Krugman: Deficit Hawks Trying To Scare People With Big, Out-Of-Context Numbers

Krugman: Deficit Hawks Trying To Scare People With Big, Out-Of-Context Numbers
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We're not going to hit 100 percent (of GDP in debt) until a decade from now. And countries have gone above 100 percent. I mean, if you actually ask about the interest cost, particularly inflation-adjusted interest cost, you know, we're now paying 1.2 percent real interest rate on federal debt. Even if you add 50 percent of GDP in debt, which I don't think is going to happen, that's still only a fraction of a percent of GDP in additional debt service costs.

Washington Post columnist George Will, a vocal deficit hawk, pushed back: "But even unreasonably cheerful assumptions about economic growth and interest rates, we're apt to be spending in 10 years $700 billion a year servicing our debt."

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Moreover, as Huffington Post's Ryan Grim reported recently:

The focus on the deficit is also fraught with economic miscalculations. Long-term interest rates are extremely low, despite the hysteria, and the U.S. government is well positioned to meet its obligations indefinitely. The Chinese government, meanwhile, which holds a pile of U.S. debt, has little recourse other than to continue to buy U.S. bonds.

The Nation's DC editor Chris Hayes put it succinctly, using an old saying, in a recent column: "'When you owe $100,000, the bank owns you. When you owe $100 million, you own the bank' -- and it aptly describes the US relationship with China, which holds approximately 70 percent of its 2.3 trillion foreign reserves in dollars."

Nevertheless, deficit hawks are threatening a dramatic move to force cost-cutting plans, as McClatchy reported on Monday. ...