President Barack Obama has just announced the injection of $50bn into developing infrastructure in the USA in order to jumpstart the American economy.
The infrastructure is old and needs renewing, which is an excellent idea. The creation of infrastructure lasts generations and justifies the deficit spending that requires borrowing from the next generation.
The areas they are targeting for investment are well placed for easing transport and improving trade within America. They also present a traditionally sound platform to gear cash flow through knock on spending. “The plan will invest about $50bn (£32.5bn) in roads, railways and airports as well as high-speed rail and the creation of an infrastructure bank”. That $50bn can be used to easily generate $200bn in cashflow and a further $25bn in wealth. Debt will be eased.
This is part of the mix I have been punting for since Bush was still in office. So there some welcome news on Labour day to offset the doom and gloom.
Not really:
This was something that should have been done when Obama came into office, as part of his overall package.
It should be directly linked to easing of credit access so that the money earned and generated does not go directly into paying off debts but rather is allowed to maintain spending momentum.
$50bn spending on infrastructure is over what time period? Infrastructure takes time to put together and we are talking years, not months. Over 5 years that amounts to $10bn per year. Even over 3 years it is @ $15bn per year.
Who is going to get access to the money and how are they going to best use it has not been clearly outlined.
The real crunch comes to faith. Most monetary systems rely on faith, including faith that the USA Federal Reserve is going to maintain value in that paper called the US Dollar. Much of the world relies on that faith, often directly trading in USA paper money. Faith is lacking domestically and internationally. This is a small, welcome, step in the right direction after over a year of Presidential floundering around and a worsening situation. People lack faith in the President’s ability to make the economy work. The vast majority of people are bruised and need faith that this is the real start to the renewing of confidence so they can start spending and expanding the economy
Summary:
What we see is that this is a juicy bone to tempt voters. The reality is that this bone lacks real meat and whether it can be made to work well is anyone’s guess. It will partly work but Obama is trying to create voter faith when the foundation faith needs changing. The foundation faith of those who will be involved and be expected to make it work is unlikely to be changed with a result that the monies being spent by Government, being used to pay off debt rather than circulated to stimulate the economy.
Poor gearing over several years is not going to generate much real further wealth.
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