click for larger chart

 

 

The great irony of the fiscal cliff settlement is that US borrowing rates are as cheap as they have been throughout the History of the US.

Now would be the least expensive time in most of your lifetimes to:

A) Rebuild the US infrastructure of Airports, Mass Transit, Ports, Waterways;
B) Upgrade and Secure the US Electrical grid, including making it more secure from hackers;
C) Improve the security of nuclear plants, ports, and chemical manufacturing plants;
D) Upgrade Roads, Bridges, Tunnels;
E) Improve public outdoor lighting, including “smarter” lights and traffic sensors

At some point int he future, your kids are going to ask — “Wait, you could have upgraded _______ and it only would have cost you 2.5% in borrowing costs?!?”

 

~~~

Shorter term rate chart after the jump


click for larger chart

Category: Fixed Income/Interest Rates

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

87 Responses to “Long Interest Rates, 1790 to Present”

  1. VennData says:

    You hated the stimulus GOP voter…

    http://www.chicagotribune.com/news/politics/chi-fiscal-cliff-impact-20130102,0,355332.story

    …Well now the stimulus Obama put into your paycheck is over. You should be overjoyed that’s all over with.

  2. callotal says:

    to be the devil’s advocate…..IIRC, most of the federal debt is in the 3-7 year maturity range.

    Hypothetically if the US government tried to borrow $500 billion for 30 years, the rate sure wouldn’t be <3%

  3. dougc says:

    Carnegie was asked why he was so miserly and paid his workers so poorly and then gave away his fortune to build public libraries and other community buildings. He responded that if he had paid his employees better they would of lived a slightly better life but in the end it would not positively affect society whereas the libraries would benefit society for a long time. Money spent on the elderly (I am one) instead of the young is a similair situation.

  4. [...] Source:  The Big Picture (for a more limited period, the U.S. Treasury data is available for charting here) [...]

  5. Expat says:

    “La cigale, ayant chanté tout l’été, se trouva fort dépourvu quand la bise fut venue.”

    When times are tough, we lower taxes and increase spending to stimulate the economy. When times are good, we lower taxes and increase spending because, hey, we’re rich, right? But spending on bridges, roads, and schools is boring. We can instead spend money on guns and bankers which are much sexier. Both have limited social value and both are responsible for the deaths of millions of people.

    I just had an interesting conversation with someone who lives on LI’s south shore. He explained that all the homes and cars ruined by Sandy were uninsured and/or leased. The “owners” were under water even before Sandy hit and now cannot hope to afford repairs or rebuilding. Yet they lived in million dollar homes on the water with two cars, a pool, and a big-ass boat. They earned perhaps 100-200k a year and lived like they made 500k. Our entire country in a microcosm.

    I don’t think our kids will be asking us that question. I think instead they will ask the following questions:
    – What was it like when water was so cheap you could shower every day?
    – Tell me again about plentiful food lining the shelves of the grocery store?
    – Is it true you could once speak your mind without being arrested and tortured?
    – What’s a polar bear?
    – Is it true that President Blankfein’s entire campaign was paid for by his grandfather Lloyd?

  6. CTMike says:

    Out of curiosity, how accurate are the historical records for interest rates? I’ve seen this chart posted here before and I never thought to ask.

  7. CTMike

    Accurate — a combination of Treasury data, Bloomberg and Global Financial Data are the sources

  8. rd says:

    None of those things you list are “shovel-ready.” Therefore, by definition they are not appropriate uses of government stimulus money. Instead, they require planning, thought, and public debate before entering int oa design process. All of these activities would interefere with Congress’s primary purpose which is collecting PAC donations and getting re-elected. Besides, almost none of those are glamorous and appropriate for putting a politician’s name on for a ribbon-cutting ceremony.

    Although, looking back, if some of these had been appropriated in 2009 then maybe the design and permitting would be complete now and the workers for the construction wouldn’t have to get another unemployment extension……

    Nahhh…long-term planning and investment is why the private sector exists. The free market will price the value of keeping nuclear fuel and waste safe from terrorists and earthquakes.

  9. Chad says:

    What we should do is outline the costs of A, B, C, D, and E and borrow enough to pay for most of that and enough to buy back debt at higher rates. We would then use it to jump start the economy. Of course, we would have the repayment plan set in stone by identifying what taxes and spending cuts (including entitlements and military) would be implemented and when, with the idea that spending would go way down after this and taxes would raise some to begin paying this off at some point. Of course, this would require long-term planning, which is obviously beyond our politicians and most of our populace.

  10. Init4good says:

    Someone please do an overlay of demographics….they are “destiny” imho…

  11. MayorQuimby says:

    Barry do you honestly think we can print and pave ourselves towards prosperity?

  12. MayorQuimby

    These are the basic costs of living in a modern civilization. Its what we need to do to stay safe and competitive with the rest of the world

    I am confident that the entrepreneurial genius of the private sector will be able to build upon these infrastructure they way they have in the past — Think Internet and Interstate highway — to make them pay off

  13. Orange14 says:

    MayorQuimby – you are missing the point here. It’s really to address the crumbling infrastructure and doing so at rock bottom borrowing costs. You need to think about all the jobs that this will create with a resulting boost to the economy. As the old commercial (I forget what the product is/was) said, ‘you can pay me now or pay me later.’ If you want to drive on crumbling roads or over bridges that might not be structurally sound that’s your right but I suspect most of us want safe roads, bridges, and the other stuff that BR mentions. No time like the present to undertake this.

  14. MayorQuimby says:

    No, I’m not missing the point at all. You are. What are you paving the roads with? Money no?

    Where is that money coming from? The Fed (which is enabling deficits).

    So you think it is possible to get a “freebie” from mother nature – brand new infrastructure for nothing.

    Do you honestly think the world works this way?

  15. How exactly is the Fed enabling deficits ?

    We have had deficits for years and decades before the Fed began printing

  16. WFTA says:

    This was just as true in Q-1 2009, but a Democrat had just moved into the Whitehouse and suddenly debt was a four-letter word.

  17. DarthBeta says:

    The current US Federal Government does NOT have borrowing cost!!!
    The US Federal Governemnt is monetary sovereign and uses a fiat currency. There is no debt and there are no borrowing costs.
