Jim Devine wrote:
>I would expect a surplus-financed tax cut to raise interest rates.
why? cet. par., buying up government debt raises the price of government
bonds, notes, and bills, which _lowers_ interest rates. What a tax cut
might do is simply slow down the purchase of government debt instruments
and thus _slow down_ the fall in rates. (This fall is of course encouraged
by the current growth recession.)
Barney, your argument is very close to being an orthodox "crowding out"
argument, one which I think is fallacious.
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And Ellen Frank wrote:
>Since the surplus is currently being held as government bonds, I would
>expect a surplus-financed tax cut to raise interest rates.
Why should this be so? Why is it all of a sudden conventional
wisdom that interest rates are determined by the federal
budget rather than by the Federal Reserve? Just remember that
mortgage rates and the prime rate went up last year, even
as Clinton's Treasury was retiring over $100b in debt.
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Was not the entire basis of the Clinton economic program, the entire basis
of his taking credit for the growth during his term, the fact that he
increased taxes in 1993, thereby reducing the budget deficit, thereby
causing a decline in interest rates, thereby causing economic and employment
growth?
If crowding out is fallacious, and there is absolutely no link between
budget deficits and interest rates, what is one to think of the efficacy of
President Clinton's policies as a contributor to economic growth?
David Shemano
