Former Bush 43 economic policy adviser Lawrence Lindsey points out in today’s Wall Street Journal that our economic situation is actually worse than it’s made out to be.
First, a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.
The 10-year rise in interest expense would be $4.9 trillion higher under "normalized" rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.
GOP Presidential contender Tim Pawlenty has set a goal to get the U.S. economy growing at 5 percent, a rate not seen since the Reagan administration. He’s been called unrealistic (and various other sundry names) by the political left—despite the fact that Obama administration estimates have the economy growing at a 4.1 percent clip. Apparently the difference between reasonable and wacko crazy is nine-tenths of a percent.
What’s going to happen when the economy begins to recover? Whether it’s Obama’s 4.1 percent or Pawlenty’s 5 percent, or even something more modest in the 3 percent range? Will interest rates begin to rise? The numbers can’t stay so close to zero forever.
I’m beginning to think that the light at the end of the tunnel (Obama’s defeat in 2012) may just be an oncoming train.