    How can this be so misunderstood?

  18. MayorQuimby says:

    It isn’t – you are 100% mistaken.

    Fiat money is backed by labor which is why student loans are NOT dischargeable! There is no collateral!

    You people think they just print money. Hahahah – the money is BACKED by labor and collateral which is why banks take your home when you default. It is why you need collateral for all fiat creation. It is why banks go broke!

    If we just printed money there would be value to money and we would have Zimbabwe-like prices.

    Read up on money creation – the powers that be may have pushed things to the breaking point but there is a reason we have Reserve Status.

  19. CSF says:

    It also seems prudent to continue lengthening our average maturity, no? Otherwise our kids will ask, “You had the chance to finance for 30 years at 2.5% and instead you used 2 year paper at .25%?”

  20. b_thunder says:

    There’s one problem with rebuilding “roads, bridges, tunnels” – COST!

    The cost to build the Golden Gate bridge – $35M. Even with all the advances in technology, machinery, metallurgy, CAD/CAM, etc, the rebuild is estimated to cost over $1.8B, much higher even if adjusting the $35M to today’s dollar value. What’s more interesting to me is (if my calculations are correct) that the cost of rebuild measured in man-hours at both today’s minimum and median wage is several times higher than in 1930s. But we have all these machines, right? That’s supposed to make the construction cheaper? Then why the cost is so high?

    There’s never seems to be any urgency to build on time and under budget, and surely it never gets built on time and always over budget. Its seems to me that the incentive is to work longer, b/c they’re getting paid.

    IMHO the contract/biding/outsourcing system is rigged and broken.

    Plus, instead of building more roads I’d rather see us create incentives for companies to let people work from home. Fewer cars on the road mean fewer greenhouse gasses – better for the environment.

  21. wally says:

    If you have a dollar, Quimby, the government ultimately owes you whatever you decide is a dollar’s worth of stuff. If they had no such obligation, you’d have no money. Ready to start the year with all caps yet?

  22. MayorQuimby says:

    Gvmt has nothing to do with it Wally. Banks create the money.

  23. James Cameron says:

    MayorQuimby – you are missing the point here. It’s really to address the crumbling infrastructure and doing so at rock bottom borrowing costs. You need to think about all the jobs that this will create with a resulting boost to the economy.

    Somehow, I don’t think he’s missing the point. That long-term debt is eventually going to have to be rolled over, so there had better be a very detailed economic cost-benefit analysis of the work being done. This is hardly the first time this subject has come up, so advocates must be aware of analysis that looks at specific projects, projected costs, timelines (which is quite critical, since borrowing costs in five years may be very different than what they are now . . .), etc, etc. I don’t think this is nearly as easy as borrowing money because it’s cheap now . . .

  24. MayorQuimby says:

    Thanks James. Exactly.

    Look – Barry has stated that we should take advantage of low rates but my counterpoint is that this is illusory for a variety of reasons:

    1. The amount that can be borrowed at low rates is in fact capped due to inflationary effects of said infrastructure repair.
    2. The nominal amount we can borrow at these low rates is also limited.
    3. The value of what those dollars get you denominated in labor and commodity costs is reduced for reasons including cost of living, import prices etc. even if we produce all that is neededed here – cost of living and other inflationary effects of money printing are at play.

    ***4. Generally speaking – nature does not give people free roads and bridges. If you understand nothing else, you must understand that it is impossible for us to wake up with a whole new US infrastructure for ‘free’.

  25. Chad says:

    @b_thunder

    Are the extra man hours because rebuilding the original/current bridge with traffic still allowed on it would actually be less efficient than just building an entirely new bridge? Just a thought that may be way off.

  26. wally says:

    So, according to Quimby, we wait until the bridges fall down and them rebuild them at 6 or 7 percent. Brilliant.

  27. wally says:

    There was money in countries before there were banks, Quimby.

  28. MayorQuimby says:

    No – according to Quimby, there is a COST for building roads, simply put. According to you and Barry – there is none (we can print and/or borrow at 1% to fund whatever we want).

    How absolutely wonderful it must be to live in your imaginary reality!

    ~~~

    BR: How does issuing bonds to pay for this not equal paying for the roads/ infrastructure ?

  29. MayorQuimby says:

    “There was money in countries before there were banks, Quimby.”

    Money is certainly adjustable in terms of what it represents – I can’t argue with that. .gov can reset the system and peg dollar to silver, oil, gold whatever. Or they can print.

    But that is not how our CURRENT system functions and because our money IS backed by our amazing innovation and talent, we hold reserve status.

    That is all I am saying.

    If you think the Fed prints money and determines what things cost I can say that that is not currently the case although they most certainly are using credit to do the same thing…however there is a limit to what they can do.

    And in the long run – there is no such thing as free roads and bridges.

  30. MidlifeNocrisis says:

    Money is ultimately created by the Treasury/Fed. Darth is correct. Ever see a printing press at a bank?? We don’t have “Zimbabwe” pricing because the vast majority of people have full faith in US dollars, as do most all of the other nations in the world.

    You can like it, or hate it, but that’s the facts. The Fed sets interest rates too. That’s what they do, for better or for worse.

  31. craig.r.jackson says:

    I recommend that the debt owed to itself, such as SS Trust, be cancelled and replaced with a guarantees from the US Treasury to fulfill with printed money. This printed money should not be confused with borrowed money, as MayorQuimby is fond of doing. Printed money ensures that there will be adequate funds to support currently guaranteed benefits without impacting the debt level. It would not be inflationary because it would simply be an accounting entry. There, one third of the US debt would be deleted.

  32. Orange14 says:

    MayorQuimby – OK, let’s turn all the roads & bridges into toll roads. Technology exists with an EZ pass required on every car. So tolls collected can be used to keep the roads & bridges in good driving condition. There is no difference in paying for this out of general revenues with a bond issue (that obviously will be paid back in time) or through the tolls collected. The point that BR and I are making is that we have historically low borrowing costs right now and why not take advantage of those. It’s the same decision making that goes on if you are deciding to buy a house with low interest rates on mortgages vs high interest rates. I don’t think I ever said that the money would not be paid back.

    Your point #2 above is very wrong based on the history of the past three years otherwise we would have seen interest rates spike like the bond vigilantes predicted back in 2008. It didn’t happen then and it won’t happen for the foreseeable future.

