By Ellen Brown / Original to ScheerPost

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In February, President Trump said that tariffs would generate so much income that Americans would no longer need to pay income taxes.

The latest plan, according to U.S. Commerce Secretary Howard Lutnick, is to abolish income taxes for people who earn less than $150,000 yearly. That move would affect roughly 75% of workers, according to U.S. Census Bureau data. On its face, this could narrow the wealth gap by boosting disposable income for low- and middle-income households without raising taxes on the wealthy — a politically clever alternative to progressive tax hikes.

Eliminating the burden of income taxes is an exciting proposition, due to savings not just in money but in man-hours — the time spent anguishing over ledgers, forms and receipts. In 2024, according to the Tax Foundation, Americans spent 7.9 billion hours complying with IRS tax filing and reporting requirements. That is equivalent to 3.8 million full-time workers—roughly the population of Los Angeles — doing nothing but tax paperwork for the full year.

The question is, can tariffs and DOGE replace income taxes? If not, how else could the government fund itself? Is a growing debt bubble that is now carrying a $1.2 trillion interest tab, which must continue to expand just to sustain itself, the only alternative?

How Eliminating Middle Class Taxes Would Affect the Budget.

In a March 21 article titled “Ending Taxes Below $150,000 Would Lose $10 to $15 Trillion,” the Committee for a Responsible Federal Budget concludes:

“Even if enacted in a targeted manner, we estimate such a change would reduce revenue by roughly $10 trillion through 2035 if applied to income taxes only and $15 trillion if applied to employee-​side payroll taxes as well. …

If enacted relative to current law, ending taxes on income below $150,000 would boost debt by $12 to $18 trillion with interest, increasing debt-​to-​GDP to between 145 and 160 percent – compared to 118 percent under current law.… Importantly, Commerce Secretary Howard Lutnick has said the proposal would be contingent on achieving budget balance first.”

Dividing the $10 trillion lost over 10 years (2025–2035) gives a $1 trillion loss per year on average, though there may be year-to-year variations. Trump’s team proposes to offset this loss with savings from the Department of Government Efficiency (DOGE) and new tariff revenues, but the math doesn’t look good.

The Prospects from Tariffs and DOGE.

Elon Musk’s DOGE has identified significant areas of federal “waste, fraud and abuse,” but the program was originally projected to save $2 trillion by slashing misused funds. At Trump’s cabinet meeting on April 10, Musk said he expects the agency to find $150 billion in savings in fiscal year 2026, a number significantly lower than even the $1 trillion he said in February he was confident DOGE would find.

Tariffs remain Trump’s primary funding mechanism. He has frequently referenced the 19^th century, when there was no income tax, and tariffs were the principal source of revenue for the U.S. government. In his Liberation Day speech on April 2, he said, “From 1789 to 1913, we were a tariff-backed nation, and the United States was proportionately the wealthiest it has ever been.” Trump’s particular hero is Pres. William McKinley, whose 1890 tariff of nearly 50% was a high point of the tariff policy.

The problem is that in the 19^th century, the U.S. government had far fewer costs. Among other expenses, there was no Social Security, no Medicare and no trillion dollar interest to be paid to investors.

As originally proposed, Trump’s tariffs included a 10–20% universal tariff and up to 60% on Chinese imports. At that rate, the Tax Foundation estimated that the tariffs could raise $1 trillion over a decade ($100 billion/year) after accounting for reduced imports, while the Tax Policy Center put the figure as high as $2.8 trillion ($280 billion/year).

These projections remain speculative, since the results of the trade deals being negotiated are yet to be reported. On April 30, the president stated that negotiations had already resulted in $8 trillion in promised investment in U.S. production, an impressive number, but investments take several years to manifest as new tax income.

For the near term, DOGE cuts at $150 billion per year and tariffs estimated at $280 billion per year would cover less than half the trillion dollar loss projected from middle-class tax cuts. And that is without touching the $1.9 trillion deficit already projected by the Congressional Budget Office, something Commerce Sec. Lutnick said would have to be eliminated before income tax relief could be considered.

The Elephant in the Room.

Even if new trade deals manage to cover the full deficit, the unprecedented federal debt will continue to loom. Currently standing at $36.21 trillion, the debt comes with interest payments projected to hit $1.2 trillion in 2025. That works out to $3.3 billion per day. In effect, all of our middle-class income taxes are being spent just to pay interest to bondholders, foreign and domestic.

