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.
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.