Executive Intelligence Reiew

July 17, 2017 (EIRNS) -- Signs of growing defaults are showing across the range of ultimately unpayable debt bubbles in the United States economy, while underlying economic growth continues in the crater of a 1.5% nominal GDP annual rate.

The July 17 {Wall Street Journal} featured a report of an "unheard of event" -- a Houston-based private equity fund once "worth" more than $2 billion, is now worth zero. Even following the report in the July 11 {Houston Chronicle} that defaults throughout Texas corporations are shooting up and exceed even 2009 economic collapse levels, securities funds of this size losing all their value remains "unheard of"; 25% maximum losses are typical when large PE funds go bust. Yet, the {Journal} quotes one expert, "several other energy-focused funds are in danger of doing so." Big losers in the evaporation of $2.1 billion EnerVest Ltd include Canada's second-largest pension fund, the Teamsters Western Conference Pension Fund; various high-roller charitable foundations like Getty Trust, MacArthur Foundation; and Wells Fargo bank, which loaned EnerVest Ltd. $1.3 billion to leverage its investments in oil securities.

In the consumer debt bubble, auto loan (90-day) delinquencies have reached just under 4% (3.96%) for all $1.3 trillion of auto loans, comparable to the mortgage sector in late 2006. Bloomberg News today reports on growing fraud in auto lending, as well as lax to non-existent underwriting standards, as well as spreading securitization of payments (and thus of defaults) in the entire sector. The volume of both auto and mortgage lending is dropping as the biggest banks head for the exits, according to a separate report in {Credit Union Times}.

The falling economy is making tax revenues sink. Some 33 states reported shortfalls in projected revenues in their fiscal year, which ended June 30. This was similar to the budget-collapse year 2010. But less publicized has been the fact that the Federal government deficit is ballooning this Federal fiscal year (which ends Sept. 30) because of much lower tax revenues than expected, as well as forced restatement of the value of student debt -- because of mass defaults and delinquencies -- which counted as a loss of nearly $90 billion for the Federal goverment in June.

China Investment Corp. Again Looks to U.S. Infrastructure

July 17, 2017 (EIRNS) -- Economic growth figures for China's economy were reported today by its Commerce Department, withsecond- quarter GDP reported 6.9% above the second quarter of 2016. Industrial production grew by 7.6%, fixed-asset capital investment by 8.5%, and consumer spending by 11%. China's growth in 2017 will be faster than in the previous year, for the first time since 2010; and that, with the government clamping down on real estate bubbles and shadow banks.

China Investment Fund (CIC) is a sovereign wealth fund investing about $800 billion, based on China's foreign exchange reserves, which currently total about $3.1 trillion. CIC recently moved its North American offices to New York. The {New York Times} quoted CIC Managing Director Liu Fangyu's statement on July 11, requesting more openness to its investments in the United States.

"We hope that the U.S. government will provide us with a more liberal, equal and non-discriminatory investment environment," Liu said. "The fund is particularly focused on infrastructure."

The CIC's previous managing director, Deng Xuedong, had said in a January speech in Hong Kong that CIC wanted to reinvest some or all of its assets currently in U.S. Treasury securities, into an "infrastructure build"in the United States. Deng had estimated that a real renewal of the United States' economy's decrepit infrastructure would require a whopping investment of $8 trillion. Deng's remarks were carried at the time in the {South China Morning Post} of Hong Kong; and, according to today's {New York Times}, in a China government publication simply called {The Paper}.

The {Times} reported that CIC currently has $90 billion invested in United States, "mostly in the financial markets."This refers primarily to $60 billion in U.S. Treasuries.

Most of the {Times} article, unfortunately, concerns attempts or intents to {block} such investment by China, in Congress and by some in the Trump Administration.

What Makes Productivity Grow?

July 17, 2017 (EIRNS) -- The period from the mid-1920s to 1970 is called by many economic historians the "golden age of American productivity."

A new book, {The Rise and Fall of American Growth}, by the very well-known Northwestern University economist Robert Gordon, documents very ably the special nature of this period in the transformation of American economic activity by the spread of industrial electricity, the internal combustion engine, and telecommunications. On the basis of these and other inventions, Gordon traces the growth of what is called total factor, or multi-factor, productivity. This is economic growth not accounted for by applying more capital, more labor, or more educated labor, but by the greater efficiency with which industry uses all three of the above -- caused by techological advance, including the use of technologies not previously present in the industrial sector at all.