Interest costs are expected to rise from 9% of federal revenue in 2021 to 23% by 2034, crowding out federal priorities like infrastructure and healthcare. And that assumes bond buyers keep rolling over the debt at current rates. For FY 2025, an estimated $9.2 trillion — fully a quarter of the debt — will come due and need to be refinanced. What if foreign countries, which hold approximately 30% of the debt, decide to invest elsewhere?

The most efficient to fill the trillion dollar hole left in the budget if middle-class income taxes are eliminated might be to take an axe to the trillion dollar interest tab and the federal debt sustaining it. But how?

Even Quantitative Easing Won’t Work to Eliminate the Interest Burden.

Many economists think new rounds of quantitative easing (QE) are necessary, as the only way to keep Treasury interest rates low. QE is a maneuver by which Treasury debt is purchased by the Federal Reserve with newly issued bank reserves. The debt could theoretically be eliminated by having the Fed buy the securities as they come due. Assuming $9.2 trillion in debt maturing annually, the whole debt could be moved onto the books of the Fed in about four years, and since the Fed is required to rebate its profits to the Treasury after deducting its costs, this could theoretically eliminate the interest burden. But there are two wrinkles:

1. The Fed is not allowed to buy federal securities directly from the Treasury. It primarily conducts its open market operations, including QE Treasury purchases, through primary dealers, a select group of large financial institutions designated by the Fed to act as its counterparties in the open market.
2. Ever since 2008, the Fed has been paying interest on the banks’ reserve balances (IORB), which counts in the costs it deducts from the profits it returns to the Treasury. The rate on IORB set by the Fed is 4.4% as of May 2, 2025, while the average interest rate on the federal debt is approximately 3.3% for the fiscal year-to-date 2025.

Thus if the Fed were to buy $9.2 trillion in federal securities this year, it would receive $9.2 trillion × 3.3% in interest but would have to pay IORB on the same $9.2 trillion at 4.4% to the banks, a net loss to the Fed. In effect, the banks would be receiving the interest rather than the Treasury, unless a couple of laws were changed, and changing them would no doubt meet with heavy resistance from the powerful banking lobby.

Why, you may ask, does the Fed feel it needs to pay interest on bank reserves? Good question. It’s a monetary policy tool designed to curb inflation by setting a floor on the fed funds rate, the rate at which banks lend to each other. Since banks won’t lend at rates lower than they can safely earn from the Fed, it’s a way to keep interest rates high. But the result has been that the banks have simply reduced their lending. Why lend to risky local businesses when they can sit back and collect a safe and ample return from the Fed itself?

It’s a controversial windfall to the banks, to support an interest rate that is itself controversial. But the bottom line is that the Fed is not able to bail out the government from its trillion dollar interest tab. What then is to be done?

A Radical Alternative Whose Time Has Come.

Given the president’s predilection for 19th century economics, he could go a bit further back than to President McKinley. Abraham Lincoln, the first Republican president, avoided a crippling national debt by resorting to the funding mechanism of the American colonists: let the government print the money directly, not through a banker-controlled central bank but through the Treasury. The government could buy back its debt with U.S. Notes or “Greenbacks,” as permitted under the Constitution (Article I, Section 8) and declared legal by the Supreme Court. These new currencies could then be used to repurchase maturing Treasury securities debt- and interest-free.

Critics will cry “hyperinflation,” arguing that the newly-issued currency would flood the economy, spiking demand and prices. But if new money is directed to productive investments — for example infrastructure, energy, and healthcare — supply and demand will rise together, stabilizing prices. The Chinese demonstrated this in the 25 years from 1996 to 2025, when their domestic money supply was inflated from 4,840 CNY (Chinese yuan) to 320,526 CNY, or by 5500%; yet the price level remained stable and low. For a fuller explanation with data, see my earlier article here.

To ensure that the Greenbacks finance growth, a national infrastructure bank could channel funds into projects such as affordable housing, high-speed rail, broadband, the power grid and large water and transportation projects. China is again the modern model. It has three giant “policy banks” assigned to implement the policies of the government, including China Development Bank, the world’s largest infrastructure and development bank. A U.S. version could prioritize projects with high economic returns, vetted by transparent, DOGE-like algorithms to prevent waste and cronyism.

