Talking about nothing

Today I wanted to write more on what I wrote about yesterday. But I don’t know that I will be able to to. I fought with a headache all day and I need to be going to bed. Not the best state to be in when one tries to explain rather dry economic data.

Most of what I wanted to add to yesterday’s post won’t interest anyone but myself anyway. Still, I think it is a small scandal how little the economic blog sphere has been paying attention to the increasing costs of federal debt load in real terms. Granted, the rapid rise of the total debt load in nominal terms has received a lot of attention. And I have even seen coverage of the increase in debt load as compared to GDP. But I can’t remember reading anything in recent past that looks at the rapid rise in the real cost of servicing the national debt.

To a normal person this might not seem strange. But to those who follow economic news and ideas, it ought to seem strange. After all, it did not use to be strange to read about the real cost of servicing Japan’s debt vs its nominal cost. And last year and the year before I can remember reading about how the rate of return on short term treasuries was negative in real terms.

But suddenly it seems that nobody wants to talk about the real rate of return on treasuries.

I personally think that this is because people who are favorable to the Obama administration have no reason to bring this up and the people who are not favorable to Obama are too busy worrying about rapid rise in total debt load to worry about real servicing costs. And to be fair, the real world effects of the increase in the real cost of servicing the debt load show up in the declining tax revenue (This is because inflation increase the nominal tax intake vs the nominal servicing costs of the debt and declines in inflation lower the nominal tax intake vs the nominal servicing costs of the debt).

Since there has been plenty of talk about the decline in tax revenue, you could argue that the practical effects of this issue have been well discussed. Nonetheless, I think that there are important reasons for talking about rise in the real servicing costs of the federal debt. For one thing, such a discussion focuses attention on the real opportunity costs of the stimulus package and other bail outs.

For example, supporters of the bail out often act as if no one would be investing if the government was not involved in “stimulating” things. But if this were so, why are investor demanding a higher rate of real return then they were a year ago? You would think that if they were at a loss as to what to do with their money, they would settle for a lower rate of real return. That certainly is how it played out in Japan.

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