It is simply idiotic that we are even talking about reducing the deficit right now, when it is cheaper to borrow than to pay cash. Here’s Karl Smith:
What this highlights is that real rate of return on government 5 year government securities is now negative. You want to stop and absorb that because I think it’s a bigger deal than most people realize.
Suppose the government had two choices. It could either pay for infrastructure improvements as it went along out of tax revenue or it could borrow money build the infrastructure now and then repay the money with tax revenues.
Ordinarily the question would be, does the advantage of building quickly outweigh the cost of the interest.
However, right now the interest cost is negative. The government saves money by borrowing now rather than waiting and paying cash. Let me say again because I have noticed that this goes against so much intuition that its hard for many people to wrap around when I first say it.
All the people who are worried about non-existant crowding out need to take a second to process this. We’ve got trillions of dollars worth of infrastructure repairs to make. Presumably reasonable people can agree that these repairs will have to be made at some point. If the government spends on infrastructure when growth is strong, they really will crowd out private investment. It’s better to do it now, when borrowing costs are shockingly low and the spending won’t drive up interest rates. We should be trying to get as much building done as we can during this window, because waiting will make it more expensive for taxpayers and more costly to the private sector.
Yet another amateurish post that reveals a total lack of financial acumen.
One more time – unless you're paying down that debt (which does not happen with government issues, they are bullet maturities), it's a boat anchor.
What happens in 5 years when the debt matures? It gets rolled over. And taxpayers get rolled over like a drunk in NYC getting rolled in an alley.
It's posts like this that make my point about kids out of college not being worth much.
I have no doubt this makes perfect sense to you, but it simply doesn't work over time. You need real world experience and training to understand it, and you don't get that with a liberal arts degree and policy classes.
And until you advocate against Davis Bacon for federal contracts, you will continue to side with labor management and against the working men and women of this country.
Jeez Jon, you see what John Liu is doing in NYC with prevailing wage, he's increasing unemployment single-handedly with that crap. What is so hard to comprehend there.
I'm sure there are trade-offs to any borrowing, but it's still obviously worth doing. I don't see how you can dispute that spending on infrastructure now – when unemployment is high and borrowing costs are low – is a better than later – when borrowing costs are high and unemployment is low. The longer we wait, the more we're crowding out private investment.
You're missing the point, which I've made a few times – the first stimulus should have been one thing: roads and bridges, with Davis Bacon waived and the environmental reviews streamlined or eliminated.
No high speed rail or other crap.
Just roads and bridges.
But neither party in Washington was capable of making a rational decision in the National interest. They are only capable of self-preservation.