Skip to main content

Is it time for more economic stimulus?

  • Author:
  • Updated:

Should the evidence that our already-weak economic recovery is getting weaker, coupled with news from Europe that five countries have officially slipped back into recession, raise the specter of another stimulus package here?

If our recovery doesn’t regain momentum very soon, a serious look at another round of stimulus spending should be in order. It won’t be easy, of course. It will trigger an outcry about deficits and debt, the latter already surpassing $15 trillion and rising. We’ll hear terms like “unsustainable” and debt “heaped on our grandchildren.” And, the entire political harangue will likely take our focus off what should be most important and practical – “it’s the economy, stupid,” as Bill Clinton’s adviser James Carville famously said.

Growth should trump debt, claims Steve Conover, who has a doctorate in political economy, writing for the American Enterprise Institute. “In order to make clear the dialogue about the debt, it is first necessary to understand who owns it,” he explains. Here’s how it breaks down, according to reports from the Federal Reserve:

The largest holder of our government debt is (drum roll) - the government (31.2 percent). It owes the Social Security trust fund that’s been investing in U.S. T-bonds. We, the American public, come in second with 26.3 percent. The Federal Reserve is next at 11.1 percent. The remaining 31.5 percent is held by foreign central banks and individuals: China at 7.5 percent, Japan 6.9 percent, United Kingdom 2.8 percent, OPEC 1.5 percent and all other countries 12.7 percent. So, just how do we wrap our arms around this?

Contrary to political rhetoric, seeing the $15 trillion debt as something our grandchildren will have to pay off is the wrong focus. The fact is investors mostly opt each time their bonds mature to rollover into another T-bond. But, a very key metric used by investors is the level of “interest bite” i.e. that portion of the federal tax receipts needed to pay the interest on the debt. That is viewed as the measure of likelihood of repayment. And currently there’s good news there that seems to escape daily reporting.

While our national debt level might be rising, the interest rate on new debt is close to zero. That low interest rate results in a near-zero “interest bite” on any level of debt. Accordingly, the “interest bite” has been between 9 and 11 percent of tax receipts during the last few years, substantially lower than the 19 percent we topped out at during the Clinton presidency.

Not to be overlooked, however, Conover accurately warns that we must be aware that when the debt level rises, as it is today, any increase in the interest rate will quickly cause the “interest bite” to go up, too … unless it’s offset by additional tax receipts generated by a growing economy. There it is again – the need to focus on stimulating the economy!

The continuing low interest rates appear to offer an opportunity to stimulate the private sector economy back to real growth with carefully crafted spending programs and primarily with incentives for the private business sector. After all, fiscal intervention by government is only to halt economic decline in the short run. Genuine long-term growth depends entirely on the private sector’s economic success.

I’m no fan of growing debt or budget deficits. There are many ways Washington could reduce out-of-control spending and we should demand it. Nevertheless, with the economy seeming to be faltering again, and everything from borrowing rates to tax receipts solely dependent on the size, health and growth rate of our economy, it could be time to focus more on stimulating growth than worrying about the debt level. How do you see it?



Seabins Coming to Lake Erie

The devices, deployed as part of a pilot program, skim and collect debris from the water, including microplastics. Meanwhile, MBIA announces scholarship funds.


Boatsetter Reports Uptick in Rentals

The on-water experience company has seen triple-digit growth in pontoon and party-boat rentals, as well as fishing and yacht charters.


Smartgyro Signs Distributors, Hires Sales Manager

The company said the three U.S. distributors, working with Bob Walker, will help expand its dealer network and brand recognition.


The Upside of a Downturn

Economic challenges should push you to develop a strategy that helps you weather the storm and come out stronger on the other side.


Marine Travelift Launches Co-op Program

The company received its first student, a University of Wisconsin engineering major, in the seven-month paid co-op.


Trade Only Today Returns Tuesday

The e-newsletter will not publish July 4 in observance of Independence Day. We wish everyone a safe holiday weekend.


ORR Announces Federally Funded Projects

The U.S. Economic Development Administration prioritized outdoor recreation for the first time


Ten Ways To Sell in a Tough Economy

These keys to successful selling can help you create customers who keep coming back, even when sales dip