StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Tea Party/GOP Are Wrong: Federal Government Should Be Borrowing More Right Now

29 Feb 2012
Posted by Stan Collender

Yesterday's The New York Times had a good story by Binyamin Appelbaum about how low interest rates are significantly driving down the government's borrowing costs.

Appelbaum said that, given the continuing very strong demand for U.S. debt, the Treasury is considering issuing securities with negative interest rates -- requiring buyers to pay for the privilege of safely parking their money -- and is assuming  it will get lots of takers. In fact, the story shows that some investors in Treasuries are already getting a negative return and, given the alternatives, are happy to have it.

Appelbaum's piece is factually correct and interesting but misses the real story. As Jesse Eisinger of ProPublica wrote about a months or so ago in The Times and I posted about here, there are three important budget implications of this situation.

First, as any business and many individuals would be doing in a similar very low interest rate environment, this is the time the federal government should be borrowing more rather than less, especially if the funds were used to pay for capital projects.

Second, it demonstrates that, to the extent possible, the government should be doing whatever it can to lock-in these low/negative interest rates by borrowing as much long- rather than short-term as it can. As some of those quoted in the story say, these rates eventually will increase and federal interest payments will rise when short-term debt rolls over.

Third, given the facts in the story, the real question is why government borrowing has been and continues to be such a political issue and why the tea partiers in the Republican Party continue to insist it's the tool of the devil.

The answer, and something that a pure business/financial reporter such as Appelbaum isn't likely to discuss, is that the whole issue of federal debt has nothing to do with facts. As I've stated many times before, government borrowing is an emotional issue for the tea partiers; the facts simply don't matter.

Because of this, no candidate for election or reelection is going to defend government borrowing or publicly conclude that financially it's the right thing to do in the current environment. By definition, emotional issues cannot be successfully responded to with facts and figures. Trying to do that makes you seem like you're part of the problem...even if there really is no problem.


Third, given the facts in the

Third, given the facts in the story, the real question is why government borrowing has been and continues to be such a political issue and why the tea partiers in the Republican Party continue to insist it's the tool of the devil.

The answer is very straightforward. It is the culmination of the so-called "Southern Strategy" for GOP dominance. The "tea partiers"--who are nothing more nor less than the same exact white racist, misogynist, homophobic, nativist, christianist base of the GOP that has served as such since the "Dixiecrats" left the Democratic Party over desegregation and the Civil Rights Act--are convinced that this borrowing is going to pay for benefits to "parasites" and "moochers": black and latino americans, jews, coastal elites, immigrants, muslims, homosexuals, democrats, and all the other non-white, non-christians they have been trained to despise for the last 40+ years.

Go read the Lee Atwater interview again, and the answer to your question is right there. "The national debt" is nothing more than the current version of the same old, same old code words: "forced busing", "states rights", "freedom", "liberty", etc. The "tea partiers" are neo-Confederates who long for the days when the power of white christian privilege was completely unquestioned and had no real challengers.

People Equate Federal Debt to their Own Debt

Even if I could borrow at a "teaser" rate of 2% today, I know that I will be paying much more later. If I borrow too much at the teaser rate, eventually I will go bankrupt.

The federal government cannot, of course, go bankrupt or be unable to pay its debts because it can always print money to do so, as Alan Greenspan explained.

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press

Since Americans have no actual knowledge about our economic system (thanks American teachers!), they do not understand how the federal government finances its debt.

Of course you're right

about both the wisdom of increased borrowing and that facts don't matter to Republicans. (I know you said "Tea Party," but you were being polite. These days they are one and the same.)

Not really

This would only be true if government intended to pay the money back. If government intends to roll the debt in perpetuity (the most likely outcome in my view), then the right way to think about borrowing would be at the average long term rate.

The existing short term rate is more or less irrelevant in terms of the cost of borrowing over the life of the loan (in this case forever)

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