Sunday, March 07, 2010

Debt Is Never Cheap

Paul Krugman is back at work reassuring the public that limitless debt is perfectly okay in his blog post Friday. We can, he says run up debt pretty much forever because even long-term interest rates are currently very low, and paying the interest on the debt will cost us very little. His assurance is based on the cost of those loans being only in payment of interest, and that the principle needs not ever be repaid.

But, he's talking about bonds, and they mature after a certain number of years, at which point we have to give the money back to the parties holding the bonds. That is not optional. No problem, we just sell more bonds. Great, and what is the interest rate at that point in time, Paul?

How did those low introductory "teaser" rate home mortgages work out, again? What happened after the initial period of low payments of interest only at a low interest rate, when the interest was adjusted upwards? Oh, right, the grits hit the fan.

There is no free lunch, whatever Paul Krugman believes.

No comments:

Post a Comment