CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press NPR Tells Listeners That the Debt Is a "Huge Problem"

NPR Tells Listeners That the Debt Is a "Huge Problem"

Print
Friday, 07 February 2014 05:26

It's really great that we have National Public Radio. With the interest burden of the debt near a post-war low, and interest rates still at historically low levels, many of us might think that we could focus on other problems. (Netting out interest refunded by the Fed, interest payments are well below 1.0 percent of GDP.) After all, we have an economy that is still down close to 8 million jobs from trend levels, with long-term unemployment rates near post-World War II highs. As a result, millions of children are being raised by parents who lack the means to properly care for them. And of course we are wrecking the planet with greenhouse gas emissions.

Yes, many of us might be thinking about issues along these lines, but thankfully we have NPR to tell us:

"the national debt — how much the country owes from accumulating deficits from year to year — is still a huge problem. At 74 percent of GDP, it's the highest since 1950, and it's projected to grow."

And how do we know this is a huge problem? Well, we heard it from Maya MacGuineas, president of the Committee for a Responsible Federal Budget. (The transcript tells us that MacGuineas "heads the campaign to fix the debt." It should read "Campaign to Fix the Debt." This is an organization of corporate CEOs who decided that the debt needs fixing. Fixing the debt is not some objective need that is universally recognized, as this description might imply.)

MacGuineas complains:

""Because we've been so irresponsible for years, our hands are kind of tied as a country."

Remember, the complaint about irresponsibility here is in reference to the deficit, not the housing bubble. According to the latest estimates from the Congressional Budget Office the collapse of the bubble will cost us more than $24 trillion ($80,000 per person) through the end of its budget horizon in 2024. NPR didn't really have time to tell us about the housing bubble back in the days when it could have been pricked before its collapse would have been so dangerous. Instead it was telling us about how the deficit was a huge problem. 

The theme that we can't address problems of mobility and growth because of the debt is absurd on its face. The markets are telling us that we can borrow money at near zero real interest rates to fund whatever needs we perceive. If we can actually boost growth and increase mobility with such spending then it is our fear of deficits and debt -- the opposite of the claims in this piece -- that is the problem, not the debt.

Comments (23)Add Comment
Dr,
written by Caroline Poplin, February 07, 2014 8:01
The story was by Mara Liasson. She is the most right-leaning of NPR's reporters, I am sure the Republicans' favorite. She occasionally appears as the 'liberal' representative on the Fox Sunday talk show. So her story was disappointing, but not surprising.
npr is corrupt
written by DJB, February 07, 2014 8:01

case in point

whyy in philadelphia branch of national public radio, also tv

ceo's pay

"Bill Marrazzo’s salary— $415,993 in fiscal 2007, plus $324,097 in benefits and expenses, a grand total of $740,090 for running a not-for-profit operation"

when it was exposed that his base salary was much more than 500,000 he made sure his base salary was reduced to under 500,000 but his total remained about the same, just called benefits and expenses

i am sure his healthcare did not cost 230 thousand

he is still there, i am sure his salary has crept back up

and he is also on boards of directors for things like private water companies,

private water companies??

npr was started to balance out corporate media, but it has become corporate media and totally corrupt
For the love of pete!!!!, Low-rated comment [Show]
...
written by Last Mover, February 07, 2014 8:53

Most have no idea of the significance of the low net interest rate on government debt at below one percent.

They are fixated instead on the principal as the "huge" problem.

If the interest rate was zero or even negative as it actually has been in the recent past, that means the principal can be turned over indefinitely to refinance itself by selling more bonds to pay off current bonds for which (only) principal is due.

That's the real news missed by NPR since 2008.
...
written by TK421, February 07, 2014 9:33
Too bad the government can't create more money.
More logical fallacies please!!
written by Chuck, February 07, 2014 9:52
To recognize the debt is a huge problem does not imply that it is the only issue that must be faced by the government to fix. There is not a precondition to increase employment or address greenhouse gases we MUST increase the debt. Should we not be asking for better results and action now with regards to this area considering the deficit is already almost 1/3 of the federal budget?

David Cameron, the Conservative PM for the UK has initiated policies that decreased the deficits and helped increase manufacturing which leads to more jobs and increased growth.

Also, it seems unwise to suggest that because we have low interest payments now, that we should not worry about the debt until otherwise. Because apperently, we should only address the debt when interest payments are high and it is a more difficult problem to fix.
zero interest
written by Squeezed Turnip, February 07, 2014 10:22
Auburn, the markets are buying bonds at nearly zero. How the rate got to zero is not really the point here (but bonds are auctioned, so it is the buyers that set the repayment rate). The Fed sets the overnight borrowing rate for reserve banks (and QE 3 puts downward pressure on treasuries). Methinks you're conflating things. Sst to do, the banking system and money markets are complex.
update your framework
written by joe, February 07, 2014 11:34
The "national debt" in no way represents anything that needs to be paid back. All US dollars come from the US govt/Fed(functionally part of the govt). The only way for the non-govt to accumulate NET savings in USD is for the govt to run a deficit. If your account goes up $1, someone else's account goes down $1. For every dollar the federal govt spends, some account in the non-federal-govt goes up. For currency users (households, businesses, state govts, foreigners etc.) to be "fiscally responsible" and earn more than they spend, the federal govt MUST spend an equal amount, to the penny, more than it takes in. Why isn't this obvious to everybody?

