ECON 375 Lecture Notes - Lecture 8: Fiscal Policy, Friedrich Hayek, Taylor Rule
Document Summary
The title of this piece is a perfect summary of the information it sets forth. The author argues that government debt is actually good for the economy, contrary to popular belief. Debt, especially when it can be financed by today"s low interest rates, is a way of investing into the future. The debt of governments also benefits investors through proper risk management and accessibility to cash. Us treasury bonds are looked at a safe haven, as the chance that the government defaults is perceived to be low. But the interest rates on the bonds are almost too low- investors seeking a higher return will seek out riskier assets, which could lead to an entire additional set of problems. To increase the interest rates to a desirable level would require increasing government debt. The less the government spends, the more they set us up for future crises. Quite the opposite of what they originally intended.