  33. James Cameron says:

    > So, according to Quimby, we wait until the bridges fall down and them rebuild them at 6 or 7 percent. Brilliant.

    It’s not nearly as simple as this. Of course there is critical work that has to be done. But that work has to be identified and prioritized and that’s not just a funding issue, but a political one. This alone is a significant project. Here’s the history of California’s high speed rail:

    http://en.wikipedia.org/wiki/California_High-Speed_Rail#Funding

    if you want some idea how big idea infrastructure projects can become bogged down by funding and political hurdles.

  34. hankest says:

    Not only can necessary projects be done at lower interest rates right now, the Feds/States/Locals would also presumably get more competitive responses to their RFPs in this slow economy.

    If the Feds wait until the construction sector is once again strong they’ll be competing for contractors with the private sector, increasing costs for not only gov’t projects but also private projects.

  35. Init4good says:

    Can anyone imagine the cost to drive on those roads and bridges, if they were privatized and everyone paid exactly what it cost to build and maintain them? Astronomical. No person of “normal” means would be able to pay the cost to use them. Therefore let’s do the same thing using long-term debt – say 30+yrs and have the work done now, and use those roads right away, for everything that make a road useful. We can pay the 30yr debt back, a little bit at a time. Isn’t that what we have now? What is so hard to see about that? The only difference is the Fed intervenes when the situation becomes so extreme that we need to adjust the debt timeframes.

  36. DeDude says:

    To buy at low prices or to buy at high prices – that is the question?
    The fact that there are morons out there still wondering what the answer might be is telling something about the level of edumacation in this here society.

    You are way to pessimistic Barry. Currently the rate on inflation adjusted 10 year bonds are NEGATIVE 1%. That means that we will be paid to borrow money. The “cost” that the morons are talking about is actually negative 1% when adjusted for inflation (and even more when adjusted for GDP growth). Instead they want us to wait with these inevitable infrastructure upgrades until the economy recovers and the cost becomes some unpredictable positive number. The brilliance of these clowns is blinding. They insist we shall not upgrade infrastructure now when the multiplier is much higher and we cannot crowd out a non-existing demand for private sector investment, and instead wait until the multiplier is much lower and the borrowing will compete with and hurt the private sectors need for borrowing.

    MayorQuimby has been pimping this crap of “we are all gonner die, eventually” for the past 5 years – he is a joke. Someone pretending to be an old fart moron that doesn’t know anything and certainly doesn’t want to know no-nothing.

  37. RW says:

    Citing problems with major infrastructure projects is a red herring and analysis/prioritization of infrastructure needs is not simply a political issue, it is a technical issue as the American Society of Civil Engineers reports; e.g., the national ‘grade’ on infrastructure, all categories, is a D w/ only one of the 15 categories rising above a grade of C.

    Aging, obsolete and damaged infrastructure is costing the country a lot of money in lost time, productivity, safety, product cost and competitiveness. Deficit scolds need to lower their volume and start participating in better solutions than further austerity and/or more delays; it’s bad for business.

  38. kukiniloa says:

    It’s been made clear that the depth of the Great Recession was, in large part, due to the lack of revenue and consequent spending by State and local governments. These same entities now have a golden opportunity to begin the wealth of projects that each and every State and local government has on their Capital Improvement Project lists (or whatever they call them).

    Anybody in touch with their state and local governments knows that this is a long list, with items just waiting for funding.

    And the input-output multiplier for construction spending is higher than *any other industry*. True stimulus and REAL assistance for the middle-class is best achieved through infrastructure spending.

    Why don’t people get this? Because their warped, free-market ethic tells them that public sector spending is, by definition, socialism?? STOP THE INSANITY!

    And to pick a nit, the term “shovel ready” is a poor term, as a project has to be through design phase to really be shovel ready. But for many projects design and permitting may take < 1 year.

  39. meetingplanner says:

    the only thing we will upgrade will be home prices and some financial instruments that the banks need “upgrading” so that they can unload them. I figure we are kicking in at least 5% of our liquid net worth per year to pay for this. don’t know why bankers have always been hated …

  40. MayorQuimby says:

    “MayorQuimby has been pimping this crap of “we are all gonner die, eventually” for the past 5 years – he is a joke. Someone pretending to be an old fart moron that doesn’t know anything and certainly doesn’t want to know no-nothing.”

    And a Happy New Year to you as well!

  41. econimonium says:

    To paraphrase the late, great Moe Howard, every time Quimby writes, he weakens the nation. I consider it a badge of honor that I have goaded him to write in all caps three times in past year. I’ve also made a lot of money doing the exact opposite of whatever he’s peddling. So you need to take him in a Zen sort of a way…anything he’s railing against, take the other side of that trade. After all, that’s the use of most comments sections…it makes it easy to find the mark. Oh and the second I read the words “fiat money” in a sentence, I know I’ve found the mark. Just a tip ;)

    Anyone who’s ever actually run a business knows that debt can be your friend…that whole cost of money thing and the cost of inaction etc. The mistake is these nuts keep acting as if running a business or a government is like using credit cards at home. It isn’t. Debt for education is an investment. Debt for mortgage (sensibly) is also an investment (in that when you are old, your cost of living drops). Debt for machinery is an investment. Debt for inventory is an investment at times. Debt to fix aging infrastructure would also be an investment, especially at real negative rates. The question is not IF the money should be spent (because that bridge will certainly be replaced) but WHEN. So Qumiby’s argument is not only specious, but insane. It’s like pretending we’ll cut Social Security and let people go homeless and starve or cut Medicare and let them die on the street. I’m sick of these people not paying attention to reality or just telling the obvious truth. And the truth it we’ll pay anyhow at some time in the future and if we do the wrong thing now, we’ll pay more. That’s the truth.

  42. MayorQuimby says:

    Happy New Year to you as well eco!

    “every time Quimby writes, he weakens the nation”

    Wow!

    “I’ve also made a lot of money doing the exact opposite of whatever he’s peddling.”

    I’ve made no investment recommendations and in fact have outperformed the S&P myself for 7 straight years with only 1 bad year.

    “The mistake is these nuts keep acting as if running a business or a government is like using credit cards at home. It isn’t.”

    It is.

