How the Fed could pay to fix America's worn roads

In the Presidential campaign, each party has pledged to put more people to work updating this nation's embarrassingly worn roads, rails, bridges, ports, airports...

"Whoever is elected president will work in the first year toward a more stimulative fiscal policy," says James M. Meyer, boss at Tower Bridge Investments, West Conshohocken: 
- Hillary Clinton has posted a 12-page "Building Tomorrow's Economy" outline, including a $275 billion 5-year stimulus and a "National Infrastructure Bank."
- Donald Trump has pledged to "double" her spending program, notes Ted Brooks, of BNY Mellon's Blue Bell-based CenterSquare Investment Management.

But how to pay for it? Meyer offers a radical finance alternative: "The Federal Reserve could sell some of the bonds from its portfolio and use the profits to fund infrastructure spending," he told clients of Boenning & Scattergood in a report last week. He's talking about the $4 trillion in mostly Treasury and mortgage-backed securities the Fed accumulated under its "quantitative easing" programs.

Since interest rates have continued to drop, a lot of that higher-rate debt can now be sold for tens of billions in profits, Meyer tells me. Why not sell some and use the profits to fix the national infrastructure?

It would take special permission from Congress; without that, Treasury would be bound to use the money to balance the budget. But the bond premiums - limited time only! - would be free money, and it might as well be used for unmet national needs, he says.

This is genius:

It's "stimulative," which Democrats like, Meyer notes.

It "doesn't require taxes," which Republicans appreciate.

And it's "finite," because even the Fed will, in time, run out of bonds to sell at a profit.

Especially when rates start rising again.

More from my column in Sunday's Philadelphia Inquirer here