March 16, 2012
The Congressional Budget Office (CBO) projects that the interest rate on 10-year Treasury bonds won’t hit 3.0 percent until the third quarter of 2014 and that even at the end of the next presidential term they will still be hovering near 4.0 percent, a lower rate than at any point during the budget surplus years of the Clinton administration.
This might lead people to think that budget deficits are not having a serious negative effect in driving up interest rates. But David Brooks tells readers that CBO is wrong:
“In December, a re-elected Obama would face three immediate challenges: the expire; there will be another debt-ceiling fight; mandatory spending cuts kick in. In addition, there will be an immediate need to cut federal deficits. During the , the government could borrow gigantic amounts without pushing up interest rates because there was so little private borrowing. But as the economy recovers and demand for private borrowing increases, then huge public deficits on top of that will push up interest rates, crowd out private investment and smother the recovery.”
Wow, it would be great if Brooks could share the analysis he used to determine that interest rates are about to spike and derail the recovery. I do my best to keep on top of new economic research, but I have no clue what Brooks could be talking about. Maybe he could share it with readers in a future column.
Brooks apparently also did not know that President Obama put out a budget for fiscal year 2012. His column said that:
“One of the crucial moments of his presidency came in April of last year. Usually, presidents lead by proposing a budget and everybody reacts. But Obama decided to hang back and let Representative Paul Ryan propose a Republican budget. Then, after everybody saw the size of the cuts Ryan was proposing, Obama could come in with his less scary alternative. That is cageyness personified.”
Actually, President Obama did put out a budget in February of 2011, two months before Representative Ryan put out his plan.
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