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One term Hillary

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I agree with your post about the prediction that our economy’s growth will continue to be anemic held that way under the pressure of keeping deficit spending down. In other posts you have lauded the fact that our slow and steady growth is “the new reality”, and not that bad. We are not finished with this process and this “new reality” may not be over during our lifetimes. The good part is that there will be no rapid growth spurts, nor the otherwise inevitable recession, punctuated by the tossing people by the hundreds of thousands, out of work. “Slow and steady wins the race”, I say. You predict this will cause a change in leadership and outrage by the monied class.

Finally my question. There are folks that would like to have congress and the POTUS to create a “public bank”. Would a national public bank, that is only empowered to loan to public institutions (states, counties, cities, national and state infrastructure projects for some examples), solve the lack of investment in the USA problem?

I would not like to see the government’s public bank fund general lending since I think it is important to keep a sort of “separation of church and state”. The reason is that we want to keep the private banks in business funding private investment and keep at bay the argument that we “can’t trust” government from picking and choosing who gets the moolah. The national public bank could be “owned” by the Treasury and run by the Fed backed by the trillions in bonds that are on the Fed’s balance sheet. It would be impossible for the bank to go broke. The loans would need to be given scrutiny via a local political process, not federal, the interest paid would go back to the Treasury and reduce the size of underfunded future liabilities of Uncle Sam.

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Posted by Dennis
Posted on 10/20/2016 3:53 PM
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One more thing, the Public Bank could also take deposits and pay interest thus replacing the current muni bonds and provide and excellent place for safe and sound savings.

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Posted by Dennis
Answered on 10/20/2016 4:05 PM
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    Hi Dennis,

    Yes, I think growth is moderating to a more sustainable rate. I don’t think it’s all that bad really, but my view is not the consensus view by any means. People are used to 4-5% growth and they expect to see that again. I don’t think it’s happening. It’s not the end of the world, but it’s not great either. But most people are reacting to this like it’s terrible so that’s the perception I am basing my prediction off of. If everyone were like me they’d be satisfied with lower growth, but I am an outlier view here….

    I am not in favor of a public bank. But I am in favor of using the govt as a lending institution in concert with private entities. That is, I would not be against a private equity arm of the US govt who worked with private PE firms who had skin in the game, but used some govt money to finance their operations. The govt could act as regulator and ultimate underwriter of any loans to ensure there is the highest quality controls over the process.

    This would never fly though. People in this country seem to be increasingly moving in the direction that the govt is incapable of doing anything right. I don’t really agree, but again, that’s the world we live in….

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    Cullen Roche Posted by Cullen Roche
    Answered on 10/20/2016 4:32 PM
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      Cullen, I think you are 100% correct but the statement that the govt needs to run a bigger deficit needs more qualification. If the deficit results in turning more millionaires into billionaires and does nothing for aggregate demand the economy will still be at stall speed. The fiscal adjustment needs to be targeted toward the bottom 90% (such as a eliminating the payroll tax).
      The budget surplus of the 90’s was more of an outcome of the private sector credit binge. Yes, the govt was trying to act fiscally responsible (contract with America, etc.) but automatic stabilizer would have limited the surplus. It was the huge credit binge resulting in higher tax receipts that caused the huge surplus.

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      Posted by Mark Groom
      Answered on 10/20/2016 6:55 PM
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        Mark, 100% right.

        Thanks for straightening me out!

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        Cullen Roche Posted by Cullen Roche
        Answered on 10/20/2016 7:46 PM
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          Thanks for your response. But I don’t quite get: “The govt could act as regulator and ultimate underwriter”. That is basically the idea. You would have the ultimate underwriter would be “us”, BUT the loan originator would be private. WOW that would seem to me to be a recipe for another disaster. A private for-profit entity spending our money.

          My idea is a public bank only for public projects, e.g. infrastructure. Why in the do private banks need have “skin in the game”? Will that make them honest, when the “skin” will be passed back if there is a problem? I would keep them out because they would be profit hunting rather than be a public service. Your plan would be like the student loan program. This went out of control because we allowed banks to have “skin in the game” until the skin got thin and then the game was called. “Here Uncle Sam, it’s your problem now that this program is completely unprofitable”. Same with government mortgage guarantees — out of control because we allowed banks to have “skin in the game” and originate the loans then pass on their “skin” to Uncle Sam when the profits went away. You’re trusting banks with a profit motive over our public servants who just have salaries. I don’t get it. I don’t have to mention Wells Fargo that has proven that this “trust” is misplaced. As for “trust”, I would go with the Post Office rather than the Banks. But that is beside the point.

          CR: “People in this country seem to be increasingly moving in the direction that the govt is incapable of doing anything right.” These same people are clamouring to reduce the deficit by paying off the so-called national debt. Why is that? Because the only people that could possibly gain from this are the bankers and some investors. They have a motivation to keep folks with your understand under the rug unfairly. This is plain old vanilla capitalism that we all accept. So this is quite reasonable for them! They have a lot of motivation and money to spend keeping this wrong understanding alive and well for their own benefit. Again very reasonable and understandable vanilla capitalism. So with this knowledge about their honest/legal/American motivation, why do you want THEM to have “skin in the game” and share profits on something that is ultimately merely a public service. I just want to noodle this out, would MR logic tell you that this could solve the problem (not — can this happen).

          Ignoring the “trust factor”, would a national public bank run by the Fed, owned by the Treasury, that is only empowered to loan to public institutions (states, counties, cities, national and state infrastructure projects for some examples), solve the lack of investment in the USA problem that has slowed our economy’s growth? This program would not involve public spending per se, thus it would not be counted as deficit spending.

          I know what you’re likely going to type — “I’m not here to change anything, I’m only here tell it like it is.” I get that. I just want to know is this a logical way to move our economy other than increasing the so-called National Debt?

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          Posted by Dennis
          Answered on 10/20/2016 10:32 PM
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            Well, the “second amendment people” could “do something” about Hillary ……..

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            Posted by P Murt
            Answered on 10/21/2016 10:05 AM
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              Dennis, my program would be a private-public partnership much like the PPIP program was back in 2009. That program had tremendous success. You’re using the govt to finance part of the program while incentivizing private entities to have skin in the game. This leverages the huge financing capabilities of the govt, but brings competitive forces into the program by forcing them to bid on investments.

              Yeah, I know it would never fly….

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              Cullen Roche Posted by Cullen Roche
              Answered on 10/21/2016 1:16 PM
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