The Citadel Is Breached: Congress Taps The Fed For Infrastructure Funding

In a landmark infrastructure bill passed in December, Congress finally penetrated the Fed’s “independence” by tapping its reserves and bank dividends for infrastructure funding.

The bill was a start. But some experts, including Congressional candidate Tim Canova, say Congress should go further and authorize funds to be issued for infrastructure directly.

For at least a decade, think tanks, commissions and other stakeholders have fought to get Congress to address the staggering backlog of maintenance, upkeep and improvements required to bring the nation’s infrastructure into the 21st century. Countries with less in the way of assets have overtaken the US in innovation and efficiency, while our dysfunctional Congress has battled endlessly over the fiscal cliff, tax reform, entitlement reform, and deficit reduction.

Both houses and both political parties agree that something must be done, but they have been unable to agree on where to find the funds. Republicans aren’t willing to raise taxes on the rich, and Democrats aren’t willing to cut social services for the poor.

In December 2015, however, a compromise was finally reached. On December 4, the last day the Department of Transportation was authorized to cut checks for highway and transit projects, President Obama signed a 1,300-page $305-billion transportation infrastructure bill that renewed existing highway and transit programs. According to America’s civil engineers, the sum was not nearly enough for all the work that needs to be done. But the bill was nevertheless considered a landmark achievement, because Congress has not been able to agree on how to fund a long-term highway and transit bill since 2005.

That was one of its landmark achievements. Less publicized was where Congress would get the money: largely from the Federal Reserve and Wall Street megabanks. The deal was summarized in a December 1st Bloomberg article titled “Highway Bill Compromise Would Take Money from US Banks”:

The highway measure would be financed in part by a one-time use of Federal Reserve surplus funds and by a reduction in the 6 percent dividend that national banks receive from the Fed. . . . Banks with $10 billion or less in assets would be exempt from the cut.

The Fed’s surplus capital comes from the 12 reserve banks. The highway bill would allow for a one-time draw of $19 billion from the surplus, which totaled $29.3 billion as of Nov. 25. . . .

Banks vigorously fought the dividend cut, which was estimated to generate about $17 billion over 10 years for the highway trust fund.

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Gary Anderson 4 years ago Contributor's comment

There is no money velocity now. It is time that congress stood up to the banks on this subject.

Dean Gilmore 4 years ago Member's comment

Absolutely!

Gary Anderson 4 years ago Contributor's comment

If it increases the money supply and helps growth I would be for it. After all, the Fed has run roughshod over America in pursuit of profits by the banks. I am amazed that congress forced this through, but they know what the Fed's game is.

Currency Trader 4 years ago Member's comment

I agree the banks have gotten out of control. But money talks... even if there were new regulations, they'd find more loopholes. Or simply break the law and pay a few fines if they get caught.

Gary Anderson 4 years ago Contributor's comment

It didn't happen that way under FDR. But then America was sovereign over the banks. Not so sure that is the case now.

Ellen Brown 4 years ago Author's comment

Yes at least it's a start! The winds have changed.

James Goldstein 4 years ago Member's comment

From your mouth to God's ear, let's hope so.

Gary Anderson 4 years ago Contributor's comment

Some at alt-m blog have said the Fed can claw this money back. I hope they don't. But at least it gets the needed work done either way, Ellen. Nice article.

Ellen Brown 4 years ago Author's comment

Thanks Gary.