Here in the United States, Republican lawmakers are busy blocking plans to spend money on jobs and infrastructure improvement, while both parties work in earnest to find ways of cutting $1.2 trillion or more from the budget over the next 10 years.
They’re doing this at a time when demand for America’s debt is so high that investors will essentially pay the U.S. to borrow.
You read that right. Here are the numbers. They may appear hard to parse, but it’s pretty straightforward: when you adjust for inflation, the interest creditors get for parking their money here is negative. That’s not a deal you’d accept from your bank, but it’s the deal we’re getting now.
So why are we letting bridges and roads deteriorate? Why aren’t we installing new high-speed rail lines everywhere it makes sense to install them? Why aren’t we paying people to do the things the vast majority of Americans support doing? Why, in other words, aren’t we going on a borrowing frenzy?
The biggest and most obvious reason is that our government is riven by ideology and politics. Republicans say they want smaller government, to cut government programs, and that means less spending — whether financed by debt or by raising taxes. They also have a strong political incentive against helping President Obama and the Democrats boost the economy.
Which is to say, we should be doing this, but we’re not.
But former White House economist Jared Bernstein — now at the liberal Center on Budget and Policy Priorities — notes it’s not quite as simple as just being given free money. Just because rates on five, seven, and 10 year Treasuries are negative (again, we make money by borrowing) doesn’t mean the government just floods the markets with them. Instead they issue a mix of maturities to shield the budget from future interest rate spikes in any one category.
That’s a long way of saying if Congress wanted to borrow $1 billion to build a bridge, it wouldn’t all be “free” money.
Second, when debt matures, we don’t just pay off the balance in cash or chickens or gold bullion. Instead, we roll it over — pay it off with new debt. And future interest rates aren’t likely to be as generous — or at least we should hope they’re not as generous.
“If we’re still looking at negative real interest rates in five years — which is not unimaginable at this point — then we’re looking at a lost decade and a half or so,” Bernstein says.
