Tek, I am taking political considerations out of my argument about interest rates. I am suggesting that we had and are going to have shortage of T-bonds and bills. The reasoning is as follows. Last year the total debt increased as you say, by $188 billion, namely, from the beginning to the end of the year, the US debt increased that much (you call it actual deficit and I call it total cash outlays). However, all holders of US debt received a total of more than $308 billion in interest. When the debt and interest held by such people is paid (rolled over), you find that there is $120 billion more money that needs to be reinvested over the actula cash demanded to support the increase in debt. Since most oof that money is reinvested back into government securities, just this imbalance creates demand. I think that you will find that this demand was satisfied, by foreigners (Japan) not buying back with all their money US treasuries, but converting about $120 billion back into yen.
If this year is similar to last year, there will be a shortage of treasuries as well, and thus lower interest rates, particularly, if together with that effect we have a slightly deflationary enviroment.
Zeev |
