Some Should-be Front Page News

Somehow the beltway media missed this in the discussion of the debt ceiling, but right now, the real rate of return on government debt is negative (via):

Suppose the government had two choices. It could either pay for infrastructure improvements as it went along out of tax revenue or it could borrow money build the infrastructure now and then repay the money with tax revenues.

Ordinarily the question would be, does the advantage of building quickly outweigh the cost of the interest.

However, right now the interest cost is negative. The government saves money by borrowing now rather than waiting and paying cash. Let me say again because I have noticed that this goes against so much intuition that its hard for many people to wrap around when I first say it.

The government will wind up paying more if it decides to pay cash for a project than it will if it decides to borrow. This is irrespective of the return on the project itself or the advantages of avoiding delays or anything like that. It is simply that the cost of borrowing is negative.

It is cheaper than paying cash.

Speaking of borrowing, one of our big creditors thinks we might want to pare back our military spending (via):

The chief of the General Staff of the People’s Liberation Army, Chen Bingde, told reporters he thought the U.S. should cut back on defense spending for the sake of its taxpayers. He was speaking during a joint news conference in which he traded barbs with visiting U.S. counterpart Adm. Mike Mullen.

“I know the U.S. is still recovering from the financial crisis,” Chen said. “Under such circumstances, it is still spending a lot of money on its military and isn’t that placing too much pressure on the taxpayers?

“If the U.S. could reduce its military spending a bit and spend more on improving the livelihood of the American people … wouldn’t that be a better scenario?” he said.






37 replies
  1. 1
    MikeJ says:

    The chief of the General Staff of the People’s Liberation Army, Chen Bingde, told reporters he thought the U.S. should cut back on defense spending for the sake of its taxpayers.

    That’s the dumbest messenger in the world for that message.

  2. 2
    Ben Cisco says:

    He knew what he was doing.
    __
    Cue GOPer freakout, Beltway BS, and NO ACTION TAKEN.
    __
    QED.

  3. 3
    ...now I try to be amused says:

    What times are these, when even senior Chinese generals are concern-trolling.

  4. 4
    EconWatcher says:

    I’m getting the feeling they don’t take us very seriously any more. They enjoy tweaking us, and don’t much care how we feel about it.

  5. 5
    overeducated says:

    Yeah that’s a pretty obvious tell that the Chinese would like nothing better for us to continue to crash our economy by spending ludicrous amounts on military spending.

  6. 6
    Han's Solo says:

    Will of course doing the infrastructure now makes sense. It would help the economy greatly and be a boon for decades to come.

    Why do you think the GOP opposes it? They have a vested interest in keeping our economy shitty through 2012.

  7. 7
    Stefan says:

    The chief of the General Staff of the People’s Liberation Army, Chen Bingde, told reporters he thought the U.S. should cut back on defense spending for the sake of its taxpayers.

    Damn it, now we’ll never be able to cut back, because if we do half the country will freak out that we’re falling into a Chinese trap.

    Wily, these Orientals.

  8. 8
    Stefan says:

    Concern Chinese general is concerned.

  9. 9
    Agoraphobic Kleptomaniac says:

    Srsly. China, you’re not helping.

  10. 10
    Dave says:

    It is cheaper than paying cash.

    I’ve seen this elsewhere. The Economist had a similar piece, pointing out that the US should be borrowing what is essentially free money to shore up and jump start the economy, because the resultant tax revenues will more than cover the money borrowed.

  11. 11
    4tehlulz says:

    China’s first troll.

  12. 12

    Breaking: murdochs bskyb bid officially dead.

  13. 13
    dan says:

    7.Stefan – they are not “Orientals.” They are Chinamen.

  14. 14
    The Moar You Know says:

    “If the U.S. could reduce its military spending a bit and spend more on improving the livelihood of the American people … wouldn’t that be a better scenario?” he said.

    Fucking asshole. He knows damn well by saying this publicly, he has just insured that such a course of action will never happen.

    Well played, General Bingde.

  15. 15
    Chris says:

    That’s the dumbest messenger in the world for that message.

    Yeah, it just proves that the man’s a communist who believes in welfare and dependency, and AMERICAN EXCEPTIONALISM(TM) means that we shouldn’t spend one bloody cent on that welfare! (Please ignore the farm subsidies, highway subsidies and other multiple subsidies to Middle America which we have no intention of ending. That’s not socialism. Because. Shut up. That’s why. Shut the fuck up!)

