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Debt Doves Are Making a Big Gamble

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Debt Doves Are Making a Big Gamble

December 22, 2020

Bond-Yields-History

Some economists and commentators argue there is no need to worry about debt anymore. They don't just mean short term pandemic relief.  Some, like journalists Annie Lowery,  say we should run big debts in good times too. This is a big risk because if rates increase, servicing the debt may crowd out other services. One argument is that interest rate have been low for so long we can count on them to stay low in the future. But as the figure shows, rates can't go much lower. Savers won't invest in assets with large, negative returns. And if rates return to anything close the their historical average, we may not have so much fiscal space to spend the next time there's a big shock that shatters the economy. 

Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.

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