We desperately need infrastructure funding, and the current federal budget has no room to adequately address those needs. A viable proposal for a national infrastructure bank, H.R. 4052, currently has 47 cosponsors. The bank would use off-budget financing on the model of the Reconstruction Finance Corporation, the federal financial agency that rebuilt the country’s infrastructure during the banking crisis of the 1930s. For more information, see the NIB Coalition website.

For state and city governments, public banks on the model of the Bank of North Dakota could address local infrastructure needs. See my earlier article here and the Public Banking Institute website.

Prosperity Without Debt.

It has been argued that “just printing the money” would jeopardize the federal government’s credit rating. Perhaps, but we wouldn’t need credit if we could create our own, debt-free. To repeat an editorial directed against Lincoln’s debt-free Greenbacks attributed to the 1865 London Times, which may be apocryphal but nevertheless demonstrates the possibilities:

“If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.”

Lincoln’s Greenback policy was indeed destroyed, along with the president who dared to implement it. But the U.S. government is powerful enough today to pull that “mischievous financial policy” off. A Greenback-funded debt buyback could offer a way to pay down debt without interest costs, while spurring growth through targeted investments monitored through a national infrastructure bank and local public banks to absorb demand productively. In several years, the whole $1.2 trillion interest tab could be slashed from the budget, making our trillion dollar middle-class income tax payments that barely cover that expense unnecessary.

The full budget could even be funded with Treasury-issued Greenbacks, eliminating the need for taxes at all. DOGE has demonstrated the possibilities for monitoring the government’s expenditures transparently and accountably with artificial intelligence. And as AI progressively replaces jobs, the government will need some form of universal basic income to supplement or replace worker salaries, perhaps “Social Security for All.”

Granted, that raises new issues around the privacy and programmability of a government-issued digital currency. But as Cornell Prof. Robert Hockett argues in his book, The Citizens’ Ledger, these can be overcome with cryptographic protections. For people leery of digital government-issued dollars, the Treasury could exercise its constitutional power to issue coins and paper dollar bills. Those are all complicated issues for another article, but the possibilities are provocative. We can escape the debt trap engineered by a private banking system that creates money as debt at interest – and escape the middle-class income taxes paying for that interest – by returning the sovereign power to issue money to the Treasury.

First published on Scheerpost..com.

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Rather than making money harder to get, the U.S. government needs to focus on the other side of the demand vs. supply inflation equation.

By Ellen Brown | Original to ScheerPost 

July 27, 2022

In prescribing cures for inflation, economists rely on the diagnosis of Nobel laureate Milton Friedman: inflation is always and everywhere a monetary phenomenon—too much money chasing too few goods. But that equation has three variables: too much money (“demand”) chasing (the “velocity” of spending) too few goods (“supply”). And “orthodox” economists, from Lawrence Summers to the Federal Reserve, seem to be focusing only on the “demand” variable.

The Fed’s prescription is to suppress demand (borrowing and spending) by raising interest rates. Summers, a  former U.S. Treasury Secretary who presided over the massive post-2008 bank bailouts, is proposing to reduce demand by raising taxes or raising unemployment rates, reducing disposable income and thus people’s ability to spend. But those rather brutal solutions miss the real problem, just as Summers missed the crisis leading up to the 2008-09 crash. As explained in a November 2021 editorial titled “Too Few Goods – The Simple Explanation for October’s Elevated Inflation Rates,” we don’t actually have too much consumer money chasing available goods:

M2 money supply surged [in 2020] as the Fed pumped out liquidity to replace businesses’ lost sales and households’ lost paychecks. But bank reserves account for nearly half of the cumulative increase since 2020 began, and the vast majority seem to be excess reserves sitting on deposit at Federal Reserve banks and not backing loans. Excluding bank reserves, M2 money supply is now growing more slowly than it did for most of 2015 – 2019, when inflation was mostly below the Fed’s 2% y/y target, much to policymakers’ chagrin. Weak lending also suggests money isn’t doing much “chasing,” a notion underscored by the historically low velocity of money. US personal consumption expenditures—the broadest measure of household spending—have already slowed from a reopening resurgence to rates more akin to the pre-pandemic norm and surveys show many households used stimulus money to repay debt or build savings they may not spend at all. It doesn’t look like there is a mountain of household liquidity waiting to do more chasing from here. [Emphasis added.]

