Correspondence and Coherence blog

merjet · March 13

1 hour ago, Boydstun said:

David Brooks

From Brooks' article: "I’m worried about a world in which we spend borrowed money with abandon. The skeptical headline on the final preretirement column of the great Washington Post economics columnist Steven Pearlstein resonated with me: 'In Democrats’ progressive paradise, borrowing is free, spending pays for itself and interest rates never rise.'”

I guess that Brooks believes this is not limited to Democrats. Many Republicans -- Donald Trump for sure -- believe likewise even if what they regard as "progressive" differs.

This prompts some speculation about future interest rates on U.S. federal government securities. Traditionally U.S. federal government securities have been the primary source of collateral for financial derivatives (futures, swaps, options), many loans, and required margin for investment accounts. Their use as collateral has thus upped the supply and demand for U.S. federal government securities. Something that began recently is use of Bitcoin for collateral (link). The extent of that now is very small. However, if it grows significantly, it will lessen the supply and demand for U.S. federal government securities. I suspect that will lead to an increase in interest rates on U.S. federal government securities. Like I wrote in my blog article: "Of course, reaching 3% or 4% instead of the current 1% implies the federal government's interest payments would triple or quadruple, and this would put pressure on other federal government spending."

Edited March 13 by merjet