debt and bonds

Max Sawicky sawicky at
Fri Aug 25 13:35:39 PDT 2000

"... As the debt is paid down, the interest rates are dropping. The more they drop, the less is required in the Federal Budget to service the remaining debt. That leads to still bigger surpluses, leading to still more aggressive debt repayment. The whole process can accelerate rapidly. This seems dandy. Is there any downside to this process?"


yes. The evisceration of the public sector, since the debt pay-down priority trumps everything else. Also the exposure of the Soc Sec Trust Fund to privatization schemes. Also fiscal destabilization when the economy slows down.

In a sense, debt pay-down is privatization too. The Gov takes its savings and plows them into the private capital markets. In the Bush variation, the same thing occurs, but through the filter of individualized accounts. The capital markets get the dough either way. Bush is really humping for the people who would benefit from fees, loads, and the like from the accounts. Against this relatively narrow interest is the deeper one of debt repayment. Gore has the advantage because the 'deep' motive is better served by someone not promising as much in tax cuts.

In the Clinton variation, at some point after a dozen years when debt is repaid, the surplus would be used by the Gov to buy private sector financial assets. That would be the opposite of privatization, but we're not there yet.


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