Now or Never?

Graph of 10-Year Treasury Constant Maturity Rate

Should the US be concerned about deficits and debt, or weak economic and employment numbers?

How about both? Believe it or not, our financial situation can be cleaned up efficiently over the next decade if dealt with optimally.

Regardless of what you think of the fundamentals of the US economy or the quality of its financial statements, borrowing rates for the US are quite low now historically as one can see in the above chart.

Accordingly, there is no reason to freak out about deficits today, as long as credible fiscal reform is made so that creditors can be confident in the value of their debt over the longer term.

But rates won’t stay low forever.  We need to take advantage of the low rates.  On one hand, I generally think it is optimal to have minimal debt regardless of interest cost.  However, the US is in the hole financially, so it has to consider ways to deal with the situation.

I know, I know, “How can he want to increase/maintain debt and potentially advocate for more government spending?”; “Does he really think the government has the human capital to make a spread on that low borrowing cost?” I’m not necessarily implying those sentiments, especially not in the way some folks might generally think.

I do think infrastructure issues need to be addressed, but that spending on deferred maintenance is not the main opportunity for fiscal reform.

I would prefer tax reform that leads to a more efficient tax system, though it would also serve as a fiscal stimulus in the short run because of the general lowering of rates in order to increase competition and fairness.

Moreover, by increasing cash in the system through tax cuts delivered to the entire populous recorded on the fiscal books, rather than continuing off-the-books, less-widespread Federal Reserve asset purchases as part of its quantitative easing (QE) program (see chart for size growth to currently over $3T in Fed assets), the cost of printing money will be more accurately reflected on the government’s financial statements, allowing for more informed decision making.

Graph of All Federal Reserve Banks - Total Assets, Eliminations from Consolidation

In addition, QE has often been attributed with helping the stock market.  Not everyone owns stocks.  Fiscal tax reform allows for fairer, more flexible, and more efficient stimulus in this situation.

The clock is ticking though.  As they say, bond markets (and, in this case, potentially currency markets) don’t ring a bell.  Time to get it done now.  I am confident we can and will.

4 thoughts on “Now or Never?

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