Economics

Niall Ferguson correctly states that "The Shutdown Is a Sideshow—Debt Is the Threat" (op-ed, Oct. 5). Financial markets teach us that over time there is a reversion to the mean or average for interest rates. As the U.S. government debt clock strikes $17 trillion, the current financing cost of the $12.6 trillion portion of interest-bearing debt is about 1.98%, or $246 billion annually. The long-term average yield on two-year and five-year Treasurys is about 5.98% and 6.25% respectively. So a simple reversion to that average would more than triple U.S. debt service costs to $750 billion annually. Since Washington seems unable to cut spending in any significant way, the additional half-trillion-dollar debt-service costs from interest rate normalization likely would be financed by borrowing.

But when markets digest that the U.S. borrows not only to offset deficits but also to cover a large portion of its outstanding debt-service costs, there could be a rude awakening and a breach in confidence in the creditworthiness of the U.S. Such a crisis would likely cause federal debt-service costs to skyrocket well above historic norms—triggering a downward-spiraling liquidity crisis ending with the U.S. government unable to finance its obligations.

Scott S. Powell
Discovery Institute
Seattle

Just a generation after capitalism triumphed with the collapse of the Soviet socialist system, a recent Pew poll reports that 49 percent of Americans 18 to 29 years old have a positive view of socialism, while only 46 percent have positive views of capitalism. The ambivalence toward capitalism is due in part to the influence of the information and entertainment Read More ›

It’s the fifth anniversary of the financial crisis that sent panic through the markets and inspired historic federal interventions into the economy. Frequent readers of these pages understand government’s role in planting the seeds of the crisis. In 2008, about two-thirds of the risky home loans in the system were held by government entities or entities operating under government control. Read More ›

Author and philosopher Jay Richards says that well-meaning but vastly harmful government housing policies helped cause the financial crisis and now, five years later, the government is even more deeply involved in the housing market.

This article, published by U.S. News & World Report, discusses Discovery Institute Senior Fellow George Gilder: Gilder’s Reagan-era best-seller, “Wealth and Poverty,” was a path-breaking synthesis of supply-side economics and a devastating critique, based on personal reporting inside America’s ghettos, of the failure of liberal government. The rest of the article can be found here.

Washington’s role in the housing crisis still hasn’t hit home We’re nearing the fifth anniversary of the 2008 financial crisis boil-over, but Washington is still in denial about its role in the meltdown. The numbers, which weren’t well known in 2008, now tell the real story. As a result of Washington’s arduous efforts to expand homeownership for lower-income Americans, by Read More ›