While showing that productivity growth has progressively abandoned the Western industrialized economies since 1970, and accurately downplaying the effects of "Internet age" inventions, Professor Gordon unaccountably does not focus on the role of new infrastructure {based on} new technological advances. Thus, he does not credit NASA or the Manhattan Project with contributing to U.S. overall productivity.

But a thorough report on total factor productivity (TFP), by the National Bureau of Economic Research (NBER), found the following. The decade of most rapid total factor productivity growth in U.S. history, by a significant margin, was the 1930s -- not the war-mobilization 1940s, though that was second-best. What caused the extraordinary 3.3% average annual TFP growth in the 1930s?

"This was due to the very strong growth in electric power generation and distribution, transportation, communications, civil and structural engineering for bridges, tunnels, dams, highways, railroads and transmissions systems; and private research and development." This was the2005 NBER Report, "Sources of TFP Growth in the Golden Age."

Such great infrastructure projects as FDR's "Four Corners" challenge industry to spread technological progress in order to build them; a phenomenon being seen in China's building of extraordinary bridges, fully automated ports, high-speed rail lines through deserts and over the world's highest mountain ranges, etc. A later, 2014 NBER report estimated that TFP in China's economy grew at 3.1% annually from 1998-2011.

These Policy Steps on U.S. Infrastructure Qualify as Insane

July 17, 2017 (EIRNS) -- With transportation infrastructure visibly breaking down in two of the nation's three largest cities as well as in the vital Northeast Rail Corridor, the House Transportation/HUD appropriations bill, reported out of the Appropriations Committee on July 14, eliminated the Federal so-called TIGER grants (Transportation Investment Generating Economic Recovery) completely -- from $500 million to zero. The bill, now going to the House floor for a vote, cut the overall budget of the Transportation Department by 8% in absolute terms.

TIGER grants are also used to improve port infrastructure; and inland waterway dams and locks are renewed by a Federal loan program through the U.S. Army Corps. of Engineers (USACE) -- a program cut by 54% in the same appropriations budget. American agriculture exports are beginning to be threatened not by price competition or unfair trade, but by crumbling inland waterway infrastructure, which was given a D overall mark by the American Society of Civil Engineers.

The Coalition for America's Gateways and Trade Corridors(CAGTC) on July 14 released its second in a series of White Papers that describes the decline of national freight infrastructure. Called "The Vital Role of U.S. Transportation Infrastructure in Moving Agriculture Forward,"the paper reviews the impact of deteriorating infrastructure on U.S.agricultural competitiveness, focusing on soybeams grown in Illinois and Iowa.There has just been a very large sale of soybeans to China, but 58% of soybeans pass through locks on the Illinois, Ohio, and Mississippi Rivers and leave the United States through Gulf ports.

"More than half of the locks are over 50 years old. The LaGrange Lock on the Illinois River is 80 years old, with concrete crumbling and other critical components difficult to maintain....

"Between 2000 and 2014, the average delay per lock nearly doubledand...49 percent of vessels experienced delays in 2014,"more today.

The backlog of inland waterway {maintenance} to be done by the USACE keeps growing -- it is now at $600 million -- and the time to schedule and make a major {renovation/replacement} has grown to decades.

Meanwhile, renewing city and town water infrastructure across the United States requires at least $50 billion in annual spending over decades; but Federal funding for it is just 25% of what it was 40 years ago, in real terms. A $500 million loan fund for rural towns is likely to be eliminated by Congress this year. So, 48 public water/sewer utilities were sold to private companies in 2015;53 more in 2016; 23 more in the first quarter of 2017.

American System Now

The Nation Under Water - Yet Another Case Against Privatization

With federal and state budgets spiraling out of control, ever more desperate elected officials are totally befuddled as to how to pay for repairing and rebuilding the infrastructure which is collapsing all around them. The Trump administration has proposed privatization as the answer for fixing our nation's roads, bridges, airports, water systems, and tunnels. Some Democrats in Congress have also embraced the privatization mantra.

