fresh voices from the front lines of change







Originally posted on Capital Gains and Games.

Yesterday’s The New York Times had a good story by Binyamin Appelbaum about how low interest rates are significantly driving down the government’s borrowing costs.

Appelbaum said that, given the continuing very strong demand for U.S. debt, the Treasury is considering issuing securities with negative interest rates — requiring buyers to pay for the privilege of safely parking their money — and is assuming  it will get lots of takers. In fact, the story shows that some investors in Treasuries are already getting a negative return and, given the alternatives, are happy to have it.

Appelbaum’s piece is factually correct and interesting but misses the real story. As Jesse Eisinger of ProPublica wrote about a months or so ago in The Times and I posted about here, there are three important budget implications of this situation.

First, as any business and many individuals would be doing in a similar very low interest rate environment, this is the time the federal government should be borrowing more rather than less, especially if the funds were used to pay for capital projects.

Second, it demonstrates that, to the extent possible, the government should be doing whatever it can to lock-in these low/negative interest rates by borrowing as much long- rather than short-term as it can. As some of those quoted in the story say, these rates eventually will increase and federal interest payments will rise when short-term debt rolls over.

Third, given the facts in the story, the real question is why government borrowing has been and continues to be such a political issue and why the tea partiers in the Republican Party continue to insist it’s the tool of the devil.

The answer, and something that a pure business/financial reporter such as Appelbaum isn’t likely to discuss, is that the whole issue of federal debt has nothing to do with facts. As I’ve stated many times before, government borrowing is an emotional issue for the tea partiers; the facts simply don’t matter.

Because of this, no candidate for election or reelection is going to defend government borrowing or publicly conclude that financially it’s the right thing to do in the current environment. By definition, emotional issues cannot be successfully responded to with facts and figures. Trying to do that makes you seem like you’re part of the problem…even if there really is no problem.

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