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Not Making Sense Of The Economy

The Republicans have scared the crap out of people for the past three years with their breast-beating about our national debt. We are mortgaging our children’s futures! We are drowning in debt! We are crippling our economy! We must balance the budget and cut our government to the bone. We must….

None of the above. It’s all crapola designed to get the Republicans in power and allow them to turn our country over to the multinational corporations and über-rich who have bought the party’s soul.

The fact is, we have been in much worse condition than this, much, much worse. National debt is not measured in dollars, but in a ratio to the nation’s gross domestic product. The greater a nation’s GDP, the more debt it can take on. About 75% of our national debt is external – money owed to the people or nations or banks who have purchased our treasury bonds. The rest is internal debt, money “owed” to Social Security and other programs. And 75% is approximately the debt to GDP ratio right now. After World War II, our debt was 125% of our GDP. We taxed, spent and grew our way out of it. We did not cut government to do it.

How is the best way to judge the severity of our debt crisis? By the demand for our treasury bonds.

American treasury bonds are the most coveted in the world. And right now, with interest rates so low, borrowing money is cheaper than it’s been since 1995. That by the way, low interest rates, was part of how the Clinton administration balanced the budget. Low interest rates reduce our payments, so they reduce our obligations.

And the buyers of our treasury bonds want us to float more of them. They like our bonds. Those bonds are good, solid investments.

But it gets even better. The Treasury Department tracks what it calls the “Daily Treasury Real Yield Curve Rates.” That is the actual rate, adjusted for inflation, at which the United States borrows money. The rate is now negative. We will not pay interest on the money we can borrow, the lender will be paying us to store their money. That’s really good news as we approach the next debt ceiling limit battle.

This is the time, the best possible time, for us to borrow money for infrastructure projects, to replace and repair roads and bridges, expand airports, remodel schools. It’s the best time to invest in a laptop for every child in our schools (the ones designed for third world schools would be good), and to invest in getting text books on-line and medical records. And this spending would spread out and improve our GDP, which would reduce the ratio of debt. This is the time to hire cops and firemen, not lay them off.

Take a fur’instance – imagine you have a $100,000 mortgage credit line, and there are foreclosed homes in your area going for $20,000 or less. These are good houses, houses you could clean up and rent. You could wait out the market and resell them for a hefty profit, even with the costs of maintaining them and managing them. Would you buy the five or six houses you could afford to buy? Could you see the investment in it. Would you buy them knowing that the interest rate on the money you borrow is minimal, 2% or 3%? If you had ten brain cells to rub together you would. It’s an outstanding investment opportunity. Under those circumstances, you could even offer the houses at affordable rental rates, which would be a really nice. Well, that’s the opportunity facing this nation. We can act now and improve our country, prepare ourselves for the 21^st century, or we could allow ourselves to be dragged down and destroyed by the people who don’t care what happens to us as long as they make a buck.

It’s our choice, and we can’t wait until next January to make it. This is the message the President should be delivering. This is the information that Democrats should be armed with and then sent onto Fox News and the rest of the media. This is what we should be fighting for.

 

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• U.S. government bonds win most demand for debt since 1995 (vancouversun.com)
• Bond choices in a low-yield Treasury world (business.financialpost.com)
• Letters: Austerity is not the only answer (guardian.co.uk)
• U.S. to hit debt limit in early January (business.financialpost.com)
• Treasury sells 30-year bonds at a record low yield (seattletimes.nwsource.com)
• History of U.S. Savings Bonds (turbotax.intuit.com)