    “So Qumiby’s argument is not only specious, but insane. It’s like pretending we’ll cut Social Security and let people go homeless and starve or cut Medicare and let them die on the street. I’m sick of these people not paying attention to reality or just telling the obvious truth.”

    You can only spend the money you have, print, or can borrow. If you print, the money buys less, if you borrow, you pay interest and can only borrow at a specific rate for a specific amount.

    Once again….there is no such thing as free food for grand ma, free medical care for grand pa and free bridges for everyone.

    If you think there is, it is you who is the insane one.

  43. DeDude says:

    there is no such thing as NO food for grand ma, NO medical care for grand pa and NO bridges. So why should we entertain that old fart straw man? The question is whether we should purchase it at a low price now or a much higher price later.

    (OH NO THIS TIME I STARTED WITH THE CAP THING)

  44. louis says:

    Does anyone with power to do any projects remind one of Robert Moses?

  45. Orange14 says:

    @louis – Robert Moses would salivate at current interest rates!!! Must go back and re-read the Caro biography.

  46. ConscienceofaConservative says:

    The rate we’re currently paying can be mis-leading. Debt right now is approaching 100% GDP. Nobody thinks todays’ rates are a reasonable proxy for what it will cost to service our debt in the future. As bonds come due and the Fed unwinds Q.E. (the Treasury has reduced the duration of current debt with the Fed also buying up the long end as part of Q.E) the cost of our debt service could become a huge problem.

    As I see it we wasted so much of the last 40 years by carrying and growing a debt load in both good and bad times that we’ve reduced our ability to borrow more.

  47. Pantmaker says:

    At some point in the future, your kids are going to ask —“Wait, you could have upgraded _______ and it only would have cost you 2.5% in borrowing costs?!?”

    …and I’ll respond

    Yes son…I know…but we were too fucking stupid and had already maxed out our credit cards at much higher levels. We should really pay that money back before we borrow any more. That’s how life works. Shitty Infrastructure = Made Bed we must now sleep in.

    ~~~

    BR: The credit card analogy is not remotely how governments work (nor is the family budget metaphor) or how independent sovereign nations pay for their spending.

  48. capitalistic says:

    Folks – and this is my only issue with BO. We could have launched a $3T infrastructure project at a rate slightly more than the 30 year.

    Similar to an SBA loan, the government technically only has to pay the coupon per year. So, imagine $3T @ 5%, 30 years = $150B a year in coupon payments (staggered in 3 $1T issuance over 3 years). A reversion to pre-Bush era taxes, eliminating interest deductions on non-conforming home mortgages and tightening corporate welfare, and our economy would be growing at a sexy growth rate.

    But…fiscal policy tends to be slow and staggered over years…

  49. As a reminder, our extensive rules & conditions for commenting are here
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  50. econimonium says:

    DeDude you are so right. How many people in this country can afford any cuts to Social Security? Medicare? What percentage of society can even save for retirement now that defined benefits are pretty much a thing of the past? When you look at those numbers realistically, you know that there’s no way we can change anything for benefits. And they’re NOT “entitlements”. It’s *Insurance*, just like your health plan, life, or anything else. You pay in and then some day you collect. So I think we need to stop with the word “entitlements”.

    And you bet that people who are my age (in their 40′s) will not tolerate one iota of change to SS or drop in the Medicare benefits. I’ve been paying in, so people like Ryan and kiss my lily white behind. And chained CPI is a goner too. Besides, the issue is the medical system itself not Medicare and certainly not SS which isn’t even a problem for the foreseeable future and you know what? Let’s defund some Pentagon items and fund SS. Period. I think I’m in the majority there too.

    So what it’s about time we did is just man up to the fact that these programs aren’t changing because the majority of citizens don’t want them to, and stop trying to change them. If the Republican Party wanted to re-invent itself it could start right there: tell the truth, go with the majority, and attack the real issue with is health care out of control. But of course it won’t because of all the fat, juicy paychecks at the drug companies, health insurance companies and doctors. Trust me, I have a close friend who works in rooting out fraud for a major insurer and to quote her “this job is like shooting fish in a barrel. You have no idea how much fraud and waste there really is. I don’t even have to try to do my job”.

  51. AtlasRocked says:

    BR: “I am confident that the entrepreneurial genius of the private sector will be able to build upon these infrastructure they way they have in the past — Think Internet and Interstate highway — to make them pay off”

    The interstate hiway system? – which rendered our existing, strong, train-based transportation system into second tier, less efficient, business, and caused us to build cars, which need far more gas and materials per lb/mile, which requires military protection of our gas suppliers? That hiway system? if it worked so great, why are we printing money and borrowing now?

    The internet – which has rendered tons of middle income citizens out of work due to efficiency gains o internet information xfer? has it created jobs here ? i was on a IC design tools sales force that is 1/4 the size now, since the internet can get the information to our customers easier. and the chip design work we did is mostly gone overseas, US companies can easily work with a chinese chip design group now, thanks to the internet. what is the current tax revenue from the internet paying for our federal bills? i don’ think it’s there at all, it’s a great invention, but not a gov’t revenue engine.

    if it worked so great, why are we printing $85 b of money a month and borrowing over a trillion a year now? isn’t this an undefendable assertion Barry? we’ve been borrowing massive and increasing amounts of money for 30 years, if these inventions of gov’t were working so well as revenue engines, why were mostly NOT in debt before them (except for WWII), and we are in massive debt now?

    ~~~

    BR: Train based transportation system? WTF are you talking about?

  52. James Cameron says:

    RW Says: Aging, obsolete and damaged infrastructure is costing the country a lot of money in lost time, productivity, safety, product cost and competitiveness. Deficit scolds need to lower their volume and start participating in better solutions than further austerity and/or more delays; it’s bad for business . . . Deficit scolds need to lower their volume and start participating in better solutions than further austerity and/or more delays; it’s bad for business.

    ———–

    That’s stating the broad problem . . . identifying and getting agreement on the specific projects that would be funded is an entirely different matter. Every state and every constituency imaginable would be vying for funding of this magnitude. It’s one thing to discuss this in the large, quite another to get into the specifics.

    Despite this notion being floated regularly (for years, actually), I’m not clear where the political advocacy is. I will be very surprised to see the current administration trumpet it . . .

