Loading ...Brilliant Suggestion
Just watched a clip of Stephanie Pomboy who had a great solution to temporarily address the cost of financing the debt, in the very short term. She explained that purchases of treasuries has dropped dramatically to the point where the FED is going to have to be the buyer of last resort, which is inflationary because they have to print to be able to do so.
She suggests that as a short term way to address that shortfall of buyers for US treasuries, is to make the interst paid on them, tax free. She knows this doesn’t address the need to curb spending and work towards deficit reduction but going into an election and possible recession it would help get into next year where those longer term issues need to be addressed.
Her calculations suggest that by making the interest tax free, the treasury would lose $100 billion in revenue, but that would generate saved interest expense of $300+ billion for every 1% drop in interest rates caused by the demand created by new buyers of the debt. Simple, easy to do, and would help get us to next year. Are you listening Donald Trump and Speaker Johnson?
“the treasury would lose $100 billion in revenue, but that would generate saved interest expense of $300+ billion for every 1% drop in interest rates caused by the demand created by new buyers of the debt. ”
I like you Steph, but this logic is absurd.
Dropping the taxes on all T’s (instantly negative to budget) will not generate falling rates at anything like that degree.
The hit on the budget is guaranteed, while the upside is contingent on ALL the factors that affect rates, not just taxes.
First, this is discriminatory against all other bond financing. So it will diminish the demand for OTHER bonds, so their rates may go up to compensate. That will hurt corporate and state and local. So you may lose on private sector growth.
Hazlitt was right. Too many fail to see the ripples of doing one thing when they gauge a policy move. They watch two dials instead of all of them.
Well said, Pedro – it’s all connected.
I knew someone would complain about the hit to municipals and corporates.(not surprised it was PD)Didn’t Trump and the Congress’s move to eliminate the subsidy that Blue states had with the writeoff of state and local taxes cause a huge uproar but was the correct thing to do. The fat cats who park their billions in municipals will squeal and let them. Maybe then states and municipalities will have to have spending discipline as well. There should be no taxes on income, investment or anything else other than what the founding fathers included in the constitution. Tariffs. Eliminate the income tax totally. I disagree with your belief that at least in the short term the rush to buy treasuries will not lower interest rates as she suggested. As I said, it doesn’t solve the debt and spending problem but it would help in the transition.