Political Animal


July 09, 2011 8:00 AM A real problem vs. an imaginary one

By Steve Benen

After the release of the June job numbers, there were plenty of worthwhile charts and graphs making the rounds, but this one from Paul Krugman was especially helpful.

In case it’s a little hard to see, that red line is the unemployment rate; the blue line is the interest rate on 10-year bonds. I realize the phrase “interest rate on 10-year bonds” probably isn’t one of those phrases that gets bandied about around American dinner tables, but the more serious a problem the deficit becomes, the higher that blue line would appear.

And therein lies the point: the blue keeps going down. Indeed, it hasn’t been this low in many decades. If the deficit were a drag on the economy, and the United States were facing some sort of debt crisis, that blue line would be through the roof. But that’s not even close to what’s happening.

Instead, we have that red line to contend with, which translates to a jobs crisis.

The only topic of conversation in Washington right now is a debt-reduction deal, which intends to address that blue line. But there’s no need to address the problem that doesn’t exist. There’s a critical need to address the problem that does — the red line — but thanks to GOP gains and the Republican majority in the House — there’s no political will to do so. On the contrary, Republicans have said if Democrats don’t agree to massive debt reduction — i.e., taking more money out of the economy when it needs the opposite — the GOP will crash the economy on purpose.

We’re in the midst of a deep political psychosis. Every time you hear political officials or pundits talking about the need to address the deficit, remember this chart, and keep in mind that they think the blue line is too high.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.


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  • c u n d gulag on July 09, 2011 8:23 AM:

    We live in a world now where touching SS is no longer the "Third Rail," but increasing taxes on the wealthy is.

    We also live in a world where stimulus and spending are four-letter words.

    As the Wicked Witch of the West said as she was dying, "What a world, what a world..."

    We are a nation bent on suicide!
    And who can stop us?

  • mike on July 09, 2011 8:28 AM:

    It's worse than that. They don't necessarilyn think the blue line is too high. They think that cutting deficit etc. etc., will fix the problem of the red line. Confidence fairies.

  • jcricket on July 09, 2011 8:34 AM:

    This country has deep pockets of stupid, willful ignorance.

  • berttheclock on July 09, 2011 8:37 AM:

    "there's no politicl will to do so"

    Hmmm, wonder why? No leadership from the top, perhaps? No hammering from the Bully Pulpit, until, possibly, it is too late?

    Thou Shalt Not Let Your Opponent Set The Agenda should have been the Mantra at 1600. Now, this deficit reduction is so embedded that one hears Democrats such as Claire McCaskill say it is a very serious problem. She did not speak of creating jobs, just raise the debt ceiling and reduce the debt. The White House let the Right control the debate to our detriment.

  • walt on July 09, 2011 8:46 AM:

    I assume Obama is in a thrall to the Confidence Fairies either out of class allegiance to the wealthy or fear of the Villagers wrath. Either way, the insanity in the graph speaks for itelf. It also speaks to the intractable decline of this nation. Obama may be a surprising drag on the national mood, a man unable and unwilling to focus our attention on reality. But what's really searing is how few people aside from Krugman, et al, even talk about this. I'm not sure "national psychosis" is the proper term but it is truly astonishing how the talking points of nihilists now comprise conventional wisdom.

  • golack on July 09, 2011 8:49 AM:

    Let's see...banks aren't getting much return on there T-bills...but if there is a "crises" they'll have to downgrade the gov't's rating and charge more interest. They have too, QEII has been phased out. How elae do you expect them to make money???

  • bob h on July 09, 2011 8:53 AM:

    The analogue of the regression of the economics profession might be medicine in the days when doctors applied leeches and bled the patient.

  • Anonymous on July 09, 2011 8:56 AM:

    The chart shows that if the economy heats up, then anyone with a vast bond portfolio would end up taking a beating. That is what the obsession about the deficit and debt is about.

  • Think about it on July 09, 2011 4:51 PM:

    Unfortunately, the US government has a variable rate loan and the politicians and economists like Krugman are only looking at the monthly payment. I say the scary thing is that the blue line is so low- when it does go up, the monthly payment is going to 'blow up'- just like thousands of variable rate mortgages. Then we will find out how 'subprime' the borrow that is the US is.

  • Leesburg Guy on July 09, 2011 5:49 PM:

    I would be a bit more sanguine about long term rates if the Fed weren’t totally distorting the market. Personally I think somewhat higher rates would be good for the economy. Millions of people with their retirement money in “safe” CDs are getting bumpkis on their holdings. My mother is elderly and we keep about $15K in her money market account for emergency needs. She gets less than a cup of McDonald’s coffee a month on those funds.

  • Craig on July 09, 2011 6:12 PM:

    Perhaps the stupidest observation I've read yet.

    Interest rates on the debt are low because the Federal Reserve Bank has been buying Treasury Bonds with newly-created money. Those rates have nothing at all to do with unemployment and I'm sure Mr. Krugman knows it.

    His readers know next to nothing, though. A fact proven by this article and one he counts on every week to keep his clicks coming.

  • JohnR on July 09, 2011 8:03 PM:

    "Those rates have nothing at all to do with unemployment and I'm sure Mr. Krugman knows it."
    Reading comprehension: Fail.

    "How is our kids learning?", indeed.

  • Doug on July 09, 2011 8:04 PM:

    I see the bars must have closed and the trolls have congregated here, instead.
    Why should I put an intelligent response out. There's not anything intelligent to reply to, just unsupported arguments.
    Oh, wait...

  • marcus nunes on July 09, 2011 10:11 PM:

    These two posts don´t mention interest rates but instead indicate that the unemployment problem is closely tied t the fact that money demand went up relative to money supply or, equivalently, that nominal spending took a "nose dive".
    So it´s not that we need more fiscal stimulus (which didn´t work anyway) but much better monetary policy!

  • Steve W from Ford on July 10, 2011 2:26 AM:

    Really? You ( and Krugman) think current interest rates are proof that US debt is not a problem?? Greek rates were under 4% as recently as 4 years ago and just over a year ago 10 year Greek bonds were yielding 4.5%.
    You know nothing about what you are talking about. The growing public debt of the US Government comprises a potentially existential threat to our country and you deniers blithely claim the party should continue. Hopefully after the crash the pitchforks will come out and mete out justice to you and your ilk.

  • Janus Daniels on July 11, 2011 6:13 PM:

    Please quote me:
    "Again. From Roosevelt into Nixon we had the the largest public investments and strongest unions and highest top tax rates in our history (some over 90%).
    We ended the worst depression, won the biggest war, built the most powerful military, created the richest economy, and established the most decent, fair, mobile, and prospeous society, that the world has ever known.
    And we rebuilt our allies. We rebuilt our enemies!
    Many wanted to continue the military, economic, and educational policies that gave us decades of unprecedented world leading success. Fortunately, wider heads prevailed, bringing us our last decade of dazzling... Oh.
    We got trickled."