this post was submitted on 26 May 2025
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“For years, we lived in a world where there was basically zero risk premium on U.S. debt,” Jared Bernstein, the former head of Joe Biden’s Council of Economic Advisers, told me.

“In four short months, Team Trump has squandered that advantage.”

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[–] MrZee@lemm.ee 27 points 4 weeks ago (1 children)

This article is mostly talking about an economics concept of “r vs g”, which the author describes as follows:

As long as a country’s economic growth rate (g) is higher than the interest rate (r) it pays on its national debt, then the cost of servicing that debt will remain stable, allowing the government to roll it over indefinitely without much worry.

I’m not an economist, but this seemed odd to me. I suspected the author might not understand economics and the concept might more complicated than they were making it out to be.

A quick search on “r vs g economics” seems to indicate that this author has no business writing about economics. Here is the first result I clicked on, which near the start of the article states:

One approach to assess the sustainability of federal debt was popularized by Olivier Blanchard, in his speech as outgoing American Economic Association president, in 2019. That paper was written during a period of low interest rates and noted the relationship between the interest rate on government debt (R) and the growth rate of the economy (G): R less than G could imply a stable debt trajectory. However, Blanchard, as well as other economists and fiscal policy experts, recognized that the framework only holds true when the deficit excluding interest payments is small, which unfortunately is not the current case in the United States.

That makes a lot more sense to me. The economics concept applies when the deficit is small. The US deficit is not small. Regardless of R vs G, a large deficit means that debt is becoming more of a burden, even if R is less than G. Yes, R getting closer to G or exceeding G increases the burden of US debt, but R vs G isn’t all that matters like the writer of this piece in the Atlantic claims.

…At least as far as I can tell… But it’s late, I’m tired, and I’m not an economist. I’d love to hear what one has to say about this article, even if they tell me I’m totally wrong.

[–] Olap@lemmy.world 18 points 4 weeks ago

Arguably the deficit and level of debt doesn't matter either. After all, both have been higher in times gone by as a gdp ratio. So this is then a question of how much debt will a government be willing/allowed to take on?

Due to money not being backed by anything physical, debt itself is used as an inflationary measure in order to then lead interest rates, and is the biggest market leaver a government has. Adding more money (debt) to a relatively inelastic economy means that goods will cost more as market forces say there is more money for the same stuff. In the case of tax breaks, the theory goes that these companies will invest. But what is actually happening is Trumps mates are doing lay-offs and pocketing more and more profit.

So, Trump is showing his desire to make things cost more (something that negatively affects the bottom of the economy far more than the top) and by spending more on tax breaks instead of investment; he is literally stealing from the poor to give to the rich. And that's easily verifiable by asking: who ultimately owns the government's debt, and who is getting richer?

That's right suckers, Trump is taking his whole voter base for a ride