Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Trump's America, Front and Center

Politics / US Politics Nov 24, 2018 - 11:38 AM GMT

By: Steve_H_Hanke

Politics

Public infrastructure in the U.S. is in bad shape and has been so for many years. Washington has fingered the importance of doing something about the decrepit state of America’s infrastructure for decades. It’s the bipartisan thing to do.

President Obama’s Council of Economic Advisers devoted a lengthy chapter in its 2016 Annual Report to the Nation’s infrastructure problems. Enter President Trump in 2017. The first thing out of his box was infrastructure. But, the “i” word faded away as rapidly as it entered President Trump’s lexicon. There was a little problem: the White House didn’t really have a fully developed infrastructure plan and most certainly had no legislative action plan. With last week’s elections, President Trump once again trotted out infrastructure, as did Nancy Pelosi—the most likely Speaker of the House, which will be controlled by the Democrats in the 116th Congress.


Before I proceed with a proposal that might receive bipartisan congressional support, allow me to address two obvious questions. Just why is public infrastructure in such a sad state? And, why is the stock of America’s infrastructure capital consumed but not accumulated? It’s all about politicians and their time preferences. After all, it’s politicians who control the investment and maintenance decisions related to publicly-owned infrastructure.

Politicians have very high time preferences: what counts is “today,” not “tomorrow.” Indeed, politicians’ discount rates are very high. This means infrastructure investments that have long lives and produce benefits for many years receive short shrift from politicians. The average tenure for a U.S. Congressman is 9.4 years. This implies that project benefits accruing in year 10 are worth nothing for the average member of the U.S. Congress. So, the implied discount rate for the average Congressman would be approximately 100%. With discount rates that high, it is easy to see why most long-lived projects have trouble passing the congressional “smell test.” Mega white elephants are perhaps the only exception. They seem to generate huge immediate political benefits at ribbon cutting time.

So, what type of infrastructure program might overcome the political time preference bias and win bipartisan support in the divided government that will commence with the 116th Congress? Sale-and-leaseback arrangements (SLBs) might provide a silver bullet. That’s what Steve Walters, a fellow at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise, and I concluded. Most governmental entities have vast holdings of poorly maintained infrastructure on their balance sheets. These assets could be monetized via SLBs and “temporarily” put into private hands for maintenance, additions, and improvements.

With a SLB, a government sells its real assets to a private entity and leases them back. This enables government entities to sell their property and receive an immediate cash infusion in exchange for an annual rental payment. There are many variations, but, generally, ownership of the property reverts to its original owners at the end of the lease period. During the lease period, control and management of the property remains with the lessee.

Just how significant might the cash infusions from SLBs be? One high-profile use of SLBs involved the state government of Arizona. It employed such contracts to cope with a 34% plunge in revenue and heightened demand for services arising from the Great Recession of 2007-09. In January 2010, the state raised $735.4 million by selling 14 state buildings via “certificates of participation” that promised institutional and individual buyers annual returns of 4.57% over 20 years and stipulated that the properties would be returned to state ownership at the end of the lease if all lease payments were made. The sale was so successful that the state raised another $300 million with a similar offering six months later. Thus, SLBs helped the state close a $2.6 billion budget deficit in 2010 with an immediate $1 billion cash infusion, though it took on about $76 million in annual lease payments over the following 20 years.

However, sale-and-leaseback instruments should not be seen merely as a means for governments to raise revenues. SLBs can yield tax advantages that enhance their appeal for both buyers and sellers. Because governments are tax-exempt property owners themselves, they cannot benefit from tax depreciation allowances. For this reason alone, government should be asset-lite (read: infrastructure-lite).

Private entities that buy government assets and then lease them back to the government can depreciate the assets purchased for tax purposes. In consequence, the private owners can maintain and upgrade infrastructure at lower net (after-tax) cost than if the government retained the asset ownership.

Instead of being asset-lite, government entities hold huge inventories of real assets, including infrastructure. For example, according to its most recent accounting statements, the government of Baltimore City owns approximately $4.4 billion worth of property that is potentially available for SLB contracts. Most cities and towns of any size similarly maintain holdings of physical assets that would carry depreciation allowance-related tax benefits if held in the for-profit sector. Therefore, the potential demand for SLB contracts is great. So, a key component of any federal initiatives on infrastructure must be the clarification and enhancement of existing depreciation provisions allowed for in SLB arrangements.

The up-front cash infusions from monetizing the infrastructure components of governmental balance sheets that are now essentially “dead” would provide cash strapped governments with funds that could be earmarked, in part, to invest in new infrastructure. But more importantly, SLBs would put the care, maintenance, and augmentation of infrastructure in private hands. Indeed, the most important part of all SLB arrangements are their provisions that dictate exactly how the private lessee must care for and augment the infrastructure projects in a cost-effective manner.

If the encouragement of sale-and-leaseback arrangements isn’t a big part of bipartisan infrastructure initiatives, assets on governmental balance sheets will remain “dead” and infrastructure will remain dead in the water, too.

By Steve H. Hanke

www.cato.org/people/hanke.html

Twitter: @Steve_Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2018 Steve H. Hanke - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Steve H. Hanke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules