Question for economics policy wonks

[RaulGroom]

Please answer the following factual questions. For some reason these tend to arouse suspicion, but please direct yourself to my DU articles if you fear I am a "troll." I need this information for an article (it has already been submitted, so it's really for my own peace of mind.)

Actually the only question is this - are the following statements factually true?

1) Clinton, in contravention of the usual strategy, used mainly short-term borrowing to finance the debt.

2) The GAO uses the current short-term interest rates to calculate the long-term costs of this strategy.

3) Bush is financing the debt the same way and using this accounting trick.

4) The current deficits, adjusted for inflation, are the largest dollar amount in history

Thanks for your help.

[leftyandproud]

1. I don't see any questions. *NT*

[Maple]

2. There is one

"Actually the only question is this - are the following statements factually true?"

[leftyandproud]

3. ok

I don't know about 1-3 but #4 is false. The debt during WW2 was FAR greater adjusted for inflation--accounting for something like 70% of GDP vs 2% now

[RaulGroom]

4. Sadly, #4 IS true

Although expressed ambiguously. I am talking about 10-year projected deficits, and I was able to do that math on my own yesterday, ironically using numbers from conservative websites.

One year during WWII, the U.S. ran a deficit of about $500 billion, expressed in 1996 dollars. But at no time have we projected structural deficits of this magnitude over 10 years.

Also, next year's deficit is projected at over $500 billion, so we may yet see the largest single year deficit in history on Bush's watch, in addition to the largest long-term deficits.

The story is up now, so it's academic at this point anyway. Thanks for the input, though.

[rapier]

5. notes

I have no idea what interest rate assumptions are used in the GAO estimates. While the duration of the debt, skewed short or long, will affect the total interest cost the biggest factor over the long term is the interest rate itself.

Shorter term debt is almost always cheaper than long term, yes.

I think there was a trend to shorten the maturity of the debt during Clintons term but that has accellerated under Bush. Long term bonds, the 20 and 30 year ones have been ELIMINATED by the Bush Treasury.

As long as we are in deficit in any year we are obviously not paying off any old debt. This means that when say an old 30 year bond matures we have to go out and borrow that money again, in essense. If you shorten the duration of the total debt that means that you end up having to make a lot more sales. The market is starting to choke on these sales. While at this point the shortening of the duration of the total debt may not be a big factor in this, the biggest factor is the sheer size of the current debt, going forward it could be big trouble.

Then ending of the long bonds was a foolish move and was done, I believe, to manipulate interest rates in a crude way. Since there was no longer going to be any 30 year T bonds they became scarce and in a small way that led them to be bid up. (When bond prices rise it means lower interest rates, Or to put it another way, bond prices move inversely to interest rates) At any rate the long end of the yeild curve (the yeild curve being a chart showing the slope of interest rates vs duration) was helped down by killing long bonds. Prudence suggests, no demands, that when interest rates are low, as they have been over the last year, that you should borrow long. Uncle Sam did the opposite. Corporations went nuts the last year borrowning long.

This years debt in dollar terms is the largest, It isn't the largest in terms of GDP. Nor is the total debt, by a long shot. That occured during and after WWII. This is not to discount the problem.