NO – NOT THAT ONE
Yesterday I saluted Marco Rubio for standing with 21 other Senators — all men, all Republicans — in voting against the Violence Against Women Act. The reasons he gave were, to my ear, somewhere between weak and obscure. But there you are. A man who stands on principle. If only any of the Senate’s 21 female members had had the courage to stand up against the bill as he did.
Tomorrow, to give you the full weekend to deal with it, I will address the other V-Day.
BORROWING MORE NOW — REALLY?
My argument yesterday was that, with interest rates so low, we would be nuts not to borrow to put people to work modernizing our infrastructure and making the country more efficient and competitive.
Paul deLespinasse: “I think you are saying the expenditures will do a lot of good and the threat of future interest rate increases, while real, will not be greatly increased by the additional debt involved. I still do worry about what interest rate increases will do to federal finances, though.”
☞ Interest rate increases are indeed a worry. But the severity of future rate increases may be decreased by greater investment, because it may persuade lenders we will be a stronger credit. Which would you prefer to lend to: a country with $20 trillion in debt a few years from now, but that had failed to break out of its sluggish economy or deal with its crumbling, uncompetitive infrastructure? Or a country $22 trillion in debt that’s humming along making itself efficient, modern, and competitive (the process of doing which, as I argued yesterday, could very well SHRINK the deficit, as more people working means more tax revenue and less safety-net expenditure)?
Even if I’m wrong about this, don’t forget that when the Treasury issues 30-year bonds, the interest rate is fixed for 30 years. So at least on those bonds, and all the other Treasuries not soon coming due, rising interest rates would have no impact.
Ken Doran: “If interest rates later go up — a virtual certainty — inflation will move roughly in tandem, so in real terms the payoff on the bonds gets cheaper and the taxpayer benefits. Not a newsflash here; this is how public infrastructure and capital improvements have been handled forever; it is just that we now have a splendid opportunity — which Republicans are effectively vetoing Am I missing something here?”
☞ You are not. If we borrow at 3.2% for 30 years (say), it’s possible that inflation over the life of those bonds will exceed 3.2% a year . . . in which case, we will have been PAID to borrow the money. Come 2043, we may well have to refinance those bonds at higher rates. But by then $1 trillion borrowed today will be like $476 if inflation has been a steady 2.5% a year; or like $411 billion if its been a steady 3%. Throw in a bad patch — say, three years of 7% inflation somewhere between now and 2043 — and it shrinks considerably further still, to $367 billion. This is not, by the way, a good argument for you to buy long-term bonds these days. I’ve been warning against it. But it’s a good argument for our issuing them to modernize invest in the nation’s future, as the President proposes.
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Quote of the Day
Every debt is ultimately paid, if not by the debtor, then eventually by the creditor.~Jim Grant
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