    Perhaps, RW, you can tell us what you and your lawmakers are doing in this regard?

  53. AtlasRocked says:

    The kids are going to ask

    “why did you leave us with the bills? I checked my history books and can’t find a single case where an economy recovered after using stimulus, the best reference I can find says that cutting spending about 5X the rate of tax increases is a round number of successful recoveries. so it looks like you guys just enriched yourselves at our expense.”

    ~~~

    BR: WW2 ring a bell?

  54. znmeb says:

    1. Leave Afghanistan by the end of 2013
    2. ??????
    3. Profit!

  55. Manofsteel11 says:

    Lack of infrastructure investment goes BEYOND debt pricing and availability:
    1. States and municipalities are managing such high levels of debt/deficit that they cannot afford to borrow more given their level of income.
    2. Local politicians are not incentivized politically to invest in long-term (40-years+) projects given electoral cycles.
    3. Underground projects (e.g. water infrastructure) is considered unimportant by most residents who do not realize the costs of decaying infrastructure until it is too late (e.g. no water audits are enforced until water mains breaking down and streets getting flooded).
    4. Most states do not want to raise prices to fully cover rising OPEX+CAPEX given the potential political backlash (e.g. water in Europe and other parts of the world is way more expensive, efficiency regulation is way tighter and is markets enable a higher degree of competition, innovation and efficient financing/pricing).
    5. After decades of abundance, there is a misguided sense of endless resources. Therefore, little is invested in preservation and sustainability as compared to other nations. However, climate volatility, population growth and increasing demand are raising questions about the critical levels of some of our aquifers (e.g. CA), reservoirs (e.g. NV,AZ), and infrastructure robustness (e.g. NY).
    6. Bond agencies are understating the problem (again)(e.g. water utilities’ ratings are focused on YoY numbers rather than CAPEX needs given the huge funding gap and/or current monitoring of water source levels).
    7. The politicians in DC have done little to upgrade and update regulation to require such projects (e.g. the EPA can review and recommend efficient ‘asset management’ but nobody enforces it or places responsibility per specific performance benchmarks). The system is not build for long-term planning.

  56. rd says:

    MayorQuimby:

    The first high peak in interest rates was 1840. At that point in time, people used chamber pots and outhouses, carried water in buckets, used horses and carts on mud roads, and almost everybody was a farmer.

    Over the next century, the internal combustion engine, railroad, telephone/telegraph, car, and airplane were invented. Cities and many rural areas got clean water and sewerage, electrical and communication lines, paved roads, and airports. Some of that was delivered by the unregulated private sector but much of it was either created and maintained by public sector spending or regulated utilities. Interestingly, long-term interest rates fell during WW II despite greatly increased federal debt.

    Design lives for this infrastructure is typically 50-100 years. Much of this infrastructure we take for granted has reached the end of its design life and either replaced or rethought entirely. Currently much of the public infrastructure that they rely on dates back to the period of the Model T. We got a taste of what happens when that infrastructure breaks down in a modern city with the utility and transportation outages caused by Hurricane Sandy.

    The impacts of globalization and the information age can be seen in the long-term interest rate reduction since 1980. However, we still need infrastructure to move goods from source to market and to provide utilities to the many millions of people who have been migrating to the cities.

    These low interest rates give us a window of a decade or so to do some real thinking, planning, and construction for what the next century can bring. It makes sense to be funding infrastructure with design lives of 50 years plus with 2%-3% 30-year bonds, similar to home mortgages.

  57. phisqb says:

    Just a reminder…people get paid to plan, design, and manage projects so they become “shovel-ready”. Last time I checked, people having jobs was a good thing.

  58. RW says:

    James Cameron, try going to the link I provided and clicking on the “States” tab, then choose any state you like for its laundry list of deficiencies and needs.

    For more specifics about individual projects to meet those deficiencies, you need to go to the relevant state agencies — depts of transportation, infrastructure finance authorities (if they exist), budgeting office, etc — and do some homework; AFAIK there are few states that keep all that under one umbrella.

    The problem in my state certainly, and I suspect in many others, is that most projects are not particularly expensive but that too many have been too long deferred so many priorities are being set by imminence of catastrophic failure or length of time in queue rather than engineering and economic logic.

    Pork-barrel projects exist of course but many larger projects are established by successful federal grants with the remainder set by state engineers who have a limited pot of money to draw from. Big-ticket items such as high speed rail or an LNG port have become the stuff of dreams as we lose more and more business to Asian countries willing to ramp up. Truth is, there are so many repair and replacement projects stacked up in the pipeline these days that most of the fighting is over table scraps. If it weren’t so sad it would be downright disgusting.

  59. farfetched says:

    The Mayor wants this comparison to happen in a vacuum. The problem is even economics abhors a vacuum.

    The comparison is the cost of borrowing, it doesn’t really involve all the nonsense about fiat currency or time travel. We are not going back in time and neither is our infrastructure. Our roads are falling apart, our bridges failing, our energy transmission system is a joke and we have the slowest internet on the planet.

    The Mayor suggests we follow Cuba and use 1956 Chevys until we slave our way out of debt and hope it doesn’t end with mule drawn wagons. Barry suggests we borrow on the cheap and use the fruits of our labor upgrading to a much more efficient infrastructure to employ (and tax) people and then enjoy the productive use of the infrastructure to be more reliable, productive and competitive. There will be no time travel. We will not get younger nor will our infrastructure. The cost of labor, financing and resources will continue to go higher, we will never go back in price without total collapse. The Mayor seems to be supporting that notion.

  60. AtlasRocked says:

    A world war is a success story of stimulus? for all the world’s deficit spending, one massive war is the success case you bring to the argument? if stimulus is billed as a certain success, where are the recovery and payback records w/o a massive war going on? where is the “best practices” history shown? i’ve been asking on liberal forums for 6 years now, all the liberals, interestingly, say “world war II”. they are reading the Krugman articles, Krugman the quack. Krugman that never shows us how we get out of this, except by inflating away everyone’s savings, printing money. that’s not a solution, that’s a act of fraud.

    the only thing the liberals say is “WWII”, then act as if this answer is actually real, right after then decried the deficit spending to support the bush wars. huh? the bush wars created deficit, but WWII was a deficit success?