But would this privatization "solution" be worse than the problem? How would it impact the welfare of the citizens? One example which recently hit the news is the privatization of municipal water systems. The report back from cities that swallowed the privatization of water ploy has been that it is an unmitigated disaster.

Lake Station, Indiana, a hard luck town South of Chicago, is contemplating taking the plunge into privatization of its water system. Once a solid middle class steel mill community, it now suffers population loss and huge budget deficits, in the aftermath of the shutdown of steel production and the financial turmoil engulfing the region.
Wall Street sharks have dangled the quick fix panacea of privatization in front of this and other hard luck cities. It has the tantalizing appeal of Eve's apple to that sucker Adam: If Lake Station were to privatize their water system, they will erase the $11 million utility debt, and bring in a $9 million windfall to boot. If they don't take the money, Lake Station will likely have to shut down their police force!, for starters. Have I got a deal for you!

Lake City is hardly alone. One estimate shows that U.S. water systems need to invest $1 trillion over the next 20 years, yet funding has dropped 74% since 1977. President Trump's budget calls for reducing federal aid for water projects even further. According to the Congressional Research Service, federal aid for water is already the lowest since 1977. The need for our nation's water infrastructure is urgent. Some of it has not been repaired or replaced in over 100 years. Technology is dramatically outdated, creating dangerous, life-threatening, conditions. What happened in Flint, Michigan, contamination from bad pipes, is being replicated daily in cities around the nation.

Just How Much Does a Glass of Water Really Cost?

The answer is not to turn to the money lenders, thinking that's where the solution lies. Believing that the Wall Street predators have the interests of the general welfare at heart is like putting your trust in your neighborhood loan shark to help you out of a jam. Payday lenders, anyone?

It might make the current budget look good in the short term, but the citizens in will foot the bill in the long term. Studies now show that in most cases, the tab for water service, like other privatization schemes, rises when for-profit companies are involved. In many cases state regulatory agencies allow private operations to earn a large profit off their investments, which drives up the price and cuts back the service.

American Water Works', the nation's largest private water utility, and major Indiana owner of city utilities, collects 6.6 percent on their investments. In 2015, investor owned companies bought 48 water and sewer utilities, according to Bluefield Research. They bought 53 systems in 2016, and 23 more through March of this year. The Dow Jones' U.S. Water Index, made up of the three largest publicly traded U.S. water utilities, began rising when Flint's water problems became national news. It hit a record high a year later, and is rising under Trump. Lake Station Mayor Christopher Anderson, a fifth generation Lake Station resident, knows people are uneasy about handing control of the town's most essential resource to a publicly traded corporation.

"We want to make sure we get it right," he said last fall, when he was mulling the sale, "and I don't even know if there is a right answer right now."
Movie Barbarians at the Gate: KKR and Wall Street Looting

He need only look to Bayonne, NJ, for the answer. The citizens of Bayonne, NJ, cut a deal with a Wall Street investment firm in 2012 to manage municipal waterworks. Residents are experiencing huge ("yuge") rate hikes, while at the same time using less water! Water rates have risen nearly 28 percent since Kohlberg Kravis Roberts teamed up with another company to manage the city's water. KKR is a notorious shark, whose sleazy reputation goes all the way back to brokering the infamous RJR-Nabisco deal in the 1980s, which inspired the book and movie, "Barbarians at the Gate."

Bayonne City officials were promised a four year rate-freeze, which never happened. In some cases, residents have fallen behind in paying their bills, and are now in danger of having their homes foreclosed. At least they won't have to worry about their water bills, or so the thinking goes.

Meanwhile, KKR, a major suitor of the Trump administration's dangling of more privatization deals, has moved to "flip" its 90% ownership of the Bayonne water system to another firm, typical of the privatization mafias. KKR has already been rumored to have earned 8-18% returns on its investment.

The New York Times analyzed three deals in which private equity firms have recently run a community's water or sewer services. In all three places, Bayonne, and two cities in California, Rialto and Santa Paula, rates rose more quickly than in comparable towns, which included both public and private run water systems. In Santa Paula, where Alinda Capital Partners controlled the sewer plant, the city more than doubled the rates!! A fourth municipality, Middletown, Pa., raised its rates before striking a deal.