In March 2022, the Federal Reserve tackled inflation with its traditional tools – raising interest rates and tightening the money supply by selling bonds, pulling dollars out of the economy. But not only have prices not gone down since then, they are going up. As observed in a July 15 article on Seeking Alpha titled “Fed-Induced Recession Looms As Rate Fears Roil All Markets”:

On Wednesday, the Consumer Price Index came in at a 9.1% annual rate. The higher-than-expected reading puts the CPI at a new 41-year high.

The biggest contributors to rising consumer prices are the basic necessities of food, fuel, and shelter. As households struggle to make ends meet, they are trimming discretionary spending, burning through savings, and running up credit card balances.

Businesses are also getting squeezed. On Thursday, the Producer Price Index showed wholesale costs rising at a massive 11.3% year-over-year.

When their own costs go up, producers must raise the prices of their products to cover those costs, regardless of demand. Less money competing for their products won’t bring producer costs down. It will just drive the companies out of business, as happened in the Great Depression. The Seeking Alpha article concludes:

… As both businesses and consumers are forced to tighten their belts, a slowdown looms.

And if the Federal Reserve makes another major policy misstep, then a severe recession and financial crisis may also be coming.

Recession is already evident. The stock market has lost a cumulative $7 trillion in value this year, while the crypto market has lost $2 trillion since last November. Emerging markets are in even worse straits. According to a July 14 article by Larry McDonald on ZeroHedge, “Emerging and frontier market countries currently owe the IMF over $100 billion. US central banking policy plus a strong USD is vaporizing this capital as we speak.… A quarter-trillion dollars of distressed debt is threatening to drag the developing world into a historic cascade of defaults.”

Every time the Fed raises rates, borrowing becomes more expensive. That means higher interest costs not only for governments but for borrowers with mortgages, home equity lines of credit, credit cards, student debt and car loans. For both large and small businesses, loans also get pricier.

To be clear, this is not the same sort of inflation that Paul Volcker was taming in 1980 when he raised the Fed funds rate to 20%. McDonald observes, “In 2021, global debt reached a record $303T, according to the Institute of International Finance .… Volcker was jacking rates into a planet with about $200T LESS debt.” [Emphasis added]

Volcker was also not dealing with the supply shortages we have today, generated by lockdowns that put more than 100,000 U.S. companies out of business; sanctions and war that cut off global supplies of fuel, food and resources; and farming crises such as that in the Netherlands, generated by overly stringent regulations.

Higher interest rates don’t alleviate cost/push inflation caused by supply crises; they make it worse. Rather than making money harder to get, the government needs to focus on the supply side of the equation, stimulating local production to bring supply levels up. Rather than Volcker’s solution, what we need is that pioneered by Alexander Hamilton, Abraham Lincoln, and Franklin D. Roosevelt, who pulled us out of similar crises with public banking institutions designed to stimulate infrastructure and development.

For foreign models, we can look to the infrastructure-funding central banks of Australia, New Zealand and Canada in the first half of the 20^th century; and to China, which salvaged the global economy following the 2008 banking crisis with massive infrastructure and development funded through its state-owned development banks.

China Did It.

In the last 40 years, China has exploded from one of the world’s poorest countries to a global economic powerhouse. Among other notable achievements, from 2008 to 2022 it built 23,500 miles of high-speed rail, at a time when U.S. infrastructure projects were stalled for lack of funding. How did China pull this off? Rather than relying on taxpayer funds or foreign debt, it borrowed from its own banks.

China has three massive state-owned infrastructure and development banks – the China Development Bank, the Export-Import Bank of China, and the Agricultural Development Bank of China. Called “policy banks,” they get their liquidity either (a) directly from the People’s Bank of China (PBOC) in the form of “Pledged Supplementary Lending,” or (b) by issuing bonds, which have higher credit ratings than commercial bank bonds and are in demand because they can be used as collateral to borrow from the central bank. China’s policy banks are limited to funding certain specific government policies; and these policies are all productive and public-purpose-driven, unlike the short-term private profit-maximization driving Wall Street banks.

Besides its big state-owned banks, China has an extensive network of local banks, which know their local markets. The PBOC website lists seven tools it can use for adjusting monetary policy, including not just a short-term lending facility like the U.S. Fed’s discount window, but a facility to inject liquidity into banks for medium-term loans, as well as the “pledged supplementary lending” to fund long-term loans from the three policy lenders for specific sectors, including agriculture, small businesses, and shanty town re-development.

