More Establishment BS
The lead story in the New York Times this morning carries the breathless headline "Wave of Debt Payments Facing U.S. Government". It could have been written by the head of the government bond trading desk at Goldman Sachs, and yet the byline contains the name Edmund Andrews, supposedly one of the savvier economists writing for the Times. Here again, the Establishment lackeys in the Press are carrying the water for Wall Street and the big bond holders (PIMCO's Bill Gross is quoted talking about storing nuts for the winter). Not until the 12th paragraph of his story does Andrews drop this little morsle.
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.The government's average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.'s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.
As I have been saying for months, the notion that inflation (and higher interest rates) is just around the corner is a complete fantasy. Unfortunately it is a fantasy that seems to have invaded the West Wing of the White House, with word that Obama's State of the Union address will focus on reducing the deficit. The President gave a hint of this last week when he noted "that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."
Maybe the President should look at this map of the growth of unemployment (which doesn't even include the latest horrible numbers) before he decides to put us into a second Great Recession thanks to the Wall Street Establishment's (fronted by Larry Summers) bad advice.
More disheartening news from the White House. It has become rather clear to me that we've gone ahead and elected a weak President.
November 23, 2009 1:30 PM | Reply | Permalink
Bingo!
Weak and a staunch defender of the established powers that be, aka, the status quo.
November 24, 2009 1:03 PM | Reply | Permalink
So, are you saying "change we can believe in" was an empty marketing slogan?
November 23, 2009 1:32 PM | Reply | Permalink
Never miss a chance to jump in and throw a brick, do ya?
November 23, 2009 1:36 PM | Reply | Permalink
Amazingly, I agree with Lalo. Obama is simply far too similar to Lalo's boy GWB for my taste or for the good of the country.
November 23, 2009 8:17 PM | Reply | Permalink
But Jon, deficits do matter, and we need to address them sometime. The argument shouldn't be over whether deficits need to be reduced, but over how we go about doing it.
November 23, 2009 1:41 PM | Reply | Permalink
Yes deficits matter a lot. Already something like 8% of all US government revenue goes just to service debt interest. That's a lot of money going to absolutely squat to help the average American. Plus, just a week ago it was announced that the U.S. government had spent 2.3 times what it took in, in October. Those kind of numbers are scary and have to be dealt with.
Agree with you 100%
November 23, 2009 3:14 PM | Reply | Permalink
True but it's not a problem you can deal with now without dishing out a lot of pain to the people you're trying to help.
November 23, 2009 3:33 PM | Reply | Permalink
I know. Right now I think that stopping deficit spending would spark the Great Depression 2.0.
But something's got to give soon.
November 23, 2009 5:10 PM | Reply | Permalink
That's not really true. We could realize real debt reduction for the federal budget by dismantling the malignant military industrial complex, whittling it down to a size where it actually serves the needs of the nation instead of the other way around. If we did that, combined with real, progressive taxation on the rich and corporations, we could easily bring the nation's debt under control. But since those subjects are never allowed to be a part of the discussions in Washington, we will instead see the nation go through round after round of taking away needed economic and other support for the workers of the country who have been mercilessly squeezed and abused now by Wall Street and our political leaders for 40 years.
November 24, 2009 1:07 PM | Reply | Permalink
Nonsense. See Japan.
Deficits don't matter if the market buys your debt. They only matter when the market stops buying your debt. 8% is nothing compared to the 984 billion going to defense (+ wars!!!).
If we don't get people back to work, they won't pay taxes and we will permenatly retard our future prosperity. If the market will lend us at 0 to 1% borrow as much as possible and leverage that into some serious investments that pay higher rates of return (that would be education, energy, jobs, etc.). rates that low amortize very quickly.
Regardless, money exists to work for us not the other way around (that's why we aren't on a gold standard- Money supply wouldn't grow fast enough and therefore retards growth too much). We aren't argentina or zimbabewe whose currencies are at the whim of private markets we are a reserve currency that the world relies on for economic stability- we have an obligation to get our house in order and if that means borrowing so what. Who is seriously going to declare us uncredit worthy?
November 23, 2009 11:16 PM | Reply | Permalink
It's going to take a decade or more* to teach the Chartalists' views.
* We are always in thrall to the ideas of dead and nearly dead economists; it's time to put a stake in the hearts of those vampires -- and we could start with Robert Mundell and Paul Samuelson.
November 24, 2009 8:47 AM | Reply | Permalink
Wow Ellen. Thanks for that link. I would recommend everybody take a look at it. I have some reading to do.
This is so intuitively simple it boggles the mind that nobody seems to get it. We all get confused by pretty graphs that we forget the basics of human psychology.
November 24, 2009 2:25 PM | Reply | Permalink
The question becomes - who does the government serve first, Americans who need jobs or our creditors? I think Bill Gross has to be taken with a grain of salt these days. For all PIMCO's talk about the "New normal" the company is looking to get into equities for the first time ever. Wonder why?
November 23, 2009 2:46 PM | Reply | Permalink
Look what Bill gross just bought. increased his US holdings to 63%. So do you believe what he says or what his cash says?
November 24, 2009 2:29 PM | Reply | Permalink
If most of the $12 trillion of US debt was at 1/2% fixed for 30 years it would not be as much concern.
The point of the article is the debt is largely short term. It is like an ARM-reset which needs re-financing. This is why the Treasury is trying to re-finance for longer terms while rates a re low, but no one is going to buy 30 year debt from anyone at a near zero rate of 1/2%.
A story of expansion of obligations, be it daily doubling of rice grains or debt paid for by more borrowing:
November 23, 2009 4:47 PM | Reply | Permalink
The point of the article is the debt is largely short term. It is like an ARM-reset which needs re-financing. This is why the Treasury is trying to re-finance for longer terms while rates a re low, but no one is going to buy 30 year debt from anyone at a near zero rate of 1/2%.
And the Times' Andrews has up front and personal experience with ARMS. What happens when the flight to the short safety of Treasuries peters out? Things get unpleasant. Fast.
November 23, 2009 5:31 PM | Reply | Permalink
This article was written by the guy who lost his house gambling on ARMS? OMG, you are right.
Total and complete BS.
November 23, 2009 11:19 PM | Reply | Permalink
You've got to know when to hold them, know when to fold them, know when to walk away, know when to run.... - K. Rogers.
November 24, 2009 12:11 AM | Reply | Permalink