Can Trump Get Chinese Money?

Hey Harlem and Bronx dudes, time to get some Chinese money for Trump's infrastructure plan.... we can do it, they say at CGTN, Chinese TV. China has US Treasury notes, remember dudes??

Opinion: Make America Great Again – with Chinese money!

OPINIONS

Guest commentary by Dr. John Gong

2018-02-14 13:50 GMT+8

Updated 2018-02-14 17:21 GMT+8

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This is not an investment fundraising prospectus. 

But let me be honest with you, I do smell money. A lot of money. I am talking about US President Donald Trump’s upcoming plan to spend 1.5 trillion US dollars on infrastructure, announced in the State of the Union address two weeks ago. With the success of the latest tax cut legislation behind him, Trump is now serious about making America great again, or “gleaming” again to be more precise. 

Trump: Getting 1.5 trillion US dollars in infrastructure spending is "up to Congress" on Capitol Hill in Washington, Feb 28, 2017 /The Canadian Press

“We will build gleaming new roads, bridges, highways, railways and waterways all across our land. And we will do it with American heart, American hands and American grit,” he proudly proclaimed in the State of the Union address. 

Thank goodness he did not say with American money!

We all know America is broke. Terribly broke. 

Its total debt level stands at 70 trillion US dollars, averaging 0.83 million US dollars per family. Today’s Republican leadership has entirely trashed the fiscal accountability banner, while the Democrats continue to be perennial spenders. According to the Committee for a Responsible Federal Budget (CRFB), which is a nonpartisan, non-profit organization committed to educating the public on issues of fiscal policy, the latest budget agreement hatched between the two parties would add 11 trillion US dollars of new debt over the next 10 years. No one on Capitol Hill cares anymore that this debt is going to mount up for future generations.

United States Capital Building /VCG Photo

Nevertheless, Trump is absolutely right that America’s crippled bridges, potholed highways, and crooked railways cannot wait any longer. America needs to be great again. The only question is, where is the money coming from?

Well, being a shrewd real estate mogul, Trump certainly has a few financing tricks in his tool box. The details of the administration’s infrastructure plan can be found in a six-page leaked document recently published by Axios. I have a PDF copy on my desk, and I cannot help marveling at Trump’s genius after going through all its details. 

According to the plan, he is only going to spend 200 billion US dollars of federal grant money to leverage off the rest of the 1.5 trillion US dollars for investments by states, localities and private firms with public sector sponsors. Grant awards would be capped at 20 percent of a project’s total cost.

Now it is still not clear where that 200 billion US dollars is going to come from. Trump said he is going to squeeze money from budget cuts in other areas. 

US dollars /VCG Photo 

What is more brilliant about the plan is that funding priority is basically based on the ability of the local government to bring money to the table. Take as an example the Infrastructure Incentives Initiative, which is the largest program in the plan, accounting for 50 percent of total appropriations. Let’s look at its criteria of how grants are awarded. 

Fifty percent of the weighted criteria would be based on evidence of how an applicant can provide “new, non-federal revenue to create sustainable, long-term funding.” Another 20 percent would be based on the extent an applicant will be able to secure and commit non-federal revenue for operations, maintenance and rehabilitation. The rest of the weights – accounting for new technology, efficiency in project delivery and operations, and spurring economic and social returns on investment – only add up to 30 percent. 

In other words, in Trump’s world, not surprisingly, money counts. 

Well, if that is the case, I have a great idea. Bank of China and other major banks from China are now flush with dollar cash and other dollar-denominated liquid assets, totaling over $3 trillion US dollars, mostly in the form of holdings in US treasury bills and bonds. This money can be readily used for Chinese investors to participate in America’s infrastructure boom. By that I mean Chinese investors can participate in those infrastructure projects as active equity investors, and maybe contractors or suppliers at the same time. 

A Bank of China employee displays US dollars /VCG Photo

Call it the Belt and Road. Call it America-belt-America-road. I don’t care, as long as China’s current account trade surplus can be somehow transformed into a capital account stock, in the form of money invested in America as permanent equity shareholders, and more importantly permanent stakeholders of a stable and prosperous Sino-US economic relationship. This could be a win-win mode for both countries.

(Dr. John Gong is a professor at the University of International Business and Economics. The article reflects the author's opinion, and not necessarily the views of CGTN.) 

$3 Trillion in the Bank

What if you had $3 trillion in the bank, the Federal Reserve Bank, the money collecting interest.  Well, one day you might spend this money and cause massive inflation.

