Trump's Bank for Infrastructure?

It’s tough for me to follow the policy changes made by Trump within this period before he becomes President. I’ve gone back and forth on what Trump plans to do with infrastructure. It’s a pivotal part of understanding his economic policy perspective. It’s difficult enough trying to see where he will end up on infrastructure, so it will be even more difficult for me to understand his health care plan. On health care Trump wants to combine the ‘good’ of the conservative and liberal approaches by removing state lines with purchasing insurance and keeping the ability to get insurance with a pre-existing condition & the ability to stay on your parents plan until you’re 26. This is a microcosm of America; we want to combine socialism and capitalism together in harmony. It’s the same as combining raw sewage and bananas in a smoothie; it doesn’t work.

Because health care is a more complicated issue, I’m forgoing focusing on Trump’s specific plans at least for a few more days until we get more reports on what the plan will look like. At face value, politicians do not want to allow for the uninsurable to go without health care because it makes them look bad. However, the entire point of insurance cannot exist, if some people aren’t allowed to get it because they are too risky. Insurance needs to be re-conceived. Insurance is supposed to be for catastrophic events. If free markets could exist in medicine, prices of services and drugs would decline and insurance wouldn’t be needed for most procedures. The government could give a health savings account to Americans who can’t afford health care.

I quickly summarized how to fix health care in America. It is not a difficult concept to understand. It is a very difficult proposal to get enacted because it does not have the support of the American people because they don’t understand capitalism. Getting back to the point of this article, the infrastructure plan Trump has is changing by the minute. I analyzed the proposal Trump had his team come up with in October, on the off chance Trump actually followed through on one of his statements. I acknowledged that it is a good plan, but there is a chance it will be ignored like how Congress ignores the bipartisan warnings to cut entitlements, so the deficit doesn’t balloon higher.

The reason I am being tough on Trump is because it has been reported that Trump is considering an infrastructure bank to fund infrastructure investments. The source of the report is Steven Mnuchin who is a Trump adviser and under consideration to be Treasury secretary. The eventual pick of Treasury secretary will speak volumes about the direction Trump plans to go in. The fact that creating an infrastructure bank is on the table is worrisome to me. As I said, Trump doesn’t have an ideology, so there is no clear path for him to go down. I’m covering all my bases by looking into each potential choice he will make.

It’s easy for me to delve into the problems with an infrastructure bank, but I don’t have to. The best explanation of why an infrastructure bank is a bad idea comes from the plan Trump promoted in October which used tax credits to stimulate private investment. The plan states “In effect, Hillary Clinton would be reintroducing subprime lending to the federal government. Apparently she learned nothing from the collapses of Fannie Mae and Freddie Mac, which cost taxpayers billions of dollars, and the scandalous Solyndra failure that left taxpayers on the hook for $535 million in federal guarantees.”

That is a very good analogy made to explain an infrastructure bank. The infrastructure bank would provide loans to firms who otherwise couldn’t get a loan. This is what Fannie Mae and Freddie Mac did with housing. They led to the creation of the housing bubble. When the bubble burst the firms were in deep trouble because the people they lent to were high risk borrowers who defaulted at high rates. Clinton’s plan to have direct loans, loan guarantees, and other forms of credit enhancement is what Trump’s plan called a “high risk 9-to-1 leveraging scheme.”

Trump already knows an infrastructure bank is a bad idea. It’s hypocritical to speak of how bad a plan is before the election and then consider it after the election. You may say that looking into it isn’t the same as doing it, but I would say that Trump’s advisers already looked into the plan. They looked at it when reviewing Hillary’s plan. I think Trump is considering going through with this plan.

I am definitely behind the curve because infrastructure stocks are falling today even with this new report. What may have happened is the case of ‘buy the rumor, sell the news.’ When the news broke Trump is considering spending more on infrastructure, the price of the stocks had already included this possibility. The incite I have that the market is ignoring is the reality that the government cannot afford such a large plan. The debt is too large to spend even more money that we don’t have.

If an infrastructure bank is put in place, it will create a new bubble in infrastructure like the student loan bubble and the housing bubble. With health care, Trump’s advisors likely also know that covering pre-existing conditions is impossible without a mandate to buy insurance which is what Obamacare has. Trump is willfully ignoring reality because cutting that part of the plan would hurt him politically. As I said, Trump’s initial infrastructure plan may not be enough to spur growth. This is why he is considering spending more money on an infrastructure bank. It won’t work. These policies are working off of the flawed assumption that infrastructure spending has a long term positive effect on GDP growth.

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