Inflation and deficits do not diminish the attractiveness of US bonds

Bernstein has stipulated that while debt financing has its place, the White House also believes it has firm limits in its program. “The ...


Bernstein has stipulated that while debt financing has its place, the White House also believes it has firm limits in its program. “The result of all of this is going to be a mix of incrementally increased revenues and investments in essential public goods with a high return financed by debt.”

What would have to happen for these low borrowing costs to rise significantly? There could be a crisis of confidence in Fed policy, a geopolitical crisis, or big hikes in key Fed rates in an attempt to kill inflation. In a more easily imagined situation, some believe that if inflation remains close to current levels in the second half of the year, bond buyers could lose patience and scale back their purchases until yields are more in line with the rise. prices.

The resulting higher debt interest payments would force budget cuts, said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget. Mr. Goldwein’s organization, which pushes for a balanced budget, valued that even with last year’s low rates, the federal government would spend more than $300 billion on interest payments — more than its individual spending on food stamps, housing, disability insurance, science, education, or technology.

Last month, Brian Riedl, senior fellow at the right-wing Manhattan Institute, published an article titled “How higher interest rates could push Washington toward a federal debt crisis.” It concludes that “debt is already expected to reach unsustainable levels even before new proposals are adopted”.

The offsetting global and demographic trends that have driven rates down, Reidl writes, are an “accidental, and perhaps temporary, subsidy to federal lawmakers who borrow heavily.” Assuming these trends continue, he said, it would be like becoming a self-satisfied football team that “managed to improve its overall win-loss record over several seasons – despite a rapidly deteriorating defense – ​because his offense continued to improve enough to barely outclass. his opponents. »

But at least one historical trend suggests that rates will remain subdued: an overall decline in real interest rates around the world dating back six centuries.

A 2020 paper published by the Bank of England and authored by Paul Schmelzing, a postdoctoral fellow at the Yale School of Management, found that as political and financial systems have globalized, innovated and matured, the flaws in payment among the safest borrowers – strong governments – have steadily declined. According to his article, one of the ramifications could be that “regardless of particular monetary and fiscal responses, real rates may soon enter permanent negative territory,” producing less than the rate of inflation.

Source Link

COMMENTS

Name

Africa,957,Americas,4374,Art & Culture,16176,Arts,6814,Arts & Design,1919,Asia,3599,Automobile,572,Baseball,837,Basketball,683,Books,4228,Business,5705,Celebrity,2633,Cricket,648,Crime,158,Cryptocurrency,2167,Dance,715,Defense,836,Diplomatic Relations,2496,Economy,1394,Editorial,260,Education,1515,Elections,308,Energy & Environment,3190,Entertainment,23696,Environment,3970,Europe,4557,Faith & Religion,235,Family & Life,817,Fashion & Style,3670,Finance,21883,Food & Drink,4144,Football,1311,Games,97,Gossip,10289,Health & Fitness,4495,Health Care,967,Hockey,272,Home & Garden,920,Humour,994,Latin America,49,Lifestyle,18576,Media,527,Middle East,1758,Movies,2053,Music,2979,Opinion,4079,Other,13210,Other Sports,5485,Political News,11324,Political Protests,2324,Politics,18863,Real Estate,2306,Relationship,106,Retail,3116,Science,2975,Science & Tech,11192,Soccer,382,Space & Cosmos,450,Sports,13592,Technology,3797,Tennis,729,Theater,1970,Transportation,313,Travel,2853,TV,4023,US,1565,US Sports,1481,Video News,3531,War & Conflict,1069,Weird News,998,World,18219,
ltr
item
Newsrust - US Top News: Inflation and deficits do not diminish the attractiveness of US bonds
Inflation and deficits do not diminish the attractiveness of US bonds
https://static01.nyt.com/images/2022/01/12/business/12bondyields/12bondyields-facebookJumbo.jpg%20
Newsrust - US Top News
https://www.newsrust.com/2022/01/inflation-and-deficits-do-not-diminish.html
https://www.newsrust.com/
https://www.newsrust.com/
https://www.newsrust.com/2022/01/inflation-and-deficits-do-not-diminish.html
true
732247599994189300
UTF-8
Loaded All Posts Not found any posts VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES POSTS View All RECOMMENDED FOR YOU LABEL ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy Table of Content