Just like Lake Station, IN, the offer from big money to cities like Bayonne, who are drowning in debt, was too good to refuse. KKR's team paid $150 million up front, which allowed the city to pay off a pile of its debt. However, since the contract was in favor of the investors, when infrastructure needed repairs, and water usage did not come up to par, water rates jumped.

A city councilman and former commissioner of Bayonne's utilities authority, Gary La Pelusa, Sr, said, "We gave away too much." The city approved the deal over his objections.

Oops! We Made a Mistake! Expensive Lawsuits to Regain Control

While some cities are mulling over the issue whether to sell, others are in the courts trying to get their water systems back from private investors, due to poor service and rate hikes. This means proving that city ownership is in the public's interest and then paying a price determinedby the court. The prices can be exorbitant. Mooresville, IN, tried to buy back their system from American Water for $9 million, but a judge rule that the court approved price was $20.3 million. Mooresville could not afford to buy it back.

Missoula, MT, a city of 70,000, took back ownership of its water system for $88.6 million, plus more in expenses. Missoula's system had been owned by a regional water company, Carlyle Group, another gigantic "private-equity fund" (read Gangster operation), and by a subsidiary of Algonquin Power & Utilities, a Canadian corporation.

The city complained that under private ownership, the system leaked so badly that half of the water flowing through the pipes was lost. During Carlyle's three year tenure, their investors received millions of dollars in dividends, paid for by Missoula ratepayers, while service deteriorated.

Why we need government run water systems
The Carlyle Group and KKR Caught In Character

In fact, water systems, like other major areas of infrastructure, including transportation, power, education, and health care, should not be run by private, for-profit entities. It is the responsibility of the government, federal and state/municipal, to oversee infrastructure development and management. This concept flows directly from the General Welfare Clause of the Constitution.

The provision of especially clean water and other infrastructure developments led to both an increase in life expectancy and a decrease in mortality rates, especially infant mortality. Infant mortality rates declined precipitously from 1890-1950, and life expectancy rose by an equally dramatic percentage. Infant deaths per 1000 were 215 in 1880, not changed for 300 years, but by 1950 that rate was 27. Life expectancy increased by 14 years (54 to 68) between 1920 and 1970. Clean water was at the center of the gigantic rise in U.S. productivity rates over the middle five decades of the 20th Century.

The overall increase in life span and total population directly contributed to the growth in Gross Domestic Product driven by increased productivity. People lived longer and better, and were moving out of menial jobs into productive jobs. Urban areas were networked into a fabric of infrastructure developments, i.e. running water, central heat, indoor plumbing, electricity, gas, transportation, etc. the totality of which increased the productive powers of the workforce and population as a whole.

Franklin Roosevelt's New Deal witnessed a gigantic leap in productivity. Much of the (WPA) Works Progress Administration involved building our water system and water management systems. As documented by the Roosevelt Institute , their public works included 500 water treatment plants, 19,700 miles of water mains, and 24,000 miles of sewers and storm drains. These were in addition to the premier landscape-changing great projects like the Tennessee Valley Authority, Hoover Dam, and the Bonneville and Grand Coulee dams.

Water management continued to be a priority into the Kennedy administration. JFK regarded water as our most precious asset. In fact just two months before his assassination, Kennedy toured the country, commemorating the great dams, and laying a plan for the next fifty years. His tour included Whiskeytown, California; Flaming Gorge Dam, Utah; and Herber Springs Dam, Arkansas.
The murder of Kennedy was also the death of our infrastructure programs. Major water projects such as the North American Water and Power Alliance (NAWAPA) were shelved indefinitely, and the country has been "under water" ever since.

People will remember the famous 1975 summer thriller "Jaws", where the mayor refuses to warn the sun worshipers of the shark-infested waters for fear that it would negatively affect tourism. Now is not the time to make a deal with the money-worshiping sharks of Wall Street to sell off our water systems.

Let's not wait for the next shark attack, before we get Congress to declare "Beach Closed," put the predators behind bars, and launch the credit system which will allow us to rebuild our vital infrastructure. We don't need Wall Street to make America Great Again.

Read article here:
https://americansystemnow.com/the-nation-under-water-yet-another-case-against-privatization/
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Executive Intelligence Reiew