The billions and trillions and zillions are after us.

Yesterday, on January 9th 2014, the Monetary Policy and Trade Subcommittee of the House Financial Services Committee held a hearing named “Federal Reserve Oversight” to discuss the Quantitative Easing Program of the Federal Reserve. Witnesses included Benn Steil, senior fellow and director of international economics, Council on Foreign Relations; Allan H. Meltzer, professor of political economy, Tepper School of Business, Carnegie Mellon University; Desmond Lachman, resident fellow, American Enterprise Institute; and Arvind Subramanian, senior fellow, Peterson Institute for International Economics, and senior fellow, Center for Global Development.
The witnesses gave the pros and cons of continuing or stopping QE in their views, with Lachman and Subramanian calling for continuing the QE because of its supposed positive influence on international growth, while Meltzer said it should be stopped immediately and we should return to an era of stability like Bretton Woods.
The one very notable point in the hearing was what Allan Meltzer said after a long period of questions coming from Congressman to the Witnesses about the effects of tapering QE related to job growth, and international markets. Meltzer said the whole discussion was avoiding the real issue. Meltzer echoed the warning given by EIR’s Paul Gallagher during a January 10th, 2013 conference call,¹ when Meltzer pointed out that while everyone is talking about QE and its effect on the economy, no one is pointing out the fact that 92% of the QE is going to idle reserves. He said, “look, we are here talking about the effect of a small percent. The real risks involved in QE is the 92%.” He described it as “a tidal wave” of some $3 trillion in currently idle reserves sitting in the banks. “It’s a lot of money and can create a lot of problems. The idea that the U.S. can buffer the problems are wrong.”
Meltzer steered the discussion back to the same question again later on in the hearing, stating that the real danger to the world economy now in the effects of flooding the economy with U.S. dollars in the unwinding process of the QE. He asked, ‘“where is so much liquidity going to go and what is going to be the effect?” He said the Administrations tying together the goal of unemployment with the time to end the QE is stupid. QE should be ended now, and there should be a plan to get rid of all of the assets and prevent their damage to the economy.
The real solution is to pass Glass-Steagall, which would pull the plug on the threat of the mass of speculation, by wiping out the speculative assets off the books, and release the economy from the burden of skyrocketing commodity prices and other dangers when they come pouring out of the banks.
Another matter of note worth looking into was an issue raised by one of the Congressman concerning the possible danger of an international “swap facility,” recently made permanent. He asked whether Congress should be concerned with what he heard that the Federal Reserve has made a permanent swap facility with the 5 major central banks. The witness from the CFR said not to worry, that it was necessary to make the swap market permanent between these banks, and that since interest rate is zero and “there is no credit rate risk,” that everything is fine, and that it would be crucial in a crisis to prevent contagion. The Congressman wondered whether this meant that anyone of the countries could get bailed out at anytime at our expense, to which he was told it was of no concern. The issue echoed the exposure of the international bail in regime by LaRouchePAC last year.

Footnotes

¹"There will be a trigger, there might very well be a take off all of the a sudden in the price of food, because of the declines the real production of food, which is going on in conditions of drought, and under conditions of very rapid price fluctuations, of all the inputs to food, and of the food itself. Food commodities themselves. This could very well trigger it, but the basic mechanism that you are looking at, is that the central banks, led by the Federal Reserve, and the European Central Bank are printing trillions and trillions of new currency, putting into circulation directly through the major national and international bank holding companies. And the reason given by them themselves, why they claim this is not an inflationary policy, is that the vast bulk of that new capital and new liquidity given to these banks in this way, is being then put right back into the Federal Reserve, and the other major central banks, and the national central banks of Europe. The banks are putting it right back into the central banks, as what are called excess bank reserves. And they are being paid interest by the central banks on those reserves for the first time. The Federal Reserve has never done this before. Its the first time in its hundred year history that it has paid interest to get banks to put this money right back into the Federal Reserve. The ECB doing the same thing.
At a certain point, when a sudden speculative bubble grows up, or starts to escalate, as for example with a trigger escalation in the prices of food, watch that unused trillions come pouring out into commodity speculation, for example, and suddenly set off hyperinflation. So its not something that can be predicted at a given time. After all, in Wiemar Germany, the worst and most famous case, or most infamous case, they did this kind of money printing to pay unpayable government debts for more than two years, with no apparent inflationary impact until all the sudden it exploded and consumed the currency, and the entire economy. So we can't say when, we can say it will happen."