Everyone used to think that huge budget deficits really matter and affect economic growth. But is it really true?
James Galbraith begins his essay in the current issue of Mother Jones:
ON MARCH 3, 2004, Senator Hillary Clinton issued a dire and now familiar warning about the deficit: ìIf we look down the road, whether it is next year or two years from now, I think it is absolutely clear that we will see private capital crowded out of the capital markets because of the increasing need to feed the government debt. We will see interest rates riseÖand we will be on a path to even further economic decline.ÖîOn the next day, the 20-year Treasury bond rate was 4.89 percent. A year later, in March 2005, the 20-year Treasury averagedÖ4.89 percent. This was despite the fact that Federal Reserve Chairman Alan Green- span had meanwhile raised overnight interest rates six times. Today, the 20-year bond remains more than a full point lower than it was when Clintonís husband was presidentñand the budget was in surplus.
We all thought that deficits matter, so how can this be? Read the essay to understand the historical precedents to our current deficit.
Permalink to post: http://www.cslproductions.org/money/talk/archives/000172.shtml
Receive an email whenever this MONEY blog is updated: Subscribe Here!
Tags:
home | music | democracy | earth | money | projects | about | contact
Site design by
Matthew Fries | ©
2003-23 Consilience Productions. All Rights Reserved.
Consilience Productions, Inc. is a 501(c)(3) non-profit organization.
All contributions are fully tax deductible.