Yet all this stimulus has not driven up Chinese prices. In fact consumer prices initially fell in 2008 and have hovered around 2% ever since. [See chart below.]

Prices are creeping up now, as is happening everywhere; but they have reached only 2.5%—far below the 9.7% seen in the U.S. in July.

Our Forebears Did It, Too.

State-owned infrastructure banks are not unique to China. In the United States, a similar model was initiated by Alexander Hamilton, the first U.S. Treasury Secretary. The “American System” of government-issued money and credit was key both to winning the American Revolutionary War and to transforming the nation from a collection of agrarian colonies to an industrial powerhouse. But after the War, the federal government was $70 million in debt, including $44 million from the colonies-turned-states.

Hamilton solved the debt problem with debt-for-equity swaps. Debt instruments were  accepted in partial payment for stock in the First U.S. Bank. This capital was then leveraged into credit, issued as the first U.S. currency. Loans were based on the fractional reserve model. Hamilton wrote, “It is a well established fact, that Banks in good credit can circulate a far greater sum than the actual quantum of their capital in Gold & Silver.”

That was also the model of the Bank of England, the financial engine of the colonial oppressors; but there were fundamental differences between the two models. The Bank of the United States (BUS) was designed for public development. The Bank of England (BOE) was intended for private gain. (See Hamilton Versus Wall Street: The Core Principles of the American System of Economics by Nancy Spannaus, and Alexander Hamilton: A Biography by Forrest McDonald.)

The BOE was chartered to fund a national war and was capitalized exclusively by public debt. The government would pay private lenders, who controlled what policies could be funded. Hamilton’s BUS, by contrast, was to be a commercial bank, funding itself by generating credit for infrastructure and development.

Under Hamilton’s system of “Public Credit,” the primary function of the BUS would be to issue credit to the government and private interests for internal improvements and other economic development. Hamilton said a bank’s function was to generate active capital for agriculture and manufactures, increasing the quantity and quality of labor and industry. The BUS would establish a sovereign currency, a banking system, and a source of credit to build the nation, creating productive wealth, not just financial profit.

The BUS was chartered for only 20 years, after which it lapsed. When economic hardships and monetary pressures followed, the Second Bank of the United States was founded in 1816 under President John Quincy Adams, basically on the Hamiltonian model. It funded one of the most intense periods of economic progress in history, investing directly in canals, railroads, roads, and coal and iron enterprises; lending money to states and cities engaged in such projects; and managing credit so that it continually flowed into needed productive activities.

After the Second BUS was shut down, Abraham Lincoln’s government issued Greenbacks (U.S. Notes) directly, funding both the Civil War and extensive infrastructure and development. The National Banking System was also established, under which national banks would be partially capitalized with federal securities.

An International Movement Is Born.

The American System and its leaders not only allowed the American colonists to break free of British control but inspired an international movement. Other British colonies revolted, including Australia, New Zealand and Canada; and other countries rebelled against the British imperial free-trade doctrines and developed their own infrastructure and manufacturing, including Germany, Ireland, Russia, Japan, India, Mexico, and South America.

The Commonwealth Bank of Australia (CBA), founded in 1911, followed the Hamiltonian model. It was masterminded by an American named King O’Malley, who called Hamilton “the greatest financial man who ever walked the earth.” The CBA funded major national development and Australia’s participation in World War I, simply with national credit issued by the bank.

In Canada from 1939-74, the government borrowed from its own Bank of Canada, effectively interest-free. Major government projects were funded without increasing the national debt, including aircraft production during and after World War II, education benefits for returning soldiers, family allowances, old age pensions, the Trans-Canada Highway, the St. Lawrence Seaway project, and universal health care for all Canadians.

Meanwhile in the U.S., we got the Federal Reserve – and the worst banking crisis and economic depression ever in 1929-33. Pres. Franklin D. Roosevelt then rebuilt the U.S. economy financed through the Reconstruction Finance Corporation, again funded on the Hamiltonian model. Initially capitalized with $500 million, from 1932 to 1957 it lent or invested over $40 billion for infrastructure and development of all kinds; funded the New Deal and World War II; and turned a net profit to the government of $690 million.

Solving Today’s Price Inflation.

That could be done again, assuming there is political will. Some pundits predict that the Fed will back off its aggressive interest rate hikes when the carnage from that approach becomes painfully evident, but it seems to be a phase we have to go through to convince policymakers that the Fed’s current tools are not able to curb the price inflation we have today. We need to stimulate local development with a national infrastructure and development bank like China’s; and for that, Congress needs to pass an infrastructure bank bill.

