[lbo-talk] Toxic fiscalism

Tim Francis-Wright tim at francis-wright.com
Tue Feb 12 18:46:52 PST 2008


Max Sawicky wrote:
> If holders of debt are powerful, wouldn't they prefer their
> borrower -- the Gov -- borrow less? But then wouldn't that make
> them less powerful?

One reason is that government debt is a very useful yardstick for lenders, useful enough that there was a bit of gnashing of teeth when the Treasury stopped issuing new 30-year debt a while back. (Only a bit, because it was easy enough to interpolate the 30-year rate from existing 30-year issues and 40-year RTC-related debt.)

Another is that government debt is useful to the financial community in that it is readily traded and is a useful safe haven when everything else looks toxic.

A third is that when rates are low enough, it makes sense for the government to borrow money. Right now, the government needs to pay only 1.94% per year on its 2-year debt and 3.13% per year on its 7-year debt. That's pretty cheap, perhaps negative in real terms. Holders of debt often issue debt themselves for the same reasons.

--tim francis-wright



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