Email: Graph of the Day: Free Money!

Graph of the Day: Free Money!
	Investors are actually paying the U.S. in some cases to keep their money safe. Check out the graph.

You’re looking at the daily cost to the U.S. of loaning money, adjusted for expected inflation. What’s most noteworthy is the tail end of that graph, which shows present interest rates. Lest you doubt yourself, I’ll say it: The real interest rates on five, seven, and ten year interest rates are negative. Ten-year rates dropped below zero last month, seven-year rates have been there since July, and five-year rates have stayed that way for almost a year now.

In the short term, investors are literally paying us to borrow their money.

There are a few questions this fact inspires. First is the obvious, “Why?” Why would investors give their money away?

The answer is, that’s just how bad the global economy is right now. With Europe in deep financial trouble and consumer demand very low around the globe, there are so few good investments—so few “sure things”—that many investors are willing to put their money in treasury bonds for a yield that’s lower than inflation. The U.S. has never defaulted on its debt, and investors consider repayment guaranteed.

Another question worth pondering: “What should we do about this free money?” Given the state of the economy, I can think of a few things. The federal government could put that money to work on one-time expenses that won’t add to our long-term debt problems, such as investing in our deteriorating infrastructure and other projects that could put unemployed Americans back to work and stimulate consumer demand.

We can also use these low interest rates to buy ourselves time toward addressing that long-term debt issue. We do have problems down the road that we should tackle before they’re knocking on our door. And since we don’t have any real deficit problems staring us in the face right now, we should be able to sit down and work out our budget problems in a calm, rational manner.

...Well, we’ve all seen how well that’s worked out.

A short-term focus on investment financed by near- and below-zero interest rates coupled with a long-term focus on balancing budgets is exactly what this graph prescribes.

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