Four such bills are currently before Congress. Only one, however, is capable of generating the nearly $6 trillion that the American Society of Civil Engineers says is needed over the next decade for U.S. infrastructure investment. This is HR 3339: The National Infrastructure Bank Act of 2021, which would  effectively be self-funded on the American System model – a critical feature given that the federal debt is at record levels. The bank would be capitalized with federal debt acquired in debt-for-equity swaps – federal securities for non-voting bank shares paying a 2% dividend. This capital would then be leveraged at 10 to 1 into low-interest loans, essentially at cost. The bank would be anti-inflationary, by bringing supply up to meet demand; would not require new taxes but would rather increase the tax base, by increasing GDP; and would require only a small Congressional outlay for startup costs, which would quickly be repaid. For more information on HR 3339, see the National Infrastructure Bank Coalition website.

First published on Scheerpost.

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FDR Knew Exactly How to Solve Today’s Unemployment Crisis

By Ellen Brown / Original to ScheerPost – December 17, 2020

A self-funding national infrastructure bank modeled on the “American System” of Alexander Hamilton, Abraham Lincoln, and Franklin D. Roosevelt would help solve not one but two of the country’s biggest problems.

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Millions of Americans have joined the ranks of the unemployed, and government relief checks and savings are running out; meanwhile, the country still needs trillions of dollars in infrastructure. Putting the unemployed to work on those infrastructure projects seems an obvious solution, especially given that the $600 or $700 stimulus checks Congress is planning on issuing will do little to address the growing crisis. Various plans for solving the infrastructure crisis involving public-private partnerships have been proposed, but they’ll invariably result in private investors reaping the profits while the public bears the costs and liabilities. We have relied for too long on private, often global, capital, while the Chinese run circles around us building infrastructure with credit simply created on the books of their government-owned banks.

Earlier publicly-owned U.S. national banks and U.S. Treasuries pulled off similar feats, using what Sen. Henry Clay, U.S. statesman from 1806 to 1852, named the “American System” – funding national production simply with “sovereign” money and credit. They included the First (1791-1811) and Second (1816-1836) Banks of the United States, President Lincoln’s federal treasury and banking system, and President Franklin Roosevelt’s Reconstruction Finance Corporation (RFC) (1932-1957). Chester Morrill, former Secretary of the Board of Governors of the Federal Reserve, wrote of the RFC:

[I]t became apparent almost immediately, to many Congressmen and Senators, that here was a device which would enable them to provide for activities that they favored for which government funds would be required, but without any apparent increase in appropriations. . . . [T]here need be no more appropriations and its activities could be enlarged indefinitely, as they were, almost to fantastic proportions. [emphasis added]

Even the Federal Reserve with its “quantitative easing” cannot fund infrastructure without driving up federal expenditures or debt, at least without changes to the Federal Reserve Act. The Fed is not allowed to spend money directly into the economy or to lend directly to Congress. It must go through the private banking system and its “primary dealers.” The Fed can create and pay only with “reserves” credited to the reserve accounts of banks. These reserves are a completely separate system from the deposits circulating in the real producer/consumer economy; and those deposits are chiefly created by banks when they make loans. (See the Bank of England’s 2014 quarterly report here.) New liquidity gets into the real economy when banks make loans to local businesses and individuals; and in risky environments like that today, banks are not lending adequately even with massive reserves on their books.

A publicly-owned national infrastructure bank, on the other hand, would be mandated to lend into the real economy; and if the loans were of the “self funding” sort characterizing most infrastructure projects (generating fees to pay off the loans), they would be repaid, canceling out the debt by which the money was created. That is how China built 12,000 miles of high-speed rail in a decade: credit created on the books of government-owned banks was advanced to pay for workers and materials, and the loans were repaid with profits from passenger fees.

Unlike the QE pumped into financial markets, which creates asset bubbles in stocks and housing, this sort of public credit mechanism is not inflationary. Credit money advanced for productive purposes balances the circulating money supply with new goods and services in the real economy. Supply and demand rise together, keeping prices stable. China increased its money supply by nearly 1800% over 24 years (from 1996 to 2020) without driving up price inflation, by increasing GDP in step with the money supply.

