There's an aspect of sustained government deficit spending I haven't seen addressed yet.
Consider: U.S. government debt still carries a low interest rate. Still a low risk, yes, but quite a low return.
So: why would anyone be lending money to the government for so little return?
Aha! Well, looking at all the other options for investing large amounts of cash, not only are they generally quite a bit riskier, but most of them are currently showing even lower returns.
Now, if (for example) the stock market were actually headed up, and businesses were doing well, just how eager would anyone be to make negligible-interest loans to the government?
Seems to me that the parties responsible for selling government debt have an incentive to keep other investments unappealing. Just how much influence they have in that regard is another question... but having the incentive there strikes me as a very bad thing.
Comments