4 ms·

> The government is literally awash in cheap credit TODAY. However, do you really think that interest rates will remain low until that money is paid off?

by anamax 15y ago

knowtheory 15y ago
The Fed is betting that that will be the case with their announcement today that they will be keeping interest rates low. So, er, yes, sounds like that might be a reasonable assumption?
2arrs2ells 15y ago
Bonds/Notes/Bills issued by the Treasury have fixed rates - so yes, the interest rates will stay that low until the money is paid off. The point that others have brought up is that if the US Government borrows an incredibly large amount of money and pushes up the Debt/GDP ratio, future, additional borrowing will become more expensive. But if today's borrowing is used efficiently, it should drive up GDP and reduce some of the need for future borrowing.
- anamax 15y ago
  > Bonds/Notes/Bills issued by the Treasury have fixed rates - so yes, the interest rates will stay that low until the money is paid off. TIPS aren't fixed rate, but I don't know what fraction of new US debt is TIPS. More to the point, you're assuming that we won't have to roll-over that debt, which only happens if we're not running a deficit. Since we are for the forseeable future....
  - 2arrs2ells 15y ago
    I believe the "real" interest rate on TIPS is fixed - while the nominal rate fluctuates with CPI. Your second point is, of course, right on. But if we have to borrow $x, better to borrow it now at ~0% than later at (likely) >0% interest.
    - anamax 15y ago
      > I believe the "real" interest rate on TIPS is fixed - while the nominal rate fluctuates with CPI. According to that reasoning, interest rates almost never change because they're typically a given premium to inflation. We don't accept that reasoning because you repay what the note says, not the relationship between that number and some other number. > Your second point is, of course, right on. But if we have to borrow $x, better to borrow it now at ~0% than later at (likely) >0% interest. Umm, no. Borrowing now at 0% and rolling that over later to a new loan at 10% is not better than simply borrowing later at 10%. Yes, borrowing now is better if you do something useful now with the money, something that you'd delay by borrowing later. However, there's little evidence of that occurring. We're running up lots of debt on dumb spending. If you want to do some smart spending, take the money from dumb spending.
nhaehnle 15y ago
That is mostly a political decision. Remember that it is the Fed that controls the interest rates, especially for short-term lending. For long-term lending, as long as the Fed doesn't change its stance, the rates will only go up if the economy recovers. If the economy recovers, government won't have to borrow that much anymore. And if you were still unhappy about the interest payment of government, the government could just change the way its monetary policy is implemented and push down the yields of long-term bonds as well. After all, the government administrates the US$ monetary system. Operationally, they would just instruct the Fed to target long-term yields as well, and then the Fed would change them in the same way that it changes short-term yields (by doing open market operations).

> The government is literally awash in cheap credit TODAY. However, do you really think that interest rates will remain low until that money is paid off?

by anamax 15y ago

> The government is literally awash in cheap credit TODAY. However, do you really think that interest rates will remain low until that money is paid off?

knowtheory 15y ago

The Fed is betting that that will be the case with their announcement today that they will be keeping interest rates low. So, er, yes, sounds like that might be a reasonable assumption?

2arrs2ells 15y ago

Bonds/Notes/Bills issued by the Treasury have fixed rates - so yes, the interest rates will stay that low until the money is paid off. The point that others have brought up is that if the US Government borrows an incredibly large amount of money and pushes up the Debt/GDP ratio, future, additional borrowing will become more expensive. But if today's borrowing is used efficiently, it should drive up GDP and reduce some of the need for future borrowing.

anamax 15y ago
> Bonds/Notes/Bills issued by the Treasury have fixed rates - so yes, the interest rates will stay that low until the money is paid off. TIPS aren't fixed rate, but I don't know what fraction of new US debt is TIPS. More to the point, you're assuming that we won't have to roll-over that debt, which only happens if we're not running a deficit. Since we are for the forseeable future....
- 2arrs2ells 15y ago
  I believe the "real" interest rate on TIPS is fixed - while the nominal rate fluctuates with CPI. Your second point is, of course, right on. But if we have to borrow $x, better to borrow it now at ~0% than later at (likely) >0% interest.
  - anamax 15y ago
    > I believe the "real" interest rate on TIPS is fixed - while the nominal rate fluctuates with CPI. According to that reasoning, interest rates almost never change because they're typically a given premium to inflation. We don't accept that reasoning because you repay what the note says, not the relationship between that number and some other number. > Your second point is, of course, right on. But if we have to borrow $x, better to borrow it now at ~0% than later at (likely) >0% interest. Umm, no. Borrowing now at 0% and rolling that over later to a new loan at 10% is not better than simply borrowing later at 10%. Yes, borrowing now is better if you do something useful now with the money, something that you'd delay by borrowing later. However, there's little evidence of that occurring. We're running up lots of debt on dumb spending. If you want to do some smart spending, take the money from dumb spending.

nhaehnle 15y ago

That is mostly a political decision. Remember that it is the Fed that controls the interest rates, especially for short-term lending. For long-term lending, as long as the Fed doesn't change its stance, the rates will only go up if the economy recovers. If the economy recovers, government won't have to borrow that much anymore. And if you were still unhappy about the interest payment of government, the government could just change the way its monetary policy is implemented and push down the yields of long-term bonds as well. After all, the government administrates the US$ monetary system. Operationally, they would just instruct the Fed to target long-term yields as well, and then the Fed would change them in the same way that it changes short-term yields (by doing open market operations).