HR 6422, The National Infrastructure Bank Act of 2020

A promising new bill for a national infrastructure bank modeled on the RFC and the American System, H.R. 6422, was filed by Rep. Danny Davis, D-Ill., in March. The National Infrastructure Bank of 2020 (NIB) is projected to create $4 trillion or more in bank credit money to rebuild the nation’s rusting bridges, roads, and power grid; relieve traffic congestion; and provide clean air and water, new schools and affordable housing. It will do this while generating up to 25 million union jobs paying union-level wages. The bill projects a net profit to the government of $80 billion per year, which can be used to cover infrastructure needs that are not self-funding (broken pipes, aging sewers, potholes in roads, etc.). The bill also provides for substantial investment in “disadvantage communities,” those defined by persistent poverty.

The NIB is designed to be a true depository bank, giving it the perks of those institutions for leverage and liquidity, including the ability to borrow at the Fed’s discount window without penalty at 0.25% interest (almost interest-free). According to Alphecca Muttardy, a former macroeconomist for the International Monetary Fund and chief economist on the 2020 NIB team, the NIB will create the $4 trillion it lends simply as deposits on its books, as the Bank of England attests all depository banks do. For liquidity to cover withdrawals, the NIB can either borrow from the Fed at 0.25% or issue and sell bonds.

Modeled on its American System predecessors, the NIB will be capitalized with existing federal government debt. According to the summary on the NIB Coalition website:

The NIB would be capitalized by purchasing up to $500 billion in existing Treasury bonds held by the private sector (e.g., in pension and other savings funds), in exchange for an equivalent in shares of preferred [non-voting] stock in the NIB. The exchange would take place via a sales contract with the NIB/Federal Government that guarantees a preferred stock dividend of 2% more than private-holders currently earn on their Treasuries. The contract would form a binding obligation to provide the incremental 2%, or about $10 billion per year, from the Budget. While temporarily appearing as mandatory spending under the Budget, the $10 billion per year would ultimately be returned as a dividend paid to government, from the NIB’s earnings stream.

Since the federal government will be paying the interest on the bonds, the NIB needs to come up with only the 2% dividend to entice investors. The proposal is to make infrastructure loans at a very modest 2%, substantially lower than the rates now available to the state and local governments that create most of the nation’s infrastructure. At a 10% capital requirement, the bonds can capitalize ten times their value in loans. The return will thus be 20% on a 2% dividend outlay from the NIB, for a net return on investment of 18% less operating costs. The U.S. Treasury will also be asked to deposit Treasury bonds with the bank as an “on-call” subscriber.

The American System: Sovereign Money and Credit

U.S. precedents for funding internal improvements with “sovereign credit” – credit issued by the national government rather than borrowed from the private banking system – go back to the American colonists’ paper scrip, colonial Pennsylvania’s “land bank”, and the First U.S. Bank of Alexander Hamilton, the first U.S. Treasury Secretary. Hamilton proposed to achieve the constitutional ideal of “promoting the general welfare” by nurturing the country’s fledgling industries with federal subsidies for roads, canals, and other internal improvements; protective measures such as tariffs; and easy credit provided through a national bank. Production and the money to finance it would all be kept “in house,” without incurring debt to foreign financiers. The national bank would promote a single currency, making trade easier, and would issue loans in the form of “sovereign credit.” ’

Senator Henry Clay called this model the “American System” to distinguish it from the “British System” that left the market to the “invisible hand” of “free trade,” allowing big monopolies to gobble up small entrepreneurs, and foreign bankers and industrialists to exploit the country’s labor and materials. After the charter for the First US Bank expired in 1811, Congress created the Second Bank of the United States in 1816 on the American System model.

In 1836, Pres. Andrew Jackson shut down the Second U.S. Bank due to perceived corruption, leaving the country with no national currency and precipitating a recession. “Wildcat” banksissued their own banknotes – promissory notes allegedly backed by gold. But the banks often lacked the gold necessary to redeem the notes, and the era was beset with bank runs and banking crises.

Abraham Lincoln’s economic advisor was Henry Carey, the son of Matthew Carey, a well-known printer and publisher who had been tutored by Benjamin Franklin and had tutored Henry Clay. Henry Carey proposed creating an independent national currency that was non-exportable, one that would remain at home to do the country’s own work. He advocated a currency founded on “national credit,” something he defined as “a national system based entirely on the credit of the government with the people, not liable to interference from abroad.” It would simply be a paper unit of account that tallied work performed and goods delivered.

