An argument someone put forth on facebook, along with this article.
What’s the best way to counter this argument?
Where’s the argument? Is it in the article?
Yes, in the article. It basically states that there are no downsides to borrowing with interest rates being effectively negative, so therefore.. We should keep borrowing!
Take the notion to its limit: financial capital (i.e. digital money and loans) is no longer scarce at all. How does that per se change the underlying physical reality?
All that means is that, even though the interest rate is negative, that the United States is more indebted.
If I borrow 2 dollars from you with the understanding that I’ll pay back 2.1 dollars in a years time, but inflation outpaces this and by this time 2.1 dollars is equal to what was 2 dollars, this still means that I have to pay back two dollars. It doesn’t get rid of the debt, it just lessens it. This is especially important because the U.S government doesn’t actually gain anything monetarily from the transaction in the long term. It isn’t a loan that increases productivity so will guarantee us a profit of 2.2 dollars a year in current money, rather it’s just piling on the debt.
The best argument that can be made then is that if deficit spending must occur then it should occur now while interest rates are low rather than in the future when interest rates are too high.
Thanks, guys.
Sorry for the double post.
It’s ludicrous to support any debt increase at almost any interest rate, as the future debt burden is already set to be overwhelming. Amirite?
Did I help at all?
You did, indeed. Thanks.
Something else the ignoramus who penned the Slate article (I realize that’s kind of redundant) doesn’t seem to understand is that interest rates fluctuate…and they fluctuate just like any other price…based on supply and demand.
The more bonds the government sells the higher the interest rate has to go. Idiots have been saying this “we should be taking advantage of these low rates!” for years. The reason you can’t just put the government shortfall on a credit card at these rates is because if they start to do that the rates don’t stay there. (And then what happens when our current obligations come due? Most of our debt is short term loans anyway. Those loans will have to be reset at the higher rate as well…which means a further push on the cost of borrowing.) And this is all not to mention the crowding out of private sector (i.e. competitive borrowers, who would actually make productive use of all that capital)
Watch Peter Schiff try to explain this (almost 18 months ago) to James Galbraith (yes, the idiot son of famed ignoramous and Milton Friedman rival, John Kenneth Galbraith)…
That video was awesome. Galbraith is a troll, you can see it in his face.
The mocking tone…the fake laughing…the eyebrows. Oh god the eyebrows. And you have to love the part where he has no response so he just uses the opportunity to throw in “oh well we should tax them and regulate them”…as if that had anything to do with what they were debating, let alone as if it were a counterargument.