Saturday, February 6, 2010

Phoney debt scams: You can't get much lower than 0% interest

I will never cease to be amazed at the people of the United States. And their lack of economic understanding. The calls to reduce the deficit are being led by some of same people who were big spenders under the Bush administration. I am starting to believe, quite sadly, that this country gets the representation it deserves. "No one ever got conned, who didn't want to be conned."

How can the group that spent $1 Trillion on two wars and $2.5 Billion on tax cuts have any sort of legitimate complaint about the budget deficit. To me, it is just an old recycled excuse to block any sort of spending, that they disagree with, by the national government. When they are in power, they can spend. When the opposition is in power, we must watch deficits.

I am also, amazed at the lack of understanding of basic economic principals such as: deficit increase during recessions(declining tax revenue and fixed commitment spending) or cutting spending during a recession will prolong the downturn.

Another, more basic economic principle called "crowding out" is rarely discussed. It is the level of national debt at which the US government starts to compete with private investors for loans(debt) thus raising interest rates. No one knows what level of National Debt (as measured by Debt-to-GDP) will start to affect interest rates. Many economists believe it is around the 90% - 100% ratio when there is some pressure on interest. But interest rates, which are near 0%, also affected by private demand which is lessened during a recession. In other words, the US national debt does not seem to be affecting interest rates. You can't get much lower than 0%.

Luckily Obama's pollsters have gotten out in front of this one. Obama has proposed some modest deficit reduction plans.

No comments:

Blog Archive