    I realize the ChiComs have ulterior motives and all, but it’s still a hell of a thing when a general of the God damn PLA can say something that’s both better economics and more compassionate than most of the Beltway.

  16. 16
    someguy says:

    Shit, we should pump up the inflation rate to 20%, because then the government will actually be turning a profit on the national debt, borrowing in today’s dollars and paying back heavily inflated (i.e. more worthless dollars) a few years down the road.

    I don’t know why we didn’t think of that sooner. It could be a road to incredible prosperity.

  17. 17
    Chris says:

    That’s the dumbest messenger in the world for that message.

    Yeah, it just proves that the man’s a communist who believes in welfare and dependency, and AMERICAN EXCEPTIONALISM means that we shouldn’t spend one bloody cent on that welfare! (Please ignore the farm subsidies, highway subsidies and other multiple subsidies to Middle America which we have no intention of ending. That’s not soçialism. Because. Shut up. That’s why. Shut the fuck up!)

    I realize the ChiComs have ulterior motives and all, but it’s still a hell of a thing when a general of the God damn PLA can say something that’s both better economics and more compassionate than most of the Beltway.

  18. 18
    Chris says:

    @ dan,

    7.Stefan – they are not “Orientals.” They are Chinamen.

    Danny, you’re out of your element!

    The Chinaman is not the issue here, Dude.

  19. 19
    Dave says:

    @ 11 – 4tehlulz:

    China’s first troll.

    Here’s one product I don’t mind outsourcing to the Chinese. Can we pack up Bobo and Friedman today?

  20. 20
    Chris says:

    Oh, and folks, it’s okay – I seriously doubt if anyone in America will even register the general’s comment.

  21. 21
    liberal says:

    @15 someguy:

    Shit, we should pump up the inflation rate to 20%, because …

    I’m not sure if we need to go to 20%, but I think a better reason is that inflation would help eat away a lot of the debt overhang in the non-gov’t sector.

    As a big net saver, I’m not personally thrilled about that course. OTOH, my impression is that economic history says it might be necessary medicine (given that outright debt forgiveness ain’t about to happen).

  22. 22
    Dave says:

    @15 – someguy

    we should pump up the inflation rate to 20%

    Except then you are crashing the economy as the housing market completely collapses and household debt payments go through the roof due to credit card rates skyrocketing. The consumer sector of the economy would grind to a halt.

  23. 23
    handsmile says:

    More effectively than a squadron of Northrup Grumman or General Dynamics lobbyists, that Chinese military chief neatly scuppered any possibility of a significant reduction in the Pentagon’s budget. Well played, sir. Eleventh-dimensional chess is not only a White House sport I see.

    Plunk down that yuan for Berlitz or RosettaStone tapes on Mandarin, my friends. It’s gonna be increasingly handy.

  24. 24
    Ivan Ivanovich Renko says:

    He knows damn well by saying this publicly, he has just insured that such a course of action will never happen.

    And…

    I’m getting the feeling they don’t take us very seriously any more. They enjoy tweaking us, and don’t much care how we feel about it.

    Why should anyone take us seriously when we’re so motherfucking STUPID that something eminently sensible coming from the wrong mouth ensures that it will never happen.?

  25. 25
    Agoraphobic Kleptomaniac says:

    @Chris: Right, most Americans won’t hear it, but Talk Radio will reference it indirectly and Very.Serious.People will mention how there’s that Chinese General guy who wants us to stop military spending (*red alert red alert red alert*) so it must be some sort of trap.

    This is the game.

  26. 26
    ppcli says:

    Yeah that’s a pretty obvious tell that the Chinese would like nothing better for us to continue to crash our economy by spending ludicrous amounts on military spending.

    The real giveaway was when the Chinese general continued “Mister Obama: Tear down this wall!”

  27. 27
    Suffern ACE says:

    It is so easy being a general. Worried that your adversary might have to cut his military spending, thereby eventually creating pressure on you to cut your own spending? Rattle a saber or pull this…problem solved. Lockheed couldn’t have paid him enough…

  28. 28
    Ken says:

    The right likes what the Chinese are doing. No less a figure than Noted Intellectual Statesman Newt Gingrich has often said they have no capital gains tax, as an argument for eliminating the US tax. Others have pointed to their business-friendly (lack of) environmental and worker-safety regulations.