Dean, you're still working in the incorrect framework that the rest of the media is working in by talking about what the market says we can "borrow" at. First, the fed controls rates, full stop. And second, it doesn't represent a borrowing operation. Why would the govt borrow something that only it can create, and in unlimited quantities? Debt issuance is a monetary tool, not a fiscal one. Now I know you understand the accounting of it, so why continue justifying yourself in the wrong framework?
Oopsie
written by Marriner's Ghost, February 07, 2014 1:54
Dean, we love you....but please stop with the monetarist schtick about "markets setting rates". This isn't true of money sovereigns. A quick glance at Marriner Eccles' testimony from the 1940s reveals that this hasn't been true since 1933:

“Interest rates on government securities have been and will continue to be determined by the Open Market Committee …it is unrealistic to presume, that if Congress votes for expenditures but does not vote for sufficient taxes to cover the expenditures, the money market should erect barriers to discourage the practice”

from:https://fraser.stlouisfed.org/docs/historical/eccles/eccles_19470324.pdf

It's our own damn currency, only we get to decide what interest rate to pay on it (if at all)
Maya Mac Rises Again
written by Bart, February 07, 2014 5:46

Her ability to keep plugging away after being sent back to the woodwork is a testament to her networking ability with folks like Mara Liasson.
Market setting rates?
written by Squeezed Turnip, February 07, 2014 11:20
Huh, I guess Marriner's Ghost never heard of the 1951 accord between the Fed and the Treasury.

And, what, who is this crowd of people who seem to be claiming that the FOMC sets medium- or long-term rates on securities sold at auction? Influencing is different than setting. There is a very deep misunderstanding of money and how it works being espoused above. It can't be corrected in a blog post.

QE3 is really the first time since the 1940's you see the Fed making any effort to set treasury security rates of return (and for good reason). But that's the FOMC intervening in the money market, then, under extraordinary circumstances. Historically, you have the FOMC only setting the overnight rate and pushing on that end of Keynes' "string". But then they found out they had to reach out further on the string to get any push, hence QE3.
Dear blind turnip
written by Auburn Parks, February 08, 2014 7:15
Maybe you didn't notice that you just confirmed what we have been saying. The 1951 accord you reference is evidence that the Fed aka the Govt is ultimately responsible for its own interest rates. We are not at the mercy of the markets. There could never be a scenario where we become Greece looking for bailouts because our interest rates are too high.

Any cursory look at the 30yr, 10yr, 5yr, and 1yr T-bond rates along with the FFR show clearly the correlation between the group.

Is it your position that our entire country, the most powerful nation on earth with the largest economy and military is beholden to and must rule under the thumb of the vagaries of "the market" (whatever that means) contrary to all historical evidence and logic?

If you believe silliness that then you must be a neo-classical economist.
market rates
written by Squeezed Turnip, February 08, 2014 3:25
No use using name calling, Auburn, that won't save your argument. The Fed sets the overnight rate, not short term not long term rates, which are set by players in the market. There is no shortage of buyers in the international market, either. Due to extraordinary circumstances, the Fed stepped into the market with QE 3, temporarily. Where and when does the Fed dictate the price of treasuries? That's right: nowhere and at no time. That's not neoclassical, that's reality, i.e. how things actually happen with real, actual people (not the Fed) being the driving force.
you're right, no name calling necessary. I'm not making an argument
written by Auburn Parks, February 08, 2014 5:57
I'm simply making a factual observation.

Here is my claim:
The US Govt has the ultimate authority over the interest rates it pays on its own liabilities.

Very simple. And its best demonstrated by the very link you provided as a supposed counter argument to my sky is blue statement. From the very first body paragraph in your link:

"In April 1942, after the entry of the United States into World War II, the
Fed publicly committed itself to maintaining an interest rate of 3/8 percent
on Treasury bills. In practice, it also established an upper limit to the term
structure of interest rates on government debt. The ceiling for long-term
government bonds was 2 1/2 percent. In summer 1947, the Fed raised the peg
on the Treasury bill rate."

Thats awesome. I really appreciate the link. I will definitely be using it in the future, It lays out very clearly that at any time the Govt felt it necessary, we could set the interest rates at whatever we want.

This statement and observation is very different than making a claim about how the day to day price of T-bonds goes up and down. Expectations and inflation etc.

still ...
written by Squeezed Turnip, February 09, 2014 10:45
when the government sells a bond at highest bid it is letting the market set the rate. They could set a minimum bid, theoretically, but no one has to buy, and history shows that would distort the money markets. Anyway, that's the market rate dean is talking about.
1942 is not 2013
written by Squeezed Turnip, February 09, 2014 10:52
you really should read your banking history instead of just cherry picking a specific fact that suits your rhetorical needs
Feel free to erroneously believe that we are slaves to
written by Auburn Parks, February 09, 2014 3:44
bond viglantes. Thats just what right wingers falsely believe.

