I was thinking of writing something about the stupidity of those who scream INFLANTION!!!! at every turn when I heard this: “…that put our deficit on a glide path to more sustainable level…” from Timothy Geithner in an interview with Jeffrey Brown of PBS’s NewsHour on May 17, 2012.
Glide path? Excuse me, but what the hell does that even mean? Does the Treasury Secretary even understand what he’s talking about? Glide path is apparently his way to try to use the aviation parlance “glideslope” (electronic vertical guidance transmitted to aircraft on an Instrument Landing System (ILS) approach) to say the deficit should descend at a gradual rate. The standard descent rate on an ILS predicated on a 3° angle: 1,000 feet for every three nautical miles traveled over the ground, so maybe Geithner is implying there is a standard descent rate for the deficit. But then what does it mean to get on glide path? Were we above glide path, requiring a significant drop in thrust and a significant increase in the rate of descent? Or are we below glide path? Does that imply we increase power like an aircraft must to reestablish itself on “glide path?” This begins to demonstrate why economic matters should be explained in economic terms, not some other discipline’s.
Yet a standard, unchanging rate of reduction of debt makes sense, right? Our debt is unsustainable; Secretary Geithner even says so in his remark. We can’t afford it! After all, the interest rate on Treasury-issued government debt has—sunk through the floor. 10 year rates on 5/23/2012 were 2.39%. Compared to 2007/2008 fluctuating between 4.0-5.1% until November 2008, when the deficit shot up and interest rates started to drop. In 2012 alone, interest started the year at 2.64% and has had trouble getting to 3.0%–that only occurred when inflation momentarily rose with rising oil prices in March due to oil refinery shutdowns pushing up the price of Brent crude.
10-year rates—what about short term rates, one might ask? Daily rates for 4-week notes ranged in the 4.9% to 5.1% range in the first half of 2007 and hovered around 3.0% at the beginning of 2008 before—dropping to 0.11% by the end of the year. It hit 0.10% once this year, and the 52-week note managed to twice top—0.20%. Going back to Secretary Geithner, I have one question: HOW MUCH MORE DO INTEREST RATES HAVE TO DROP FOR THE DEFICIT TO BE SUSTAINABLE? At the “glide path” we seem to be on, deficits truly won’t matter because eventually interest charges will disappear seeing that treasuries will be yielding 0% over all timeframes. But this is all boring, a rehash of what every sane economist has been saying since rates started to drop accompanied with the United States’ descent into a liquidity trap.
I really wish this would shed some light on convincing the public-at-large what the zero-lower bound really is, but I know it won’t. Besides the fact that it is likely no one other than myself will ever read this, most economists (saltwater and freshwater included) seem unable to see that the Federal Reserve did not drive these rates down so low. Disinflation did.