Government Debt

[Lon]

OK, so the following Points are from the Conservative Heritage Foundation, but can you dispute any of the points?


1 Debt can be a useful tool for government, businesses, and families, but too much debt can create serious economic difficulties, even threatening the enduring prosperity of a nation.
2 After remaining fairly steady for decades the ratio of government debt to economic output has soared under President Obama, and is projected to continue to rise under pressure from entitlement spending.
3 A heavy debt burden threatens an economy by pushing up market interest rates and diminishing investment in productive capacity.
4 U.S. interest rates remain low—almost certainly because of extraordinary events temporarily suspending the normal interest rate effect. When these events pass, interest rates will likely rise well above historic levels.
5 High debt ratios lead to slower economic growth. A higher real interest rate resulting from a high debt level translates into a significantly smaller stock of capital employed throughout the economy. This leads to slower wage growth and, thus, slower growth in the economy overall.

 

[oldman]

Numbers 3 & 4 are what I find troubling. Just a few weeks ago the Fed had an opportunity to raise rates, Instead, they chose to pass and keep rates the same. Most analyst said the same that if the Fed had raised rates even 25 basis points, it would have been a signal that the economy is beginning to pick up steam. However, because they chose to keep rates the same on that day, the market reacted by taking a tumble. The Fed will have another opportunity in the coming weeks to again raise rates. What will they do? I really have no idea, but another decision to hold the line on rates may cause an even more severe reaction on the markets.

 

[BobF]

Another item that was not mentioned is 'printing money'. QE is what it is officially called. Doing so was not started under Obama but has been escalated some recently.

QE, or Quantitative Easing will in the long run cause us plenty of problems. One problem mentioned is that once started it is impossible to just end it. Read from an article in Forbes, I think.

The entire article is here. But I will only copy a few lines for here.

https://en.wikipedia.org/wiki/Quantitative_easing

Quantitative easing (QE) is a type of monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective.[SUP][1][/SUP][SUP][2][/SUP][SUP][3][/SUP][SUP][4][/SUP] A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply.[SUP][5][/SUP][SUP][6][/SUP] This differs from the more usual policy of buying or selling short-term government bonds to keep interbank interest rates at a specified target value.[SUP][7][/SUP][SUP][8][/SUP][SUP][9][/SUP][SUP][10][/SUP]
Expansionary monetary policy to stimulate the economy typically involves the central bank buying short-term government bonds to lower short-term market interest rates.[SUP][11][/SUP][SUP][12][/SUP][SUP][13][/SUP][SUP][14][/SUP] However, when short-term interest rates reach or approach zero, this method can no longer work.[SUP][15][/SUP] In such circumstances monetary authorities may then use quantitative easing to further stimulate the economy by buying assets of longer maturity than short-term government bonds, thereby lowering longer-term interest rates further out on the yield curve.[SUP][16][/SUP][SUP][17][/SUP]