I just checked the deficit for the United States Government... It's a staggering $14,111,896,286,170.38.
Um.... So what?
We all understand how personal debt affects us, and the current deficit is a damn big number. Fine. How does it affect the government? More specifically, how would reducing the annual budget deficit act to drive down unemployment while sparking economic growth?
Conventional thinking imagines a relatively fixed pot of money to borrow. So, when governments borrow money they inevitably find themselves competing against private industry for the same money. Such competition pushes private sector borrowers out of the market and stifles investment. That's fine in theory, so how does it apply to the real world? Is the budget deficit driving up interest rates? NO. Need evidence? Go to your local bank and buy a $100, one-year CD. Come back in a year and you might get a dollar for your prudence. Lock it away for five years and the U.S. Treasury will reward you with less than fifteen dollars.
The point is better made here, so I'll cut to the chase: the deficit hurts when it drives up interest rates. By that measure, today's numbingly low rates undercut any suggestion that the deficit is hurting U.S. growth or unemployment.
None of this implies we should maintain bloated, inefficient government programs ... but perhaps we can cease grounding our budgetary zeal on Dr. Quacker's Magikal Elixir of Deficit Reduction?
Um.... So what?
We all understand how personal debt affects us, and the current deficit is a damn big number. Fine. How does it affect the government? More specifically, how would reducing the annual budget deficit act to drive down unemployment while sparking economic growth?
Conventional thinking imagines a relatively fixed pot of money to borrow. So, when governments borrow money they inevitably find themselves competing against private industry for the same money. Such competition pushes private sector borrowers out of the market and stifles investment. That's fine in theory, so how does it apply to the real world? Is the budget deficit driving up interest rates? NO. Need evidence? Go to your local bank and buy a $100, one-year CD. Come back in a year and you might get a dollar for your prudence. Lock it away for five years and the U.S. Treasury will reward you with less than fifteen dollars.
The point is better made here, so I'll cut to the chase: the deficit hurts when it drives up interest rates. By that measure, today's numbingly low rates undercut any suggestion that the deficit is hurting U.S. growth or unemployment.
None of this implies we should maintain bloated, inefficient government programs ... but perhaps we can cease grounding our budgetary zeal on Dr. Quacker's Magikal Elixir of Deficit Reduction?
posted by Sam I Am | 2:31 PM
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