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Thread: run up deficits

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    run up deficits

    Please make the following clear for me.

    QE's(quantitive easing) focus on buying longer-term bonds means that mainly large companies end up getting cheap credit. ... the federal government also benefits from lower interest rates, which allow it to run up deficits at virtually no cost.

    As far as I know, running up deficits (increasing deficits) is generally considered something negative. But the writer says the government benefits from it. Is he being sarcastic here? Does he say so because the lower interest rates make the government borrow money cheaply and spend much more than it can earn?

    Thank you.

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    Re: run up deficits

    It's not sarcastic. The lower interest rates do indeed make gov't borrowing more easy. Which puts off any hard decisions about how to actually balance a budget.

    The gov't now is in the position where any rise in interest rates would be extremely costly in terms of how much interest they would have to pay on the debt. this would force them to cut spending or raise taxes greatly. Neither of which they are prepared to do. So the gov't is doing everything it can to discourage rates from rising.

    They also are trying to "stimulate" the economy by printing money (using the fancy term "quantitative easing"). By having low interest rates they want to discourage saving and encourage spending.

    Yes, the economic wisdom of the gov't is to "save" the economy by borrowing and printing money and getting people to spend as much of it as possible.

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