THE STASH NOVEMBER 23, 2009
Edmund Andrews has a helpful piece in today's New York Times about some of the challenges our mounting debt pile will create in the next several years. And there's no doubt those challenges are significant. But, if you simply weigh all the data points in the piece, it actually makes a strong case that issuing all that debt amid the financial crisis and the recession was exactly the right thing to do. To wit:
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.
The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent. ...
Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
Now obviously one implication of these observations is that we'd be really screwed if interest rates had been higher--and that we may yet be screwed, since rates will clearly rise in the future, and probably sooner rather than later. But the other implication is that we'd have been crazy not to run up all that debt while interest rates were low, since the economy was on the verge of collapse and we could borrow the money to fix it pretty cheaply. (Obviously, part of the reason interest rates were so low is that panicked investors were flocking to the relative safety of U.S. debt during the financial crisis.)
So I find it hard to get too exercised about the debt issue. And I certainly think people like Robert Bixby of the Concord Coalition, who's quoted in the piece comparing the U.S. government to a reckless home-buyer with a low teaser rate, are missing the point. It's not like we borrowed all that money because we felt like buying a bunch of stuff we didn't have the cash to pay for. We borrowed it because the alternative would have been an economic apocalypse, and we happened to get a great deal in the process. What's not to like?