Interest rates on U.S. government borrowing still negative — the policy implications are clear: more fiscal stimulus NOW.

Economist Matt Yglesias this afternoon:

The “real” (i.e., inflation adjusted) yields on 5 and 7 year Treasury bonds continue to be in negative territory.

This is an extraordinary situation that ought to be dominating the public debate. What does it mean? Well it means that right now it’s much cheaper for the government to finance some undertaking by borrowing the money and paying for it out of taxes five or seven years from now than to pay for it with taxes. And yet right now not only does the federal government do lots of things, it collects a fair amount of taxes to pay for those things to be done. This is perverse. In your personal life, paying for all your consumption by wracking up huge amounts of credit card debt rather than working would be a terrible idea. But the reason it’s a terrible idea is that the credit card company charges you a high interest rate. Were the credit card company to instead charge you a negative interest rate, it would be borderline insane to pay your bill in a timely manner. But not only are we paying some of our bills on time even though it would be cheaper to not pay them, our present fiscal policy debate is pathologically focused on the idea that we’re borrowing too much money.

Advertisements

About Guy N. Texas

Guy N. Texas is the pen name of a lawyer living in Dallas, who is now a liberal. He was once conservative, but this word has so morphed in meaning that he can no longer call himself that in good conscience. Guy has no political aspirations. He speaks only for himself.
This entry was posted in Economic policy, Economics, Finance, Financial markets, News, Politics. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s