    I can’t win if you call a massive conflagration of death and destruction “success”. and you cite conservatives for “cognative dissonance”. You’ve declared one of the worst wars in human history will be deemed “good” to win an argument.

    the only thing consistent about liberals and their stimulus and central planning is the lies to cover up the failure get bigger and bigger, the crimes allowed more egregious (FCIC unprosecuted, fine-n-release bank laws) and the fraud more outrageous (US bonds should NOT be rated AA, they should be junk, liberals have no plan to pay them back at all, it is a federal scam).

  61. TLH says:

    If you stop manipulating the markets, what would the interest rates be? Melt up in stocks? What happens when there are no more buyers? I doubt the public is pushing up the market.

  62. pdtrader says:

    What I find most interesting about the long-term rates chart is the two, very obvious trends of the past century:

    1. How long-term rates appreciated in almost a straight line right after WWII. Which, perhaps not coincidentally, was the beginning of the Bretton Woods regime and the dollar’s exorbitant privilege.

    2. The 30-year decline in from 1981, after Volcker broke inflation but was soon followed, also not coincidentally, by the Maestro himself, Mr. Greenspan.

    What’s most disturbing to me about this trend is how the Fed’s growing involvement in the credit markets has completely screwed up the pricing of risk, to the point where the mispricing of credit risk has become very dangerous indeed. I recently read how some insurance companies are having to fund annuities in the junk bond market, because yields in investment grade issues are practically zero.

    And to Barry’s and MayorQuimby’s thread about the Fed enabling deficits, I tend to agree with Barry. While the Fed’s monetization of debt does allow for even greater deficits, government has been far outspending its revenues for far longer than the Fed has been engaging in QE. Governments running up unpayable debts is as old as the world itself, a trend which existed long before central banks were a glimmer in the eyes of anyone.

    - Pete Davis

  63. gman says:

    Thank god that barry is not another Peterson hired drone!

    Now is the time for infrastructure and public investment…” the time for austerity is in the middle of a boom”

  64. Mcat says:

    Barry

    Has it not occurred to you that the Fed (US Tax Payer) is footing the Bill. They are buying US debt and it is not real buyers. Yes, institutions own the long bonds once they realize the Fed is a net seller, not a buyer, they sell their bonds and look out… Interest rates will soar…. given the size of the debts… they will not be able to afford the electricity.

    Nice idea, just not practical.

  65. Mcat says:

    Barry

    Has it not occurred to you that the Fed (US Tax Payer) is footing the Bill. They are buying US debt and it is not real buyers. Yes, institutions own the long bonds once they realize the Fed is a net seller, not a buyer, they sell their bonds and look out… Interest rates will soar…. given the size of the debts… they will not be able to afford the electricity.

    Nice idea, just not practical.

  66. YouthInAsia says:

    “At some point int he future, your kids are going to ask — “Wait, you could have upgraded _______ and it only would have cost you 2.5% in borrowing costs?!?””

    Yeah, just look at Japan. We learned their lessons right? Investing in infrastructure has the double benefit of having bridges to places people don’t go AND a jumpstarted economy. Well, they don’t have the last one. But…we do need to strike while the iron is hot on these low low interest rates, we only have at least 15 years of them left

  67. ezrasfund says:

    Certainly our nation has the ability, that is the manpower, the know how and the physical resources, to rebuild our aging infrastructure and to care for our sick and our elderly. We simply need to be able to engineer our financial system to allow us to do these things. There is nothing that inherently prevents our nation from undertaking these tasks beyond a greasy mix of accounting and lack of will.

    Did the US pour $1 trillion down the rat hole that is Afghanistan and another $1 trillion into Iraq? What sleazy accounting made all of that possible? Surely the ROI for spending $1 trillion here at home would be greater. Even the bogus accounting that in 2001 projected the retiring of the entire federal debt by 2010 and brought us the Bush tax cuts along with 2 unfunded wars somehow did not bring our country to ruin. But some citizens warn us that ruin is just around the corner now, and so we must cut back on care for the sick, the poor and the elderly and forgo the maintenance of our nations infrastructure.

    Can anyone look at what is surely the most powerful and most prosperous nation in history, a land that even today is discovering vast new resources of oil and gas and that in the last decade has seen the rise of the likes of Apple and Google, to cite just a few examples, and say that we cannot do what should be done because it costs too much?

    What was it that transformed China from a land of starving peasants into an economic powerhouse? Just as there was nothing inherent about China and its people that kept them poor or made them prosper, surely there is nothing that holds our great nation back from fulfilling our promises and our obligations to ourselves. The ideology of Ayn Rand, Paul Ryan, the budget scolds and their ilk is as crippling as the failed ideologies of Lenin and Mao. Will we really succumb to their sophistry?

  68. whskyjack says:

    @ezrasfund

    Thats some damn good stuff there.

    BR, one of the amazing things about this blog is your comments section. I love it. When some idiot posts his idiocies you don’t get more idiocy a good many posts are reasoned replies that leave the idiots in the dust.
    Thank you for maintaining such a great blog.

    Jack

  69. jb.mcmunn says:

    What a wonderful idea! Let’s borrow a quadrillion dollars and fix all the infrastructure in the country. When our kids ask us why we buried them in these enormous interest payments, we’ll just tell them it was because the rates were so low.

    This is the same way my mother “saves” money. She sees a pair of shoes on sale at 50% off so she buys two pairs and brags about how much she saved.

  70. ezrasfund says:

    The last time the United States was buried in such enormous debt was after WWII. Many sensible Americans said it wouldn’t pay for us to go to war. Certainly we had little that was tangible to show for our efforts beyond a lot of grave markers. Yet when the war was over we enacted the GI bill and built the interstate highway system. I don’t recall that anyone’s children (the “boomers”?) complained about the enormous debt that was left for them to pay off. Thanks to a growing population which begot a growing economy which begot that other bogeyman, inflation (all good things in moderation), we remember those children as the most fortunate generation.

  71. DiggidyDan says:

    While I agree that now is the best time to borrow for long needed infrastructure improvements, the problem here is that you are expecting to borrow money on the cheap and pay it back when times are better in a Keynesian stimulus mode. We have proven as a country that our shortsighted political process is incapable of doing this. See the fabled Bush tax cuts that were made to get rid of the “Pesky Surplus” that you did a few posts on earlier this week. As a system it is set up to NOT SAVE any extra money in the good times because taxpayers moan about their money being taken for no immediately tangible benefit, and taxpayers are voters, so the politicians are forced to not do this. It is an unbalanced equation, and will never, ever work in a democratic republic.

