Federal borrowing virtually free now

John Dimsdale Dec 23, 2011

Jeremy Hobson: Well if all goes according to plan today, the payroll tax cut that we’ve all been getting this year will be extended by another two months. On the upside, that tax cut has meant more money in our pockets. On the downside, it has put less money into the Social Security trust fund because that’s what this particular tax pays for. Now, with the nation’s debt currently exceeding $15 trillion, you might think it’s no time for Washington to go further into the red.

But as our Washington bureau chief John Dimsdale reports, some economists say that’s exactly what we should be doing.


John Dimsdale: Right now the federal government can borrow for less interest than the rate of inflation.

Andrew Fieldhouse: Meaning investors are paying the government to hold onto cash because they don’t see any good investment opportunities.

Andrew Fieldhouse is with the Economic Policy Institute. He says the government should take advantage of that by borrowing at zero interest and extending payroll tax cuts and unemployment benefits. That money, he says, will help get the economy going.

Fieldhouse: When customers go out and spend money and another million Americans are working because of the payroll tax cut, you’re collecting more tax revenue.

Revenue that helps the government pay back its cheap loans. But conservative economists like Johns Hopkins professor Steve Hanke say consumers care more about growing government debt than more stimulus.

Steve Hanke: It makes people anxious and worried about the future. They tend to hunker down and don’t spend the money.

Hanke says even if borrowing is free, the money still adds to the deficit, and won’t do any good for the economy.

In Washington, I’m John Dimsdale for Marketplace.

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