Deficits and Interest rates

Saturday, September 17, 2005 | 10:17 AM

Go figure: Deficits matter:

" . . . [T]he nation's budget deficit is a cinch to go from merely staggering to positively stupendous. At the risk of being economically unchic, we own up to an anachronistic belief that deficits do matter. And that, further, their impact is destined to be felt with conceivably incalculable consequences by a financial system that's already dangerously stressed, as this one is, with huge shortfalls in our accounts at home and abroad and a savings rate that's hovering between zero and zip."

That quote was from Barron's Alan Abelson, who believes that not only do deficits matter (duh), but enormous deficits will make interests rates rise:

"Money to rebuild what Katrina destroyed will have to come from somewhere . . . which portends a huge surge of borrowing. That, in turn, means the supply of Treasuries will balloon, joining the heavy flow of bond sales from the portfolios of insurance companies rushing to raise cash to meet the torrent of claims in Katrina's wake. Which likely spells higher interest rates and all the bad things that may issue from them in an economy so lopsidedly dependent on a housing boom created and sustained by cheap money. A prospect, we might note, that has helped send gold, that indefatigable anticipator of woe, to its highest price since 1988."

Well, rates may be going up, but at least we know that ex-inflation, we have no inflation.

Hmmm, that gives me an idea:  We should start reporting the budget deficit, ex-revenue shortfall. Then interest rates (Ex- any rise) will stay low!

Hey, this economic planning thing may be easier than you first thought . . .


Source:
Big Repair Job
UP AND DOWN WALL STREET 
ALAN ABELSON
Barron's, MONDAY, SEPTEMBER 19, 2005      
http://online.barrons.com/article/SB112690872222043560.html

Saturday, September 17, 2005 | 10:17 AM | Permalink | Comments (9) | TrackBack (0)
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Comments

Barry, thanks for the link on your previous post to Jeff Matthews Blog - I like it! Too bad he doesn't post more often though.

I have to agree with you though that the government and the cheerleaders either deliberately understate or flatly ignore data that don't fit their rose-colored view.

What does the president mean, *we* can pay for rebuilding from Katrina without raising taxes? I think he wants my 2 yr old daughter to pay for it, and that pisses me off!

Posted by: Idaho_Spud | Sep 17, 2005 1:07:25 PM

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