    And spending the money we don’t have because we can borrow it at low rates from our own citizens and china only to repay it back later “when things get better” is in the best case scenario that things actually DO go back to “NORMAL” as normal has been defined by our recent experience of the greatest bull market in the history of the world from 1980 to 2000. What if America jumped the shark and loses more ground to emerging markets? Then we would still be out the cash, no matter if the rate is low or not. I understand it’s all fake money, but at some point, if you are just making it up as you go along, people stop losing trust in your “full faith and credit” and you have to do the hard work on your own.

    The only real answer is greater efficiency and innovation, not the New New Deal type busywork. Things like the smart grid, more efficient energy generation, and smart lights and traffic you mention. These are net gains in lifecycle costs and actually do provide a benefit over just spending for the sake of spending.

  72. [...] Long Interest Rates, 1790 to Present (The Big Picture) [...]

  73. Lukey says:

    True enough – but since we’re already borrowing so much to pay for bread and circuses (read war and welfare), the idea that we should go even deeper in hock to rebuild our infrastructure seems misguided. Look at it on a micro level – if your municipality is borrowing money to make good on its retirement benefits for workers who haven’t lifted a shovel in decades, there isn’t much capacity to fix the current potholes, is there?

  74. Malachi says:

    MayorQuimby Says:

    Look – Barry has stated that we should take advantage of low rates but my counterpoint is that this is illusory for a variety of reasons:
    1. The amount that can be borrowed at low rates is in fact capped due to inflationary effects of said infrastructure repair.

    – I am not sure I follow this reasoning. Are you saying if you borrow 1 trillion for infrastructure upgrade you won’t be able to borrow the second trillion for the same low rates because of the inflationary effect of borrowing the first trillion? First, how do you know that this is how the market would react? Second, even if rates did go higher after borrowing the first trillion why would that be a reason not to borrow the initial trillion at a cheaper price?

    2. The nominal amount we can borrow at these low rates is also limited.
    -sure, the future worth of the trillion you borrow now will vary. a trillion in ten years probably won’t buy as much as a trillion now. that is always the case. but if the room in the back of your house is damaged by a tree falling through the roof during a storm do you get a quote for the work and borrow the money now when rates are cheap or do you wait until your mortgage is paid off before doing the repairs?

    3. The value of what those dollars get you denominated in labor and commodity costs is reduced for reasons including cost of living, import prices etc. even if we produce all that is neededed here – cost of living and other inflationary effects of money printing are at play.

    -What?

    4. Generally speaking – nature does not give people free roads and bridges. If you understand nothing else, you must understand that it is impossible for us to wake up with a whole new US infrastructure for ‘free’

    - Who is saying it is free? I haven’t heard anyone saying that. My understanding is this is a discussion about paying lower borrowing costs for infrastructure investment now or assumed higher borrowing costs for infrastructure investment in the future?

    - I imagine most people here would like to see the federal debt be reduced. The disagreements are over when and how to go about doing this.

    - I believe that investing in infrastructure is a necessary and important part of keeping the US competitive in the global economy and could be an important part of the economic recovery as well. I am not all knowing so I could be wrong but this seems to make sense to me.

    AtlasRocked Says:
    January 2nd, 2013 at 5:51 pm
    A world war is a success story of stimulus? for all the world’s deficit spending, one massive war is the success case you bring to the argument?

    Well Atlas you might disagree but WWII is generally considered a success story for stimulus. Why you ask hasn’t the same hasn’t happened b/c of the two Bush’s wars. I think this is a good question. At the same time when I look over to Europe and how in practice austerity seems to be counterproductive during a deep recession (austerity in UK = higher unemployment, lower growth, higher debt burden) perhaps WITHOUT the wars and additional Bush and Obama stimulus here in the US things might be worse. I do wish rather than have all that debt spent on wars overseas that it was spent on investing in America.

    Btw, I’m all for reducing the debt by increasing certain taxes and cutting spending once we’re out of recession.

    Finally, looking at these historical comparisons has got me thinking that I ought to start borrowing some money – it’s on sale if I can do something productive with it.

  75. Chad says:

    @AtlasRocked

    It does seem on first glance that deficit spending on WWII would equate to deficit spending on the neo-con wars, but it’s not a direct apples to apples comparison. Here are some reasons:

    • GI Bill – This was implemented in 1944. Because it was new, it created a major boost for soldiers going to college and provided low interest zero down loans for houses. The college part of this bill has existed in one form or another since then and there was no major manpower increase (the draft) for these wars, so minimal economic impact in the current time.

    • The destruction of Iraq and Afghanistan does not destroy the industrial base of the only other economic rivals.

    • Neither Iraq or Afghanistan are going to become European or Japanese equivalents in trading partners or markets.

    • WWII = a massive industrial effort, which was switched to consumer products after the war. Neo-Con wars = increase in equipment expenses, but not anywhere near the level of WWII. Tanks, ships, and planes don’t get destroyed often in this type of war.

    • WWII = Women were added to the work force. Neo-Con wars = Women were already part of the work force.

    • Pre-WWII = large amounts of capital were moved to the US because of rising German threat. Neo-Con war = US already in this position for decades.

    • WWII = US became the only major power untouched by war. Neo-Con wars = US only major power at the time to shift focus away from the economy.

    • WWII = government demands sacrifices from the people and encourages saving. Neo-Con wars = not only does the government not demand any sacrifices from the people, but they are encouraged to go the mall and shop.

    Obviously, this list is not exhaustive, nor does it have research paper detail. However, it does demonstrate some serious differences in the wars.

  76. DeDude says:

    @DiggidyDan;

    Actually the ups and down of national debt has worked just fine in many countries including our own. Look at debt as % of GDP for the past 100 years in, Belgium, Holland, Spain, Italy, Sweden, Denmark, UK, US………. They have all had their ups and down. The problem is that most people look at national debt in absolute currency (and just see it go up and up). To really evaluate the BURDEN of a debt you have to correct for inflation and for the total productivity and wealth of the country (that is express it as % GDP). In the current situation (with about 100% GDP in national debt); as long as GDP grow more than the debt we are “paying down the national debt”. That is the reason why economic growth is more important than austerity, and any investment with a multiplier of more than 1.5 should be a no brainer (because it will “pay down the debt” by increasing GDP). If you think in absolute numbers; a debt of 15 trillion would have been beyond the economic capacity of the whole world 100 years ago, but 200 years from now it will be the annual salary of a high school teacher.

