Economics Thread
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acesfull86
Well-known member
https://reason.com/2022/09/20/expected-interest-rate-hike-will-add-2-trillion-to-the-deficit/
Traditionally, during good times like the country enjoyed in the last decade—solid if not spectacular economic growth, relative peace, and historically low interest rates that made it easy for consumers and governments to borrow—policy makers would look to reduce spending and pay off debt. But those low interest rates created a new temptation. Maybe the government should just keep borrowing even when times are good?
"Sorry, deficit hawks: low interest rates are here to stay," Alan Cole, a former senior economist with Congress' Joint Economic Committee, titled a post on his Full Stack Economics blog in August 2021. "Countries, especially those that issue their own currency, can take advantage of low yields and borrow much more money at much lower rates than ever before," he wrote, noting that low interest rates had persisted throughout the 2008 economic collapse and the first year-plus of the pandemic. "This is our new normal," he argued, and market forces that might cause interest rates to return to levels seen in the 1990s were not likely "at least not in the next few decades."
Cole was hardly alone. Larry Summers and Jason Furman, top economic advisors to the Obama administration, published a paper in 2020 arguing that deficit concerns had hamstrung the federal government's ability to accomplish big things. As long as the cost of serving the federal debt remains below 2 percent, they argued, policy makers should not be restrained by the "traditional ideas of a cyclically balanced budget"—the idea that borrowing should rise in bad times and subside in good. Jared Bernstein, then a senior fellow at the progressive Center on Budget and Policy Priorities and now a member of President Joe Biden's White House Council of Economic Advisers, went a step further. In an October 2020 op-ed for The Washington Post, Bernstein argued that the "new dynamics" of debt opened not only economic opportunities but political ones. Democrats should embrace borrowing as a way to deliver for their constituents, Bernstein wrote, and disregard the politically motivated worries of the budget hawks.
This perspective wasn't limited to only liberals either. Larry Kudlow, a longtime conservative commentator and economic adviser to the Trump administration, dismissed Republicans' deficit-inflating policies in 2019 by calling the national debt "quite manageable" and "not a huge problem at all" during an interview with C-SPAN.
It's not quite fair to say that this emerging consensus believed the bill for heavy borrowing would never come due. More accurately, the argument was that the bill would always be reasonably affordable thanks to persistently low interest rates and that not spending the money would leave people worse off, so the added cost of borrowing would be worth it in the end.
That's an argument that might need to be reconsidered.
On Wednesday, the Federal Reserve is reportedly expected to raise interest rates by 0.75 percent for the third time since June as the central bank continues to try to bring inflation under control. When the Fed hiked rates by 0.75 percent in June, Chairman Jerome Powell described that as "an unusually large" bump. It has become worryingly routine.
Tomorrow's rate hike will add an estimated $2.1 trillion to the federal deficit over the next two years, according to an analysis from the Committee for a Responsible Federal Budget (CRFB), a nonprofit that advocates for lower deficits. That's $2 trillion that goes on the tab to be repaid even though no one ever benefitted from it. It helped to build no bridges, feed no hungry people, or make any business more profitable.
Traditionally, during good times like the country enjoyed in the last decade—solid if not spectacular economic growth, relative peace, and historically low interest rates that made it easy for consumers and governments to borrow—policy makers would look to reduce spending and pay off debt. But those low interest rates created a new temptation. Maybe the government should just keep borrowing even when times are good?
"Sorry, deficit hawks: low interest rates are here to stay," Alan Cole, a former senior economist with Congress' Joint Economic Committee, titled a post on his Full Stack Economics blog in August 2021. "Countries, especially those that issue their own currency, can take advantage of low yields and borrow much more money at much lower rates than ever before," he wrote, noting that low interest rates had persisted throughout the 2008 economic collapse and the first year-plus of the pandemic. "This is our new normal," he argued, and market forces that might cause interest rates to return to levels seen in the 1990s were not likely "at least not in the next few decades."
