Lawrence Summers recently wrote a good op-ed, explaining that now is a perfect time to borrow more money. He was obviously right: the economy needs investment, interest rates are ridiculously low, and we have infrastructure needs that desperately require attention.
What’s more, we’re in luck. Ezra Klein reminds us today that the world “desperately wants to loan us money.”
The Financial Times reports that there was record demand for 10-year Treasurys this week. “The $21 [billion] sale of 10-year paper sold at a yield of 1.459 per cent, the lowest ever in an auction.” William O’Donnell, a strategist at RBS Securities, told the FT that “we were expecting good auction results but this one has left me speechless.”
Remember: Low yields means we’re getting the money for a cheap. It means the market thinks we’re a safe bet. And it means we have the opportunity to get capital for almost nothing and invest it productively.
Actually, I got something wrong there. I said “almost nothing.” But that 1.459 percent doesn’t account for inflation. And so when you do account for inflation, it’s not “almost nothing.” It’s “less than nothing.”
He included the above chart showing the bond yields after adjusting inflation. Notice all those little minus signs? That means the yields are negative — investors will “literally pay us a small premium to take their money and keep it safe for them for five, seven or 10 years.”
And why is that important? Because when I say “there’s never been a better time to borrow,” I mean that quite literally. Our infrastructure needs won’t simply go away in time; on the contrary, the investments will become more necessary and more costly in time. The difference is, if we borrow the money and make the investments now, we’ll not only get the short-term economic benefits, we’ll also save money in the long run because these negative rates won’t last.
This is an extraordinary opportunity to borrow and rebuild our country, hire laid-off workers, buy new equipment, apply the money to targeted tax cuts, you name it.
But we can’t do this because Republican policymakers, burdened by economic illiteracy, won’t let us. Indeed, they see the very idea of taking advantage of this unique opportunity as outrageous and offensive. This is why we can’t have nice things. Update: Kevin Drum added, “It’s worth noting that this money isn’t literally free. We still have to pay it back eventually. But we’d have to pay back less than we loaned in the first place. So we could borrow a billion dollars to build a water filtration system, get the use of that system for ten years, and then pay back $900 million. It’s an incredible bargain. This logic applies to pretty much any project we think we’re going to need eventually. If we’ll need it someday, the best time to build it is now, when the rest of the world will help finance it for us.” Republicans find all of this ridiculous. Why? I haven’t the foggiest idea.
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