  29. 29
    Chris says:

    @ Suffern ACE,

    It is so easy being a general. Worried that your adversary might have to cut his military spending, thereby eventually creating pressure on you to cut your own spending? Rattle a saber or pull this…problem solved. Lockheed couldn’t have paid him enough…

    It just occurred to me that the guy’s doing exactly what wingnuts claim Reagan did during the Cold War – provoke the Main Enemy into increasing military spending when you know it’s unsustainable and it’ll break his economy.

    Now that’s some irony right there. Lenin must be laughing in his grave.

  30. 30
    Chris says:

    Others have pointed to their business-friendly (lack of) environmental and worker-safety regulations.

    I’d also point to the lack of freedom of speech, which prevents employees from voicing their grievances; the lack of freedom of assembly, which prevents employees from forming an association that could agitate for those grievances; the lack of free press, which prevents awareness of their point of view from spreading; the lack of free elections, which prevents people from voting in a government more sympathetic to their concerns.

    In other words, the lack of all the things that originally made the U.S. “exceptional.”

    Let’s face it: big business loves itself some dictatorship. MUCH easier to deal with employee troubles when they don’t have a government to speak for them. Maybe more trouble over the long run, but hey, that’s the long run; the company’s bosses will probably be gone long before that.

  31. 31
    Judas Escargot says:

    As a big net saver, I’m not personally thrilled about that [inflation] course.

    Real (ie wage-driven) inflation would give non-millionaire savers access to higher interest rates (remember the days of 8-12pc CDs?). And there’s always I-Bonds.

    Never, ever trust a rich man who tells you we need 2% inflation forever, and an Au-backed currency. That’s wealthy-speak for “Let me cash in all my chips now, then we’ll end the game before you can catch up.”

    [eta: was it the link to ibonds info that put my comment in moderation? or the fact i mentioned the shiny metal? removed both].

  32. 32
    Suffern ACE says:

    Gingrich has often said they have no capital gains tax, as an argument for eliminating the US tax.

    In exchange for that, they can confiscate any gain they want, any time they want.

  33. 33
    Zach says:

    This is why the belt-tightening analogy fails. If a the head of household of a family becomes unemployed, they have to cut back. If the head of household becomes unemployed and then someone comes along offering an unlimited loan that only needs to be paid back with 3% interest after 10 years (not 3% APR; 3% total), cutting back is idiotic. The family should still live within its means, but the maximum available loan should be secured and combined with the family’s unused capacity for labor to start a new business.

  34. 34
    Martin says:

    This is why the belt-tightening analogy fails.

    You’re correct. But this is what the teatards hear when they read your post:

    Woof woof woof woof woof woof woof woof woof woof unemployed, woof woof woof cut woof. Woof woof woof woof woof woof unemployed woof woof woof woof woof woof woof woof loan woof woof woof woof woof woof woof woof woof woof woof woof woof (woof woof woof; woof woof), woof woof woof idiotic. Woof woof woof woof woof welfare woof woof, woof woof woof woof soçialism woof woof woof woof woof woof woof looter woof woof woof woof liberal plot to destroy America.

  35. 35
    DFH no.6 says:

    Martin,

    You got that straight.

    Had this very conversation with one of my (too) many wingnut brothers-in-law over the 4th family get together.

    From WWII (but not the fed spending on such) ending the Great Depression, to the need to return to the gold standard, to Obama being the biggest tax-and-spender (and worst-president) ever, it was non-stop teatard, glibertarian nonsense from this otherwise well-educated and very intelligent person.

    When I made a similar analogy to Zach’s, he played the part of the dog in the Larson cartoon to the hilt.

    I may as well have been speaking Chinese.

  36. 36
    TK-421 says:

    If the U.S. could reduce its military spending a bit and spend more on improving the livelihood of the American people … wouldn’t that be a better scenario?” he said.

    Dear Beltway Assholes:

    Mein Gott im Himmel My God in Heaven, when a high-ranking military official from an oppressive/totalitarian regime thinks you’re being too cruel to the people, then you have well and truly gone round the bend. Please stop.

    Sincerely,

    America

  37. 37
    El Cid says:

    The problem is that the interest rates are too high and we’re going broke paying them because of all the inflation and the massive government hiring.

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