Debt Doubles the Cost of Infrastructure
|June 17, 2014||Posted by Staff under Editorials|
This 2014 excerpt of Web of Debt, Jun 1, by Ellen Brown.
A general rule for government bonds is that they double the cost of projects, once interest has been paid. The San Francisco Bay Bridge earthquake retrofit was originally slated to cost $6.3 billion, but that was just for salaries and physical materials. With interest and fees, the cost to taxpayers and toll-payers will be over $12 billion.
And those heavy charges pale in comparison to the financing of “capital appreciation bonds.” The borrower pays only the principal for the first few years. But interest continues to compound; and after several decades, it can amount to ten times principal or more. Folsom Cordova used capital appreciation bonds to finance $514,000. The sticker price after interest and fees will be $9.1 million.
California needs $700 billion in infrastructure over the next decade, and the state doesn’t have that sort of money in its general fund. Where will the money come from?
North Dakota uses its Bank of North Dakota to generate credit. The BND partners with local banks rather than competing with them. North Dakota has the most local banks per capita of any state. Every year since the 2008 banking crisis, it has reported a return on investment of between 17 percent and 26 percent. North Dakota is the only state to escape the credit crisis, boasting a budget surplus every year since 2008.
California’s population is more than 50 times that of North Dakota. California has over $200 billion stashed in a variety of funds identified in its 2012 Comprehensive Annual Financial Report (CAFR), including $58 billion managed by the Treasurer in a Pooled Money Investment Account earning a meager 0.264% annually. California also has over $400 billion in its pension funds (CalPERS and CalSTRS).
This money is earmarked for specific purposes and cannot be spent on the state budget, but it can be invested. It could be invested in a state-owned bank, and deposited in the bank as interest-bearing certificates of deposit, which the bank could lend. The interest would return to the state.
By doing its own financing in-house, the state can massively expand its infrastructure without imposing massive debts on future generations.
Ed. Notes: While public bankers might charge a lower interest, that rate could also be lowered by law, as old laws against usury used to. And however much the rate, the interest could be returned to the state not just by owning the bank that does the lending but also by taxing interest rather than exempting it as is now the case.
Bigger picture, some of that interest paid by governments goes to seniors, retired government workers, and others who own the bonds and need the income. If they lose that income, from where will they get replacement income?
Bonds could play a vital role in eliminating wasteful public spending. What if bonds had to be paid back only from any resultant rise in land value near the new infrastructure? If the proposed project looked like a bad idea, nobody would buy its geo-bonds, and white elephants like bridges to nowhere would not get built; only truly useful infrastructure would get built.
Often one of the biggest costs in new infrastructure is buying up the land. However, if the local government is recovering land value, then land price is nil. The project would only have to pay for any buildings on the land.
Establishing a public bank, or empowering the public treasury with banking functions, is not a bad idea but it might not be a necessary idea either, once the public recovers its own location value that its presence creates.