America’s Superpower Panic: Project Syndicate

Talking points for [Squawk Box: Business, Politics, Investors and Traders: 7:45 AM EDT 2019-08-24

FRED Graph FRED St Louis Fed

Note to Self: Talking points for Squawk Box: Business, Politics, Investors and Traders, 7:45 AM EDT 2019-08-24:

  • Deficits matter. How they matter depends on:

    • Is unemployment high or low?
    • Are interest rates low or high?
    • Is the debt sold to finance the deficit a solid asset or a shaky one?
    • Are you worried because the debt service is large, the deficit is large, or the debt is large?
  • At the moment the unemployment rate is low, so there is no reason to run a deficit:

    • A competent government would be running a surplus, to increase the fiscal space available to run a deficit when one becomes desirable.
      • But we have not had an even half-competent government since January 21, 2017
      • I would argue Mitch McConnell, John Boehner, and Paul Ryan's political strategies have kept us from having a more than half-competent one since January 21, 2011.
  • At the moment interest rates are very low, and the debt we sell is regarded by everyone as a very safe asset:

    • Thus running a deficit—even a very large deficit—is not an immediate problem.
    • Remember: economists look at quantities and prices:
      • We have an immediate problem when the quantity of the deficit to be financed is high and the price at which the bonds to finance it are sold is low,.
      • That is not us, now.
  • At the moment, debt service is low:

    • If we were a private borrower, standard financial planners and advisors would say that we were in quite good shape.
    • They would recommend that we carry a greater proportion of our debt long-term to lock in the extremely advantageous interest rates at which we can borrow.
    • But they would not advise us to strain muscles to reduce our debt load.
      • There are subtleties with respect to a national debt that make things more complicated than a private household's accounts.
      • But the main message is: other problems are much more serious, and scarce energy should be spent dealing with more urgent problems.

#finance #fiscalpolicy #macro #notetoself #talkingpoints #2019-08-14