The American Economy is in a Drought: The Urgent Case for a National Infrastructure and Manufacturing Credit Bank (RFC 2.0)
- Evan Papp
- 6 days ago
- 4 min read
Updated: a few seconds ago
The state of the American economy today is eerily reminiscent of the Great Depression with financial resources abundant, yet growth paralyzed. Our financial system is suffering from a profound misallocation of capital, leaving our productive sectors thirsty for investment while trillions flow into speculative bubbles.
The United States faces an acute crisis of industrial stagnation and financial instability. Our manufacturing productivity has slumped for decades yet our national debt is expanding at an unprecedented rate, accelerating beyond $2 trillion per year. We urgently need a shift from the failed doctrine of monetarism to a system of targeted, sovereign credit for production through a modern Reconstruction Finance Corporation (RFC).
The problem is structural, vividly illustrated by considering a nation’s financial system as a public utility network designed to transport capital.
But here is where the system fails, creating an economic drought.
The money isn't reaching the farms and factories, which is the real economy. Instead, megabanks are channeling trillions into speculative "pools," namely hedge funds and short term money market funds.
Finance as Water: An Analogy
To diagnose this paralysis, consider the current financial structure as a massive, intricate water system, an essential infrastructure for distributing vital resources (credit) across the economic landscape.
The core of this system, the Federal Reserve, functions like a centralized pump. Since the 2008 financial crash, the Fed has pumped trillions of new electronic deposits, or “excess reserves,” overwhelmingly into the largest Wall Street banks making them 40% bigger.
Creating a new RFC today is like redesigning a massive irrigation system for a drought-stricken nation. The current plumbing of the Federal Reserve functions like a series of pipes that only feed huge, existing water tanks (Wall Street megabanks) and these banks mostly use the water to fill up private giant swimming pools (speculative markets) while draining water from a once fertile, productive land thereby creating a desert where the majority of the people reside.
The new RFC system involves installing entirely new, pipelines directed to bypass the speculative pools, taking sovereign water (credit) and pumping it directly to the potentially fertile but parched fields (infrastructure and manufacturing), ensuring that the crops grow and the entire economy thrives, while simultaneously mandating that the old, leaky pipes (speculative banking) are repaired using Glass-Steagall legislation that separates commercial and investment banking.
The core concepts the analogy illustrates are as follows:
The Failure of the Current System (The Pools/Tanks): The Federal Reserve is passive and does not lend or provide credit to any part of the real U.S. economy, public or private. Instead, the Fed provides massive electronic reserves to Wall Street megabanks, which use these deposits primarily for speculation (e.g., hedge funds and money market mutual funds) rather than extending new credit to the real economy. This failure has led to stagnation in manufacturing productivity.
The Need for Directed Credit supporting Production (The New Pipelines to the Fields): A new institution, like the proposed RFC for Infrastructure and Manufacturing, must be created to lend and provide credit at reasonable interest rates to participants in the real economy to raise productivity. This sovereign credit is directed toward major national projects of infrastructure.
The Role of Glass-Steagall (Repairing the Leaky Pipes): This new system requires the simultaneous re-enactment of the Glass-Steagall Act. This separation of commercial and investment banking is necessary because the repeal of Glass-Steagall licensed megabanks to pursue the very speculative operations that are prohibited when directed credit systems are successfully implemented.
Policies to Bridge the Current Financial Disconnect
Today, the core transport mechanism of capital allocation toward real wealth creation is broken. This massive flow of capital into non-productive "pools" creates a drag on American economic growth. The solution requires simultaneous strategic interventions that establish a dirigistic credit policy:
Phase 1: Separating Speculation from Production
First, we must structurally protect the financial system from itself. The immediate re-installation of the Glass-Steagall Act is non-negotiable. As originally intended by President Roosevelt in 1933, this law would prohibit commercial banks from owning or lending to speculative operations, ensuring commercial deposits are used for economic lending, thereby "saving" banks from their own speculative temptations.
Phase 2: Establishing Directed Sovereign Credit
Second, we must replace the passive Federal Reserve with an active lending institution, authorized to operate a capital budget, much like a transformed RFC (1933-1945), which muscled the Fed aside and drove the American economic recovery past the Great Depression.
Congress must charter the RFC as a National Bank for Infrastructure and Manufacturing, empowered to create credit tied to future productivity. This institution would serve as the essential new plumbing, ensuring that sovereign credit flows directly to productive endeavors.
This National Bank must be granted the power of directed credit. It would:
Fund Real Growth: The Bank would be authorized to lend directly at low interest rates (e.g., 2% over 10-20 years) to government agencies, regional banks and private businesses executing major capital projects, such as national electrified rail, advanced water management and power generation, transmission and distribution projects. These multi-year loans, potentially multiplying capital four to five times, focus on investments where the resulting economic productivity will generate more wealth than is needed to repay the loan.
Tie Debt to Productivity: Crucially, this system ties loans to the future completion of products and overall increased productivity. It will act as a discounting bank for private banks that lend to manufacturers and construction firms involved in national goals, fostering growth in machine tools, cement, steel and aluminum. Growth itself becomes the currency.
Global Competitiveness: The Bank will collaborate internationally, entering joint ventures to finance infrastructure in developing nations, providing a crucial addition to global development credit of the DFC and serving as an alternative foreign policy to calm geopolitical instability.
Restore Trust: As Hamilton did with the original Bank of the United States, this institution consolidates public debt as capital, linking the fiscal health of the nation to the future success generated by new infrastructure.
By creating this targeted system of sovereign credit, we shift the locus of financial power away from speculative derivatives and towards physical growth and technology transmission. This strategic pivot is necessary to achieve the productivity increases that characterized the American economy during the period when Roosevelt’s RFC was fully operational.
By restoring the Hamiltonian principle that the government is the leader in directing credit, we will ensure that the nation's capital finally nourishes the real economy, turning drought into a productive flood of prosperity.
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