  77. AtlasRocked says:

    There has been research done on recoveries, folks. Instead of all your opinions being stated as fact, why not read some facts, and use facts as facts?

    http://www.economics.harvard.edu/faculty/alesina/files/Large%2Bchanges%2Bin%2Bfiscal%2Bpolicy_October_2009.pdf

  78. Lukey says:

    Yes, but if you are buying sub 2% GDP growth with greater than $1 trillion annual deficits, how long does it take to spend your way to prosperity?

  79. DeDude says:

    @AtlasRocked; it is not enough to use facts, you have to find RELEVANT facts. A 15 page study that use sweeping concepts such as “tax cuts” (with no granularity about whether for consumer or for investor class) and “spending increases” without defining what the spending is used on, is not good science or useful “facts” no matter how much it supports the conclusion you are so desperate to reach. Furthermore, when a lot of facts (data) is collected and pooled from countries that paid 2-10% real interest on their national debt (and additional loans) you may be able to calculate your way to a specific result, but that result is of no relevance for a country that is borrowing at negative 1% real interest. Just like we cannot compare ourselves to european countries that do not issue their own paper currency and have free floating exchange rates with the rest of the world. Anyway, although you still cherry-pick your sources to those that support your already drawn conclusions, at least you have upgraded your sources from Cato to something a notch or two better.

  80. DiggidyDan says:

    Dedude, I agree. Projects with mulipliers that show a proven benefit and efficiency are the ones we should be doing. I’m more commenting on our broken political process that doesn’t allow the system to work like it should in saving that difference in good times to use in bad times. My point is, that recent political process has been so myopic in their planning in recent years that we are now painted in a corner.

    We will never “pay down our debt” but just roll it over, however, in our current situation at 100% gdp to debt you speak of, we have to be especially careful in the projects we pick to ensure that they are net gains that increase gdp instead of just inefficient work for the sake of work. This is what you and I are both referring to in differnt terms as efficient orojects and projects with high multipliers. I guess I shouldn’t say doing this the right way will never happen in a democratic republic, just that I am extremely skeptical that it can happen in our current version that resembles a circus sideshow.

  81. [...] recently posted the chart below (click for larger image) detailing U.S. long-term interest rates (here). He then went on to draw the conclusion that it must be a golden time to make infrastructure [...]

  82. AtlasRocked says:

    Dedude, In engineering, when we have a complicated problem with lots of uncontrolable inputs, we do a “best case analysis” to weed out the folks with bullcrap answers: Everyone has to show the solution is achievable under best case conditions, then we figure out how to solve for lesser, or even worst case.

    If you are so confident show us you best case solution for how we exit $16 trillion of debt in, say, the next 20 years, so we don’t burden the unborn with the debt from your cockamamie ideas.

    I bet you are unwilling to do the tiniest simplified analysis. you have no intention of paying the US debt back or advocating we do so any time.

  83. [...] recently posted the chart below (click for larger image) detailing U.S. long-term interest rates (here). He then went on to draw the conclusion that it must be a golden time to make infrastructure [...]

  84. AtlasRocked says:

    “When plunder becomes a way of life for a group of men living in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.”
    - Frederic Bastiat

    This is what US debt and money printing has become: A means for the party of the poor, the democrats, to continue to borrowing in perpetuity, and to create a system of law that allows it and an illusion of a moral code (QE, AAA US treasuries) that glorify it. Rich folks are making money off this scheme too, folks like Krugman, supplying the politicians with false stories of how this will all work itself out. Falsely pumping the stock market with money printing.

    Stimulus has a 100% failure record – or as posters’ here glorify like in Bastiat’s observation of how they glorify plunder, end in massive wars. The same people that are anti-middle-east war, now glorify WWII as a success story of stimulus “a moral code that glorifies it”.

    ____

    BR: Nearly everything in your comment is wrong:

    1. The Dems spend nearly as much time sucking up to bankers & Wall St as the GOP does.
    2. Printing money is not required for deficit spending, as the past40 years have shown us.
    3. No, Stimulus does not have a 100% failure record

  85. DeDude says:

    If we grow the economy by 3% per year for the next 17 years then those 16 trillion will be 50% GDP rather than 100% GDP. So we do not have to “pay back” a dime of the current debt in order to cut its burden in half. Just keep the economy growing and don’t waste huge sums by leaving working age people unproductive with no employment. Given that we are the world reserve currency (giving us some huge advantages), with a fiat currency and free exchange rates, our debt probably should never get below 60%GDP – so its a good thing we still have some deficits to prevent a dangerously low debt (and associated strong dollar). Personally I would suggest we cut the military and security expenses (as % of GDP) in half over the next 10 years to reduce the deficit and control the growth of debt to an acceptable long term rate.

  86. Frilton Miedman says:

    YouthInAsia Says:
    January 2nd, 2013 at 8:57 pm
    “…. But…we do need to strike while the iron is hot on these low low interest rates, we only have at least 15 years of them left”

    ~~

    I want to thank you in advance for taking the other side of my T’s, or at the least for trying to push them lower at bubble levels, when rates are at an all time low.

    I wish I knew you in the DotCom days…

    I’m short T’s, it’s ridiculous to think anyone would continue to hold negative interest on the 10yr when so many boring blue-chips pay more including a hedge for capital preservation.

    I don’t care to debate how we’re not Japan – you can win that debate, I don’t mind, just please, keep up the good work…ignore Fed minutes & Fiscal/trade policy changes, keep reading Ayn Rand & Friedrich Hayek

    The fact that debt to GDP reached 120% after WW2, yet we proceeded to one of the best bull markets in history (before the baby-boomers were old enough to work), ignore that.

  87. DiggidyDan says:

    Don’t know what to do this year . . . looking at Brazil and other emerging markets for now and Dividend Stocks when they get cheap. . . Any thoughts out there? Tough call for the hot topic in growth next year. Any thoughts out there?