Btw, it takes some balls to say I need read up on my banking history when you don't understand the very basics of reserve banking.

"no one has to buy..." is the statement of someone who is ignorant about modern banking. In the aggregate, excess reserves can only be:

A) put into securities accounts to earn positive interest
or
B) left as reserves to earn 0%

There will always be buyers for T-bonds because there is no other place for the excess reserves caused by deficit spending to go. Banking 101
And another thing you overlook
written by Auburn Parks, February 09, 2014 3:49
There are no concrete rules that dictate the different length of securities the TSY issues. If we wanted to issue nothing but 3-month T-bills with ZIRP forever, there is absolutely nothing stopping us from doing that. The state of California does not get to dictate terms like that nor do any of the Eurozone nations for that matter. This is one of the main differences between being a currency user and a sovereign currency issuer. And thats econ 101.

None of this coincides with Dean's inaccurate comment and your mythological belief that "the market" sets our interest rates.
lol ...
written by Squeezed Turnip, February 09, 2014 11:14
yeah, i'm the one mythologizing about rates. lol. Like I said, it's not 1942: overnight reserves do earn interest these days (since 2011). Just another way for the Fed to manipulate the money market at level 0.

If we wanted to issue nothing but 3-month T-bills with ZIRP forever, there is absolutely nothing stopping us from doing that.

Again, we don't "issue 3-month T-bills at an interest rate." They are auctioned and the selling price determines the yield. That's no myth. And an auction is a market. Can and does the Fed influence that yield? Of course, but usually not directly (QE3 is extraordinary, and overnight rates are indirect means). Even before QE3, the yields on treasuries had dropped, due to market demand (i.e. demand not from the Fed). And there's always a market for dealers at all levels (if a bank comes up short for its reserve balance of the day, it just borrows from someone with a surplus, for example). There's no reason to suppose zirp to hold forever. Once the renminbi becomes the international de facto currency and the dollar is abandoned, then there is absolutely every reason that we will not be able to do be able to issue 3-month zirp bills and expect anybody to send the banks/dealers to buy them.

Also, there is something else that keeps us from issuing solely 3-month Zirp bills: some people need 6 month bills and some people need 10 year bonds, etc. in order to fashion the deals allow them to manage the financial risk of their projects. So sure, in some modern monetary mythologies the US can issue whatever maturities it pleases. But not if it wants a functioning financial system. So concrete needs shape maturity terms as they are; even if they are not rules, they are practical needs.
the fed sets rates
written by joe, February 10, 2014 10:55
The IOR sets the lower bounds. The overnight rate would be 0% since the banks hold excess reserves so the IOR provides a floor. And yes, treasuries are auctioned off, but the supply is adjusted to control price. The Fed uses a variety of open market operations to manipulate rates. The "market" sets rates only insofar as the fed lets it. We're a sovereign nation with our own currency, we control our own rates. So IOR sets the lower bound and the upper bound can be set by the fed offering to buy whatever quantities of, let's say 30 year, notes that are for sale. This sets the lower bound on the price of these bonds, so the price can only go up from there, which means the interest rate can only go down from there, thus setting the maximum rate.

Squeezed Turnip is just flat wrong on basically everything. I mean, just where does he/she think US dollars come from? How would the taxpayer get the dollars to pay taxes if the govt hadn't issued them first? and since the govt creates it's own currency, why would it borrow it back? And how could the private sector net save in USD if the govt didn't run deficits?
with liberals like these, who needs conservatives?
written by Squeezed Turnip, February 10, 2014 6:37
The Treasury finances the deficit in the global market. So far the market has been willing to receive low rates, since the market-based credit system crumbled under their feet. The global demand puts upward pressure on the rate targeted by the Fed, generally.

The markets are telling us that we can borrow money at near zero real interest rates to fund whatever needs we perceive.

That's what Dean said, and it is wholly accurate. Meanwhile Auburn claims that this somehow is "monetarist schtick about "markets setting rates"," which is a plainly nonsensical inference. (He never said a thing about markets setting rates, he said they are buying treasuries at those rates). $6 trillion in foreign-held securities, about 1/3 of the debt, with 2.25 trillion temporarily held by the Fed, almost as much as Social Security holds. So the global market is definitely supporting the 0% target. But that won't happen forever.
treasury auctions
written by Squeezed Turnip, February 10, 2014 9:47
so here is the description of how the US Treasury auctions off securities. The Fed can buy at most 35% of the offering at any auction. This myth about the Fed determining the interest rate paid on the US debt is just nuts. It's not that simple, dudes. Look, just compare the volatility of the discount rate to the 3-month T-bill rate. One of those rates is market-driven. But don't listen to me, I'm just an idiot.
market driven
written by joe, February 11, 2014 10:12
only insofar far as the fed lets it be.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

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.

Archives