FYI: In 1995 the total debt of our government was an impressive $4.9 trillion. It has, of course, become much more impressive since. Gross government debt at the end of 2015 was nearly 4 times higher, $18.1 trillion.
But that’s not the truly magical part of the federal debt story. In 1995 the net interest cost of government debt was a whopping $232 billion. Twenty years later, even with debt nearly 4 times higher, the net interest cost was slightly lower, $223 billion.
Regards,
Ted
https://assetbuilder.com/knowledge-center/articles/the-incredible-cost-of-higher-interest-rates-(to-government)
Comments
PK yesterday:
Duncan Weldon has a good think-piece [above] on the peculiar circumstances that have brought negative interest rates to much of the advanced world. As he points out, it’s not just weak investment demand, with a strong whiff of secular stagnation; it’s also the choice of major economies to offer a response that
... has been increasingly reliant on monetary policy to accelerate it with fiscal policy acting as brake (or at best staying neutral). This (and most of this post) applies especially in the Europe and to a lesser extent in the US.
He then points to what he considers a puzzle: given that very low interest rates hurt affluent (but not super-rich) older people, who tend to wield outsized political clout, why does this policy mix persist?
I agree that it’s a very good question, but not, I think, all that puzzling.
First of all, Weldon is presuming that older voters understand something about macroeconomic policies and what they do. No doubt there are some such people; but we know from polling that the general public is always and everywhere afraid of budget deficits and addicted to the household analogy. Furthermore, my impression — from watching CNBC now and then, looking at popup ads on websites, overhearing conversations in barber shops, and other scientific methods — is that older people who do pay attention to economic debates are far more likely to say “Hyperinflation is coming! Ron Paul says so!” than they are to say, “I wish the government would increase the supply of safe assets.”
There’s also the role of Very Serious People, for whom deficit posturing is a signifier of identity, a posture that works in part because the public always thinks of deficits as a Bad Thing.
But beyond these cynical takes, it’s surely relevant that the two big advanced economies — the US and the eurozone — both have fiscal policy paralyzed by political gridlock, leaving the central banks as the only game in town.
So ... some rate rise would be a good thing --- constructive on several fronts.