Economics

After the president, the chairman of the Federal Reserve is the most powerful office in the land. But so far, Janet Yellen, the heir-apparent nominee to chair the Fed, has been slow-pitched and not asked the kind of direct questions in Senate Banking Committee hearings that reveal whether she is the right person to lead the Fed in the most Read More ›

This article, published by American Spectator, talks about Discovery Institute Senior Fellow George Gilder and his book Knowledge and Power: At the beginning of Knowledge and Power, George Gilder recounts the story of Qualcomm, the San Diego-based semiconductor manufacturer and telecommunications firm, whose rise, he claims, was not just another of those fantastic Silicon Valley success stories. The rest of the article Read More ›

This article, published by Forbes, provides a review of Discovery Institute Senior Fellow George Gilder’s book Knowledge and Power: With Knowledge and Power George Gilder has produced a book that will profoundly and positively reshape economics. It will rank as one of the most influential works of our era, resetting the terms of the debate and changing how we judge the consequences of Read More ›

As we approach the end of another debt ceiling showdown, people need to keep their cool and remember that this is just one more sideshow in a “theater of the absurd” procession of impasses that include the S&P rating downgrade of U.S. debt, the fiscal cliff and the sequester rankling episodes. The media have played up every unfolding crisis, often Read More ›

As another debt ceiling showdown approaches in the midst of a government shutdown, people can cool their heels, knowing there will be no default. This is just one more sideshow in a “theater of the absurd” procession of impasses that include the S&P rating downgrade of U.S. debt, the fiscal cliff and the sequester rankling episodes. The media have played Read More ›

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