Industrial Reconstruction Finance
INDIREFI

The crisis of U.S. Manufacturing transcends any current set of economic conditions.
The crisis effects and is effected by the currency, energy, and housing crises. The role of U.S. manufacturing is pivotal in solutions to energy and housing, because the dearth of manufacturing has exacerbated both housing and energy. When U.S. industrial might led the way in WWII, industry pulled the U.S. from
Depression and made half of the materials and weapons needed in the War effort for all Allies. A crisis of equal gravity is at hand, and an effort to match the gravity of the crisis is needed. Nothing proposed here is any more dangerous than the construction of the Canals of the Washington Administration.

The solution is the reconstruction of the U.S. industrial base. The starting point must be basic industries then move outwatd. The plight of automobile industry is grave enough to warrant help even without externalization of auto industry crisis. Externalization of the automotive crisis effects other industries, the environment, the dollar, and economic recovery and trade. We cannot put metal in the ground for wind turbines or drilling pipe when there is no metal to buy. The siren song of the supply chain is over when supply of commodities are short, expensive, and both import prices and trade debt are so high.

Needed for the auto crisis is a U.S. authority with the capacity and deep pockets to turn around domestic production. Turn-around will focus on manufacture of auto,steel,chips and other domestic plants, American and foreign owned. The objective is to provide bridge financing for a distraught industry. The bridge financing authority will seek take-out substation of the loans made by private capital after the factory floor and plant capacity is built and ready, most likely a 2 to 3 year window.

A carefully planned first year budget should be less than the original cost of the Marshal Plan ($45Billion). Net cost to the taxpayer is planned to be zero.
A prime objective is to protect taxpayer funds and recycle loan money in the window. The authority will help in of the early production for federal, state and local government fleets. Without Reconstruction, the goal of creating fuel fleets may exceed ten years.

The Reconstruction will target factory and movable shop floor capacity for a range of new technology, fuel efficient vehicles. Such vehicles will include the plug-in hybrids, conventional hybrids, fuel-cell vehicles, very high mileage conventional vehicles, natural gas and methanol vehicles and other new technologies still to come.
Tiers of the reconstruction are ordered by critical path. Reconstruction as a whole, is the critical path out of the recession, manufacturing and energy crises.
Some tiers of the plan may start early but all tiers have critical paths in earlier tiers.
Each of the industries in question are short of capital except for the funding of polymer lithium ion batteries. That is where help at a national level comes in.

Phases of INDIREFI Reconstruction

· First Tier - basic auto component industries - specialty steel, generic microprocessors, copper, aluminum

· Second Tier – fortify and build capacity of Polymer Lithium Batteries, direct solar, wind turbines, specialty steel tubing (oil drilling), and custom microprocessors

· Third Tier – increase cement and non specialty steel capacity
for highway construction and railroad rolling stock and rail and airport runway and management systems

· Fourth Tier – auto shop floor capacity and automation for building
next generation automobiles, local financing to utilities for wind turbines, nuclear power, land fill methane, small hydro, co-generation

· Fifth Tier – nanosolar fabrication capacity, next generation wind turbines, advanced vehicle designs and identifiable cutting edge technologies entering production stage but short of capital

As long as the loans are asset finance, this kind of finance
is as old as factoring, and absolutely not Socialist.

It's a given that no money goes offshore. Also, at this time,
private financing is essentially dead. Unless you are T.Boone Pickens or some well healed private source, the private capital is just not there. It's a Depression syndrome, but a big difference now is the SWF's.

Do nothing and China Inc etc. will pick clean the remains of U.S. Industry.

Sure, there is the investment in nanosolar, the 23 California solar start-ups. Most venture capital in info tech space insists on outsourcing the development effort. These are followers, sheep, not real leaders. Long term ICs count only in a Schumpeterian-destructive sense.

The effort to Reconstruct may take a part of the $1Trillion
Pickens is discussing. Pickens is a leader and deserves much support the way Patton said of the Battling Bastards of Bastoigne "Sons of bitches like that are worth saving".

Since the Korean War and Excess Profits Taxes on Corporations, Top Corporate Rates have fallen steadily. The U.S. has no Value Added tax, like Europe. VAT can be as much as 30 Percent and at least 15 Percent. VAT and Corporation Taxes are social taxes on production by society. The current effective rate on corporations is just over 20 percent. 38 percent of companies pay no tax at all, or get hit with the corporate Alternative Minimum Tax of 20 percent. So when we see the 35 percent sticker price (top rate) quoted, remember that hardly anyone pays 35 percent. So what did we get for cutting corporate rates for 50 years? Manufacturing jobs fell from almost 30 percent of all jobs to less than 10 per cent of the job base.

In the last 8 years we see falling income with the middle class.

So when any candidate at any level proposes Corporate Rate Cuts, please ask for any proof that rate cuts do any good.

Until   Taxable Inc           Max Rate (%)

Year

1946   50000                   53

1950   25000                   42

1951   25000                   50.75 (1)

1967   25000                   48 (2)

1968   25000                   52.8

1970   25000                   49.2

1974   25000                   48

1979  100000                  46

1981  100000                  46

1983  100000                  46

1986 1405000                 46

1987 1405000                 40

1993   335000                 34

2004 18333333                35 (3)

(1) sum of income and excess profits taxes was capped t a given percentage of income (from 62% to 70%)

(2) Rates include the Vietnam War surcharge of 10 percent.

(3) AMT Rate Set at 20% - IRS Reports 38 Percent of Corps pay No Tax Actual Max is 35 Percent

In fact, you can say that lowering tax rates may even cause labor arbitrage. The government signals by drops in the corporate rates that no one cares about off-shoring jobs and shuttering factories.

The idea behind this protracted story is that McCain and Obama are about to tell the Big Lie: just lower the rates and the economy will get better. Let us go on record to say why history shows that lowering rates is a fraud and worse.

Carly Fiorina has been doing a media blitz to get the CNBCs of the world to buy into her Con Game. Fiorina has told CNBC that lowering tax rates was what drew HP to Ireland - not lower wages.

Actually corporate taxes make are about 1.5 to 2 percent of Gross Sales. Wages are 60 to 70 percent of Sales. So when HP moved to Ireland, guess why Fiorina did it.

But Palmisano moving production to China was much worse.

Lutz has heard and memorized the lines of our song. But watch how the lyrics change. Lutz is in charge of the Plug-In Hybrid and sees the opportunity to borrow when GM is down and hurting. The instinct is good and the project is worthy but the devil is in the details of how the borrowing goes.

Do we tie borrowing to U.S. plant and equipment assets as we argued, or will GM get no strings loans from congress and presidential candidates falling over themselves during an election year?

Maybe we are changing the conversation.

http://www.nytimes.com/2008/08/29/business/29lutz.html?_r=1&scp=1&sq=Lut...

I sent a copy of INDIREFI to Senate Committees first. If they screw up the loans to the auto industry, it will be deliberate. When Lutz spoke, Congress had a clue of what they could do in a sensible way before Lutz started to talk.

I am still waiting for the Free Traders, Business Roundtable, and the rest of the Economic Surrender Lobby to start screaming. They are very quiet so far, too quiet.