Posted on 09/07/2020 3:59:56 AM PDT by karpov
Last week, the U.S. passed a milestone — US federal debt in private hands exceeded 100% of GDP. But does all this debt matter, or is worrying about debt passé?
This debate has been going on among economists for a while. One does not need to go to the incoherence of "modern monetary theory" to find support for the view that debt has few consequences. Olivier Blanchard, of MIT and the IMF, in his Presidential Address to the American Economic Association, (excellent summary here) declared that “there may be no fiscal costs” of additional debt. The core of his argument is that the interest rate on government debt may be lower than the growth rate of the economy so the US can roll over debt forever.
Larry Summers, ex treasury secretary, President of Harvard, and adviser to presidents, surely the preeminent policy economist of our generation, has advocated that additional debt-financed spending may have so strong a multiplier as to pay for itself. (Paper here) As a result “expansionary fiscal policies may well reduce long-run debt-financing burdens," a super-Keynesian version of the Laffer curve
(I don’t mean to pick on Blanchard and Summers — they are only superbly distinguished representatives of widely held views.)
Unlike MMT, these are logically consistent possibilities. But are they right?
The interest rate on government debt is indeed slightly lower than good guesses of the economy’s growth rate, as sadly low as the latter is, so that if we roll over debt with no additional deficits, the debt to GDP ratio will slowly decline and the US can indeed run this slow-rolling Ponzi scheme.
But how long will this happy circumstance of ultra-low interest rates continue? More to the point, how scaleable is this opportunity?
(Excerpt) Read more at johnhcochrane.blogspot.com ...
Find yourself a country with low debt and move there.
I prefer the country that focuses on economic growth.
“Find yourself a country with low debt and move there.
I prefer the country that focuses on economic growth.”
Government spending that crowds out private investment is not good for economic growth.
Economic growth and investment are doing great when corrected for the China virus and the Federal Reserve inverting the yield curve (before the China virus).
The size of the National Debt will be a REAL problem for who ever wins the election. It will be all UPHILL, and not anything easy, to take candy away from spoiled brats. There are UNIVERSAL laws, that can’t be broken. What goes UP, must eventually down, no matter what they teach in the classrooom. If they tell you water boils at 290 degrees now, don’t believe them, or that it freezes at 12 degrees farenheit. Somethings NEVER change.
Of course the debt matters.
I’m reminded of that every month when the bills come due.
The last 6 trillion we received was practically zero interest, since we only pay interest wouldn’t this be a good deal for now at least?
If Dems get the whole enchilada, then forget that. We’ll be another 10 trillion in debt by 2024.
Abject ignorance! No body can borrow their way to prosperity. Not even the USA! If you can, then why is anyone or country poor?
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