The U.S. government is paying less as it borrows more, one reason investors appear more comfortable than Congress about funding another leg of stimulus.
Interest payments in the federal budget declined about 10% in the first 11 months of this fiscal year, when America was running up its biggest deficit since World War II. Over the next few years, servicing the national debt will be cheaper than any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office.
POINTS
- Many look at the rising national debt as something that will drown our country, be passed on to our children and lead to the bankruptcy of the nation. This is a flawed view. The U.S. national debt is very different than the personal debt that people have.
- The way the debt will be serviced is by allowing inflation to rise and interest rates to remain low.
- The Fed recently announced that it will allow inflation to rise more than 2% to account for the deflationary forces we are experiencing today. The Fed will target an average inflation rate of 2% by looking back in time, rather than simply raising rates as soon as inflation hits 2%.
- The following 2014 video by Ray Dalio explains very well what the Fed does and how the economy works.