MONETARY POLICIES
observed on Bloomberg View on November 18th:
The problem is that pension funds, hedge funds and other private parties will only back projects that produce a lucrative and steady stream of revenue to cover operating costs,
and principal on
the
interest debt,
and dividends to repay their investment. . . .
Most of the p h ys i ca l structures
that
undergird the economy -- for example, non- tolled roads, sewage-treatment plants, train stations and schools -- produce little or no revenue. The same is true for spending on routine maintenance. . .
Net New Spending Requires Net New Money
Tere would be no net new spending or new hiring for another reason. Funding through the bond markets merely recirculates existing money, transferring it from one pocket to another, without
in infastructure
FX spending could be
funded largely by private entities through some kind of public-private plan. Tis . . . would not result in net increase in U.S. spending on domestically-produced goods and services and net increase in employment unless there were a net increase in thin-air credit. Te private entities providing the bulk of financing of the increased inf ra s t r uctur e spending would have to get the funds either fom some entities increasing their saving, by
that cutting is, back
on their current spending, or by selling other existing assets fom their
portfolios. .
. . [U]nder these circumstanc e s, there would
Funding the plan through the bond markets merely recirculates existing money
Un glamo r ous projects, like mass transit and removing lead contamination fom drinking water, would fail to attract investor interest and therefore wouldn’t get funding. . . .
There’s also the matter of capital
shift, in which companies behind already-planned construction seek infrastructure-bank financing, resulting in no net new spending or hiring.
creating the new money needed to fund new GDP. Government investment “crowds out” private investment. So argues investment advisor Paul Krasiel in a November 21st article titled “Do Larger Budget Deficits Stimulate Spending? Depends on Where the Funding Comes From.” He writes:
President-elect Trump’s economic advisers have suggested that an increase
no net increase in
spending
d ome s t ica ll y- produced goods and services.
Krasiel concludes that “tax-rate cuts and increased government spending do not have a significant positive cyclical effect on economic growth and employment unless the government receives the funding for such out of ‘thin air’.” So who creates money out of thin air? One obvious possibility is the government itself, following the revolutionary lead of the American
FX TRADER MAGAZINE January - March 2017 49
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