Thinking Citizen Blog — “Stop Worrying and Learn to Love Debt”
Thinking Citizen Blog — Tuesday is Economics, Finance, and Business Day
Today’s topic — “Stop Worrying and Learn to Love Debt” (Paul Krugman, Nobel Prize Winner, NYT)
How much debt is too much? For an individual? a business? a government? What do you think? What were you taught at home as a child? In school — whether grade school, high school, college, graduate school ? What did you learn as an adult as a home owner, a credit card holder? Whose advice should you seek on the subject? Your banker? Your investment advisor? Your economics professor? Today, the summary of an article by Paul Krugman who seems to agree with President Trump on this subject. The sky’s the limit! Really? Is the devil in the details? If so, what are those details? Experts — please chime in. Correct, elaborate, elucidate.
CONCLUSION — Time to borrow!
1. “The biggest problem with the debt-scare politics we are all know is coming isn’t the hypocrisy or bad faith; it’s the fact that it’s wrong on the merits.”
2. “For given what we’ve learned and where we are, it’s clear that the US government should be investing in the nation’s future, and that it’s OK, indeed desirable, to borrow the money we need to make those investments.”
3. “That is, to act responsibly, we must stop worrying and learn to love debt.”
THE LESSON OF GREECE — don’t worry!
1. “It made some sense, nine or ten years ago to worry that the financial crisis in Greece was a harbinger of potential debt crises in other countries…”
2. “As it turned out, however, the full list of countries that ended up looking like Greece is …Greece.”
3. “What briefly seemed like a spread of Greek-style problems across southern Europe turned out to be a temporary investor panic, quickly ended by a promise from the European Central Bank that it would lend money to cash-short governments if necessary.”
NB “In other word, those dire warnings we used to hear (and will soon be hearing again) that America faces imminent disaster once government debt crosses some red line were always misguided. We weren’t and aren’t anywhere close to that kind of crisis and probably never will be.”
THE SECULAR DOWNSHIFT IN THE COST OF GOVERNMENT DEBT
1, “Interest rates are much lower than they were in the past, and all indications are that they’ll stay low for years to come.”
2. “The real rate on 10 year bonds averaged around 4% in the 1990s; it has been generally less than 1%, and sometimes negative for the past decade.”
3. “Why are interest rates so low? That a longish story, probably mainly involving demographics and technology. Basically, the private sector doesn’t seem to see many opportunities for productive investment, and savers who have no place else to go are willing to buy government debt even though it doesn’t pay much interest. The important point for current discussion is that government borrowing costs are now very low and likely to stay low for some time.”
NB: “On the eve of the pandemic, federal debt as a percentage of gross domestic product was twice its level in 2000. But federal interest payments as a percentage of G.D.P. were actually down.”
APPENDIX — A LITTLE BACKGROUND — see third, fourth, and fifth links below
Click here for the last three years of posts arranged by theme:
YOUR TURN — Please share:
a.) the coolest thing you learned this week related to business, economics, finance.
b.) the coolest thing you learned in your life related to business, economics, finance.
c.) anything at all related to business, economics, finance.
d.) anything at all