Sunday, November 29, 2009

Best Buy, Krugman and the Carry Trade

On ABC’s "This Week" show there were some interesting thoughts from Paul Krugman. He remarked:

“The cost of the deficit is only 1.2% real rate of interest at the Federal level.”

This is economic speak. What Mr. Krugman was saying is that the Government can borrow long term at 3.2% and inflation is 2% so the real cost of debt is only 1.2%.

In response, George Will made the point:

"In ten years the interest cost of servicing the debt will go to $700 billion per year!"

Mr. Krugman responded:

In ten years GDP will be $20 trillion, debt service would still be 3.5%. “That doesn’t sound too bad”.

Mr. Krugman believes in the ultimate carry trade. His view is that growth will come from affordable (cheap) debt capital. He thinks that the US can go to 100% Debt/GDP without upsetting the applecart. I think he is dead wrong.

(Click title at top for complete article)


scheng1 said...

I think he's is dead wrong too. The US government hardly spend money on investment. I dont see how spending money on 2 wars can generate profits to pay off the debt.

Anonymous said...

Stephen Pierce is offering his book "Make Real Money on the Internet" absolutely free! Get your copy now..

U.S. National Debt Clock