On that model, in 1862 Abraham Lincoln issued U.S. Notes or Greenbacks directly from the U.S. Treasury, allowing Lincoln’s government not only to avoid an exorbitant debt to British bankers and win the Civil War, but to fund major economic development, including tying the country together with the transcontinental railroad – an investment that actually turned a profit for the government.

After Lincoln was assassinated in 1865, the Greenback program was discontinued; but Lincoln’s government also passed the National Bank Act of 1863, supplemented by the National Bank Act of 1864. Originally known as the National Currency Act, its stated purpose was to stabilize the banking system by eradicating the problem of notes issued by multiple banks circulating at the same time. A single banker-issued national currency was created through chartered national banks, which could issue notes backed by the U.S. Treasury in a quantity proportional to the bank’s level of capital (cash and federal bonds) deposited with the Comptroller of the Currency.

From Roosevelt’s Reconstruction Finance Corporation (1932-57) to HR 6422

The American president dealing with an economic situation most closely resembling that today, however, was Franklin D. Roosevelt. America’s 32nd president resolved massive unemployment and infrastructure problems by greatly expanding the Reconstruction Finance Corporation (RFC) set up by his predecessor Herbert Hoover. The RFC was a remarkable publicly-owned credit machine that allowed the government to finance the New Deal and World War II without turning to Congress or the taxpayers for appropriations. The RFC was not called an infrastructure bank and was not even a bank, but it served the same basic functions. It was continually enlarged and modified by Pres. Roosevelt to meet the crisis of the times until it became America’s largest corporation and the world’s largest financial organization. Its semi-independent status let it work quickly, allowing New Deal agencies to be financed as the need arose. According to Encyclopedia.com:

[T]he RFC—by far the most influential of New Deal agencies—was an institution designed to save capitalism from the ravages of the Great Depression. Through the RFC, Roosevelt and the New Deal handed over $10 billion to tens of thousands of private businesses, keeping them afloat when they would otherwise have gone under ….

A similar arrangement could save local economies from the ravages of the global shutdowns today.

The Banking Acts of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). The initial capital came from a stock sale to the U.S. Treasury. With those modest resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. A small part of this came from its initial capitalization. The rest was financed with bonds sold to the Treasury, some of which were then sold to the public. The RFC ended up borrowing a total of $51.3 billion from the Treasury and $3.1 billion from the public.

Thus the Treasury was the lender, not the borrower, in this arrangement. As the self-funding loans were repaid, so were the bonds that were sold to the Treasury, leaving the RFC with a net profit. The RFC was the lender for thousands of infrastructure and small business projects that revitalized the economy, and these loans produced a total net income of over $690 million on the RFC’s “normal” lending functions (omitting such things as extraordinary grants for wartime). The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms, and much more–all while generating income for the government.

HR 6422 proposes to mimic this feat. The National Infrastructure Bank of 2020 can rebuild crumbling infrastructure across America, pushing up long-term growth, not only without driving up taxes or the federal debt, but without hyperinflating the money supply or generating financial asset bubbles. The NIB has growing support across the country from labor leaders, elected officials, and grassroots organizations. It can generate real wealth in the form of upgraded infrastructure and increased employment as well as federal and local taxes and GDP, paying for itself several times over without additional outlays from the federal government. With official unemployment at nearly double what it was a year ago and an economic crisis unlike the U.S. has seen in nearly a century, the NIB can trigger the sort of “economic miracle” the country desperately needs.

First published on Scheerpost.

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The axiom “never waste a good crisis” has been a reliable tool for Wall Street interests over decades. Under cover of various national economic phenomena, Wall Street interests via the Federal Reserve have managed to direct trillions of dollars into their own accounts.

Host Ellen Brown describes how the new Fed funding channels intended to relieve the financial stress of citizens are being used to save the investor class under the guise of helping Main Street America.

We get a front-line report of how that isn’t working at the street level from Carlos Marroquin, who has been serving the immediate needs of people in Los Angeles left out of the Fed-funding circle.

And we talk with Ameya Pawar, a former Chicago elected official who is now helping lead the Economic Security Project on how this crisis can lead to new economic systems that bring forward a new era of sufficiency and well-being – and how public banks can help make that difference.

First aired on It’s Our Money With Ellen Brown.

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