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View Diary: Krugman: Dwindling Deficit Disorder (135 comments)

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  •  Borrowing the money today (22+ / 0-)

    and paying it back when the interest rates go up means.....we will get a windfall.

    But people apparently are not capable of seeing the big picture. They think in finite terms as if the month's bills are paid and a chapter is ended. But economics is not like that, it cycles[v] within cycles[n] ad infinitum.

    •  don't know why this is so hard to grasp (27+ / 0-)

      almost everyone with a mortgage has refinanced at least once as mortgage rates have gone down.  We have three times in past few years, lowering our rate from just under 6% to just above 3%.  In the process we have rolled other debt into the mortgage, been able to skip a number of mortgage payments, etc., and as a result been able to do things like upgrade a bathroom (necessary for my spouse's safety with her back), and address some previously unmet needs around the house and dental issues for both of us.  That additional spending contributes to the economy as a whole, but would not have been possible absent the refi.  

      "We didn't set out to save the world; we set out to wonder how other people are doing and to reflect on how our actions affect other people's hearts." - Pema Chodron

      by teacherken on Mon Mar 11, 2013 at 05:05:38 AM PDT

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    •  Not entirely true (1+ / 0-)
      Recommended by:
      Sparhawk

      That would be true if the government was primarily financing its debt using 10-30 instruments, but in fact a lot of debt is financed for much shorter durations and thus does bear some interest rate risk.  

    •  But Conquest IS Like That nt (2+ / 0-)
      Recommended by:
      Words In Action, elwior

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Mon Mar 11, 2013 at 06:39:24 AM PDT

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    •  People like to think of economy as religion. (10+ / 0-)

      They set up dogma despite evidence and then, when their actions inflict severe pain and/or catastrophe, they blame their 'god', aka the market, in order to absolve themselves of their own wrong choices, leaving them free to perpetuate those wrong choices, ad infinitum.

      It's all cycles, not just economics. We're all about perpetuating cycles. Just the wrong ones. We're just a stupid species.

      I will not say do not weep, for not all tears are an evil.

      by ReverseThePolarity on Mon Mar 11, 2013 at 06:41:22 AM PDT

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    •  (Borrow today)It depends on bond duration (3+ / 0-)
      Recommended by:
      elwior, hrvatska, Meteor Blades

      Before pronouncing this as a good thing, one has to look at the composition of the debt in bond terms . If daily funding of the deficit is through short maturity bonds, they will have to be rolled over in the future. If interest rates rise , then the short term bonds have to be rolled over into higher interest rates.

      While short duration bonds have very low rates today imagine the debt at what used to be considered a great rate at 4-5% from the coupon rate.

      To understand the maximum effect , one has to imagine say 18t-20t at 4-5% Then you have 720B to 1T in debt service costs.

      In short there many calculations that have to go into the current debt level. The easiest way is to look at the annual interest rate costs. So far this year it's at 168 Billion for the first 5 Months.   In Fiscal 2012 $359,796,008,919.49 (Billion) in interest was paid (around 2.2%).

      It is interesting to note that this interest bill is less than the one in 2000 when interest rates started to normalize. The debt was 5.9 Trillion then (6%).  If Interest rates were to normalize , depending on the mix, we would see 1T in annual interest costs +/-200 B.

      That's a crap load of money that isn't getting spent on things that would necessarily stimulate the economy. One thing we do know is that debt service costs are pretty well bottomed here and have only one place to go and that's up as long as the recession is adding 1T in debt per year.

      To get the deficit to a normal level even by Krugman's analysis, we need increased income and that only comes through jobs. But there is one other issue that is seldom addressed unless someone like MB is dissecting the employment numbers. The quality of the jobs plus the pay levels cannot keep shrinking. Otherwise increases in employment will have little effect on revenue.

      Any other increase in revenue would have to come through congressional action and I believe that won't happen.

      Finally, looking at GDP, we have to start looking at the quality of the GDP number. For example, Health Care is  19-20% of GDP right now and rising by 100-400 Basis points per year. Govt spending, last I looked was 40% (total by all govt not just Fed) of the GDP.  Then we look at finance at 20% of GDP. Of course GDP figures don't show this unless you specifically search for it. It has a breakdown of where the money is spent. It makes it look better. Although the sector breakdown I've seen seems to exclude Health care completely.

      If Interest rates go up, finance will become a greater percent of GDP along with Health Care. I just don't see how that's going to do us much good. Especially if annual receipts are mired in the sub 20% range. Right now they are the lowest they have ever been.

      Finally, Krugman's thesis seems to be at odds with Keynesian economic theory which calls for surpluses (rainy Day funds) during good times and deficit spending during bad times. He seems to suggest a net add onto debt is good regardless  of good times or bad.

      •  That's a second reason to push infrastructure (2+ / 0-)
        Recommended by:
        elwior, Dburn

        The first reason is that we have a huge infrastructure investment deficit.

        As for the second reason, infrastructure bonds are typically long term bonds.

        Others have simply gotten old. I prefer to think I've been tempered by time.

        by Just Bob on Mon Mar 11, 2013 at 12:56:08 PM PDT

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    •  Makes no difference if the (1+ / 0-)
      Recommended by:
      elwior

      austerians onn the Right and in the Middle don't want to believe it.

      They want another round of sticking it to the 90% and they will get it, common sense, reality, justice, truth be damned.

      One of the major differences between Democrats and Republicans is that the former have the moral imagination to see the moral dimension of financial affairs, while the latter do not. Some pragmatists are exceptions.

      by Words In Action on Mon Mar 11, 2013 at 12:07:59 PM PDT

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