tag:blogger.com,1999:blog-4900303239154048192.post6974362165117080759..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Debt Alarmism in CaliforniaUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-4900303239154048192.post-64363797618347792302013-06-11T15:18:08.222-04:002013-06-11T15:18:08.222-04:00I'm a novice at this bond thing, but I'm p...I'm a novice at this bond thing, but I'm pretty cure that higher interest rates will only apply to newly issued debt. The current outstanding long term debt generated over the past several years at pathetic yields should lose a bundle of market value, Doesn't Dean Baker address this issue here? http://www.cepr.net/index.php/blogs/beat-the-press/reinhart-rogoff-one-more-time-why-the-90-percent-never-should-have-been-taken-seriously <br /><br />From that article:<br />"I have often pointed out that the value of long-term debt fluctuates with the interest rate. I didn't think this is a secret, but apparently few economists have followed what happens to bond prices when interest rates change. The point is that the value of our debt will plummet if interest rates rise, as the Congressional Budget Office and other forecasters expect. This means that we could buy back long-term debt issued today at interest rates of less than 2.0 percent for discounts of 30-40 percent. This would sharply reduce our debt-to-GDP ratio at zero cost."Jackhttps://www.blogger.com/profile/12971442888151627894noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-73949389810860054542013-06-11T11:49:03.205-04:002013-06-11T11:49:03.205-04:00Just to be clear, pgl, the "twin deficits&quo...Just to be clear, pgl, the "twin deficits" types see causation running from low net savings (of which fiscal deficits are a component) to high interest rates to high exchange rates to trade deficits. It is not primarily about differential growth rates. But the evidence for the transmission mechanisms is paltry, and no consideration is given to the opposite (Keynesian) causation from the trade balance to GDP to savings. That is what I argued in the article to which I linked, but in this context it's something of a tangent.Peter Dormanhttps://www.blogger.com/profile/00093399591393648071noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-63917154562410967912013-06-11T04:34:52.584-04:002013-06-11T04:34:52.584-04:00"I hear some say, and fiscal deficits cause c..."I hear some say, and fiscal deficits cause current account deficits". The current account deficit by definition is the difference between national savings and investment. OK if fiscal stimulus raises consumption relative to potential GDP and crowds out investment via higher real interest rates, then it lowers net exports. But in today's economy fiscal stimulus could raise GDP relative to potential without an increase in interest rates, which potentially could raise national savings by even more than that it raises investment. And yes it is true that higher GDP means more imports but there is nothing to rule out policies that would also raise exports. ProGrowthLiberalhttps://www.blogger.com/profile/17138489390594441753noreply@blogger.com