply set up publicly-owned banks** for the specific purpose of Fed discount window access.
The Fed currently lends money from .015% to 1.25%. States and local government now have more than $2.8 trillion in bond debt*** – used to build roads, hospital, schools and universities, football stadiums for NFL teams, the infrequent mass transit project (liberal areas, only), infrastructure projects, attract industry, and other purposes. The Center on Budget and Policy Priorities reports that these bonds cost 4-5% of annual expenditures and recently, typical rates are from 4%-6%.
The potential for fixing the economy, however, doesn’t stop there. Individual states would have authority to use its access to the Fed discount window to finance utility construction and lower costs for consumers (according to the AJC, those in Georgia who will be subject to a $9 a month financing charge for the expansion at Plant Vogtle are ideal beneficiaries). Each state could use lower rate access to provide businesses with capital to expand and create jobs, financing to consumers for environmental improvement, offer lower cost student loans to its citizens, financing for non-profits and a host of other initiatives.
Is it inflationary? Sure, but when growth is at 1%, no worries.
Does it compete with the private sector financing? Yes, but to consider that bad, one should consider that most private financing is done with access to the Fed window and one would also have to answer why taxpayers should pay more?
Will it take a chunk of most lusted-after income out of the pockets of the greedy “masters of the universe” Wall Street investment bankers and hedge funders? Sure, and wouldn’t that be great?
As a by-product, wouldn’t it increase state and federal tax revenues, since so many wealthy investors use municipal bonds to make tax free income? Yep.
Wouldn’t former mayors, council people, senators and legislators who go into the lucrative bond business leveraging their former patronage to call in favors have to find another way to fleece taxpayers after they get out of office? Yes, that, too.
Wouldn’t it help Democrats more than Republicans? I doubt it. The Fed is not political and there are an awful lot of Republican governors who’d jump at the chance to have a little more room in their budgets. Most of those helped would be in the jobs it would save and the new jobs that could be created – jobs regardless of party affiliation.
Author’s note: This is first in a series of commonsense things we can do to fix our economy during this time when the House and Senate can agree on nothing. I invite your comment and suggestions.
Update: The article was updated on 8/8/11 at 1:42 PM.
* Whatever the hell this could possibly mean will eventually be known when Congress approves the 4,000 rules to govern implementation of this bill. Until then, it is anyone’s guess.
** “In North Dakota, the publicly owned Bank of North Dakota (BND) acts as a “mini-Fed” for the state. Like the Federal Reserve of the 1930s and 1940s, the BND makes loans to local businesses and participates in loans made by local banks. The BND has helped North Dakota escape the credit crisis. In 2009, when other states were teetering on bankruptcy, North Dakota sported the largest surplus it had ever had. Other states, prompted by their own budget crises to explore alternatives, are now looking to North Dakota for inspiration.” – ZeroHedge.com
*** General obligation bonds (GOs), Revenue bonds, Conduit bonds, Insured bonds, Original Issue Discount bonds, Taxable bonds, Zero coupon bonds, Pre-Refunded bonds, Escrowed-to-Maturity (ETM) bonds, Housing bonds, Municipal Notes. Current total outstanding is a very difficult figure to come up with. The figure of $2.8 trillion is from Wall Street investment company estimates. The US Census Bureau’s Statistical Abstract was last updated for state and local government debt in 2007 (totaling almost $2.5 trillion), but does not include many types of municipal debt. Dependent upon the purpose, these instruments may or may not be tax free.
This work by LikeTheDew.com is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.
Worthy of Comment
Also on the Dew
You get a hint of the problem. Of course, the article I'm referencing was published way back in 2001. But, the mindset is telling. The author, who was employed by the Tennessee Wildlife Resources Agency, dismisses one kind of grass as a bank stabilizer because: Fescue tends to clump in our climate and wither in droughts. It fades in hot, dry weather, which lets weeds, brush and other noxious vegetation grow. Fescue is simply not a turf type grass. That is to say, natural vegetation is noxious and the problems unending: In the past, the vegetation on the newly completed dam has been Read on →
More than a century ago the “forgotten man” of Mississippi and across the South — the farmer, the common worker — decided he’d had enough of “Wall Street speculators who gambled on his crop futures; the railroad owners who evaded his taxes, bought legislatures, and over-charged him with discriminate rates; the manufacturers, who taxed him with a high tariff; the trusts that fleeced him with high prices; the middleman, who stole his profit.” The forgotten man was so angry, historian C. Vann Woodward goes on to say, that he created a movement. It came as close to toppling our two-party system as any effort Read on →
But the sacred is something that Liberal America, by and large, has not been tapping into. That was not always true. One can sense the sacred in the words of FDR, for example, engraved in the granite in that memorial on the National Mall. (And FDR was not shy about going toe to toe against his enemies, whether it be to help make the nation a better place or to stop the predations of the fascist powers against much of the world.) That was then. But if one listens to the voice of Liberal America in these times, one does not get Read on →
How did it come to this? How did our political life in America get to be so drenched in hostility? While reading an article about how “anti-environmentalists” are spending thousands of dollars to alter their vehicles to increase the smoke they produce, I came across this statement from one of that group, who call themselves “coal rollers”: “If [Obama’s] into the environment, if he’s into this or that, we’re not.” And it’s not just the president they’re hostile to, it’s also those Prius-driving “librels” who, according to the article, might be specially targeted with a blast of smoke and soot. How did “if they’re for it, I’m agi Read on →