Trump’s trillion dollar infrastructure plan
Trump’s trillion dollar infrastructure plan could be a smoke screen for massive privatization.
Investors and the construction world are gearing up for Trump’s trillion dollar infrastructure plan but with each day passing it is becoming increasingly intriguing to figure out just how will this massive investment in US infrastructure be financed.
There is no evidence that the government debt crisis is abating, in fact, total government debt continues to grow exponentially and is soon approaching the 20 trillion USD mark. Today’s Federal Debt (July 31) is $19,844,938,940,351.37 which amounts to approximately $60,818 per person.
Government Debt in the United States – Debt Clock
Moreover, with strong economic growth proving to be elusive the Federal deficit is expected to balloon to an unprecedented $23.4 trillion by the end of 2017.
A slowing economy is likely to mean even more anemic tax collections which are in a long term downward trajectory as illustrated in the chart.
Falling tax receipts pose a debt-ceiling dilemma | FT
The federal government’s tax collections haven’t been growing much recently. That could be a warning about the health of the American consumer…
Indeed, the White House budget director Mick Mulvaney said in May “that tax receipts have risen less than expected this year, and warned the ceiling would, therefore, be breached in August without any policy changes.”
So tax receipts are declining, the US economy is slowing and the deficit is already stretched to $20 trillion. Moreover, Trump has few friends on Capitol Hill. The Democrats will probably want to block any bill proposed by Trump (even if it is good)-its politics and they don’t want a Trump presidency to be a success. Furthermore, the Republicans are not known for supporting grand public spending plans.
In a few words, Trump’s trillion dollar infrastructure plan is likely to hit road blocks in the Senate. The Democrats would probably support the bill if it was being put forward by a Democrat administration but with Trump in the White House, the Democrats are unlikely to give the bill their blessing. The Republicans won’t have the stomach to spend more on infrastructure with the public deficit at blowout levels.
Then how about financing the infrastructure spending plan through the sale of US Treasuries (paper)? That is fine when the global demand for US paper is buoyant.
But today the major Sovereign Wealth Funds (SWF) (Norway, United Arab Emirates) are no longer flush with petrol dollars. Crude oil has remained below the 60 USD a barrel range for more than a year and that is depleting many of the SWFs oil export earnings. Put simply, the SWFs have less money to invest in US Treasuries. Hence SWF holdings in US debt is falling.
The Treasury International Capital (TIC) report of foreign investors in US notes illustrates the above.
MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES (in billions of dollars …
Norway reduced its holding in US notes from $61.9billion in May 2016 to $48.3 billion a year later ( $12.6 billion reductions).
The United Arab Emirates also reduced its holding from $66.2 billion in June 2016 to $60.5 billion a year later ($5.7 billion reductions).
Only Saudi Arabia bucked the trend adding a little over $30 billion to their treasury holding to $134.0 billion in May 2017.
Nevertheless, the total global grand total in US treasuries has fallen to $6,123.6 billion (a reduction of $86.8 billion from a year earlier).
There has also been a further deterioration in East-West relations most recently with the Senate approving Russian sanctions and Trump signing the Russian sanction bill just a few days ago which is intended to punish Russia for its 2014 annexation of Crimea.
In a tit for tat, Putin responded by ordering the US to cut diplomatic staff by 755.
Meanwhile, President Trump has also recently slammed China via Twitter.
“I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet … they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!”, said Trump
But this deterioration in East West relations (which is not improving with the new Trump administration) is also playing out in the US treasury market. Indeed, China has dumped $142 billion of US Treasuries in the last year and it will be interesting to see from the next TIC Report how much US paper Russia unloads.
But back to the original question, how will the US fund Trump’s trillion dollar infrastructure plan?
Tax receipts are down, the Federal debt keeps growing and there is less money sloshing around the financial system for foreign investors to buy US Treasuries.
In desperate times the Government often turns to the nation’s wealthy for aid.
So could this billionaire President and all the President’s billionaire men lose patience with the traditional government route to raising finance to fund infrastructure development and instead embark on a massive privatization plan?
Think about it. Billionaires are exceptionally good at helping themselves.
Take, for example, Carl Icahn (Net worth 16.1 billion USD 2017) who took TWA private, sold his controlling interest in TWA to American Airlines and walked away with a personal profit of $469 million, leaving TWA with a debt of $540 million. But privatizing TWA didn’t do much to make TWA great, in fact in 2001 TWA filed for its third (final bankruptcy) and the airline ceased to exist.
Guess who is advising US President Donald Trump on financial regulation?
So Trump’s trillion dollar infrastructure plan could be a smoke screen for a massive privatization program. In other words, we could see a type of kleptocracy unfold in the US (similar to what occurred in Russia following the collapse of the Soviet Union).
The separation of power, the Constitution, and a free speech is going to make it more difficult for the US to be ruled by a kleptocrat president but it is still not impossible.