Cole was hardly alone. Larry Summers and Jason Furman, top economic advisors to the Obama administration, published a paper in 2020 arguing that deficit concerns had hamstrung the federal government's ability to accomplish big things. As long as the cost of serving the federal debt remains below 2 percent, they argued, policy makers should not be restrained by the "traditional ideas of a cyclically balanced budget"—the idea that borrowing should rise in bad times and subside in good. Jared Bernstein, then a senior fellow at the progressive Center on Budget and Policy Priorities and now a member of President Joe Biden's White House Council of Economic Advisers, went a step further. In an October 2020 op-ed for The Washington Post, Bernstein argued that the "new dynamics" of debt opened not only economic opportunities but political ones. Democrats should embrace borrowing as a way to deliver for their constituents, Bernstein wrote, and disregard the politically motivated worries of the budget hawks.
This perspective wasn't limited to only liberals either. Larry Kudlow, a longtime conservative commentator and economic adviser to the Trump administration, dismissed Republicans' deficit-inflating policies in 2019 by calling the national debt "quite manageable" and "not a huge problem at all" during an interview with C-SPAN.
It's not quite fair to say that this emerging consensus believed the bill for heavy borrowing would never come due. More accurately, the argument was that the bill would always be reasonably affordable thanks to persistently low interest rates and that not spending the money would leave people worse off, so the added cost of borrowing would be worth it in the end.
That's an argument that might need to be reconsidered.
On Wednesday, the Federal Reserve is reportedly expected to raise interest rates by 0.75 percent for the third time since June as the central bank continues to try to bring inflation under control. When the Fed hiked rates by 0.75 percent in June, Chairman Jerome Powell described that as "an unusually large" bump. It has become worryingly routine.
Tomorrow's rate hike will add an estimated $2.1 trillion to the federal deficit over the next two years, according to an analysis from the Committee for a Responsible Federal Budget (CRFB), a nonprofit that advocates for lower deficits. That's $2 trillion that goes on the tab to be repaid even though no one ever benefitted from it. It helped to build no bridges, feed no hungry people, or make any business more profitable.
Tapate50
Well-known member
No one really cares. They care about intersectionality points and virtue signaling most of all.
It’s sad people can be this shortsighted.
acesfull86
Well-known member
Probably deserves just a little more attention than the Trump circus act du jour, but I guess it’s not as sexy.
sturg33
I
We don't hear much from the MMT crowd these days
sturg33
I
My guess is you don't even know what MMT is but you support it
I didn't listen to Rush.
I did vote for Trump
Any questions?
acesfull86
Well-known member
I’d actually like a linked source that Rush Limbaugh invented the phrase “the…crowd”…
Has no relevance to this thread, but sort of interesting if true.
“The in crowd” goes back at least as far as the 1960’s, for whatever that’s worth.
Has no relevance to this thread, but sort of interesting if true.
“The in crowd” goes back at least as far as the 1960’s, for whatever that’s worth.
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sturg33
I
I was assured this was only a problem dreamed up by MAGA.
'Smart' guys like Encheff are always wrong when they have to talk about the real world.
acesfull86
Well-known member
https://www.nbcnews.com/news/amp/rcna49856
WASHINGTON — President Joe Biden on Wednesday warned oil and gas companies against increasing prices for consumers as Hurricane Ian neared landfall along Florida’s southwest coast.
“Do not, let me repeat, do not use this as an excuse to raise gasoline prices or gouge the American people,” Biden said at the start of a conference on hunger in America.
Biden said that the hurricane “provides no excuse for price increases at the pump” and if it happens, he will ask federal officials to determine “whether price gauging is going on.”
“America is watching. The industry should do the right thing,” Biden added.
——————
Don’t let supply and demand determine price. I’m sure that’ll go great.
WASHINGTON — President Joe Biden on Wednesday warned oil and gas companies against increasing prices for consumers as Hurricane Ian neared landfall along Florida’s southwest coast.
“Do not, let me repeat, do not use this as an excuse to raise gasoline prices or gouge the American people,” Biden said at the start of a conference on hunger in America.
Biden said that the hurricane “provides no excuse for price increases at the pump” and if it happens, he will ask federal officials to determine “whether price gauging is going on.”
“America is watching. The industry should do the right thing,” Biden added.
——————
Don’t let supply and demand determine price. I’m sure that’ll go great.