The R-Bond Solution – The site of money injection does make a difference.
2008 and subsequent years saw a slew of bank failures. Weak economies around the world seem to be pulling us into another recession. When the Fed looks for tools to stimulate a lagging economy, they have ZIRPP’s, NIRP’s and a few QE’s as the few tools lying scattered at the bottom of the Fed’s tool box.
One way out of this dilemma might be to restrict the type of bonds that the Fed are willing to buy. If the economy goes into recession again, or if there is serious deflation, some banks will fail from over-exposure to bad debt. They will ask the Fed for a bailout. This is an opportunity for the Fed to purchase only Restricted Bonds (R-Bonds or RB’s) from any size bank rather than the QE’s in which the Fed purchased bonds only from a few large banks. By purchasing R-Bonds, the Fed could essentially underwrite 50% (e.g.) of face value of a bond. A $100 bond, paying $100 on maturity, would then cost the investor $50.
Bonds are and have been used frequently at many local levels to raise money for schools and needed infrastructure. These are for specific use and must be supported by people at that level who generally have a better understanding of what is needed. In the case of Restricted Bonds, that bond must be restricted for use by designated type. An RB for bridges is only for bridges. An RB for schools is only for schools. e.g. An R-Bond for digging more coal would be short sighted, a fact that even people who live in coal country would realize when bankers in NYC may not.
The type of RB can be designed and chosen either at the Federal level or at the local level. Any specific RB can be blocked from implementation however, only at the local level by small cross-sectional groups of local level citizens (maybe chosen by birthdates). Local level people will have an understanding that there are limited funds, even with R-Bonds, since the local level and investors together must raise the other half of the bond money.
If RB’s can be started at the Federal or local level, the role of the States is to audit the process, making sure that the money is used for intended purposes. This process can be done expeditiously. It can save banks. It can re-direct the economy without picking specific winners and losers. RB’s can be created and sold by small and medium size banks too. RB’s can hit three birds with one stone: the economy, needed infrastructure, and clean energy.
There are other tools. The site of injection does make a difference. An R-Bond stimulus can offer predictability for business investors. Employment must be in the areas that will help us survive and prosper. R-Bonds offer another site and a safer way to resuscitate the economy.
May 2, 2016
josuterdotcom 