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June 14, 2012

Calls For Government to Borrow More Simply Insane

Last week, Larry Summers called on the federal government to "term out" its debt by borrowing for as much of its spending obligations over the next three or four years because "the government is going to have to borrow it sooner or later" and interest are at insanely all time lows. I had to stop and think when I heard this. Does Larry Summers think that when the government issues debt, it's at a fixed rate? Could this be? I did a quick check on interest expenses and debt.

How could interest expenses drop with twice the debt?  It's because when interest rates dropped the interest on all of the country's debt dropped.  So yes, it would be smart to borrow a little more money IF the low interest rates are fixed, but they are not.  The only thing worse than having $16 trillion in debt when interest shoot up is having $22 trillion when the same thing happens.


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