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Home Publications Blogs Beat the Press Michael Gerson Doesn't Have Access to Data on Interest Rates

Michael Gerson Doesn't Have Access to Data on Interest Rates

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Friday, 17 June 2011 06:59

That is what readers of his column will undoubtedly conclude when they see him say that if President Obama agrees to a deal with large reductions in spending:

"Credit markets would find it reassuring that the federal government is not completely paralyzed."

Those who have access to information about credit markets know that they are already very reassured as demonstrated by their willingness to hold U.S. government debt at extremely low interest rates. The interest rate on 10-year Treasury bonds has been hovering near 3.0 percent. It is unlikely that any deal on the budget will lower this significantly or that any further reduction in rates would have a noticeable impact on the economy.

Comments (3)Add Comment
Interest Rates are Too High Relative to Marginal Efficiency of Capital
written by Paul, June 17, 2011 9:34
"10-year Treasury bonds has been hovering near 3.0 percent. It is unlikely that any deal on the budget will lower this significantly or that any further reduction in rates would have a noticeable impact on the economy."

Keynes would have disagreed. Lowering interest rates is exactly what needs to be done to reduce them to less than the marginal efficiency of capital.

The Fed should definitely do QE3 to motivate banks to loan money to businesses instead of simply buying T-Bonds.
Quagmire
written by Jeff Z, June 17, 2011 2:50
Banks might willing to loan, but they also need to find willing borrowers. Who will that be?

Consumers? Whose real wages have not changed much since the 1970s despite massive productivity gains? Up to their ears in debt in an attempt to keep their standard of living in line with productivity. Who may also currently lack jobs, thus income? Not For a while!

Businesses? If the problem is a straight up lack of demand, this will not happen for a while either. Even if they expand, short run prospects are grim.

Fiscal stimulus financed by truly progressive taxation. NOW!
Keynes would also support truly progressive taxation
written by Paul, June 17, 2011 3:54
Income redistribution to improve the marginal propensity to consume would definitely be Keynesian.

But lowering interest rates below the marginal efficiency of capital would also increase investment, jobs and incomes. Further, interest rates can be changed right now without the Cons in Congress agreeing to anything.

BTW, consumers do have money to spend as they have demonstrated with iPad sales, Cash-4-Clunkers and auto sales in general.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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