Wednesday, March 11, 2009

Hungry money

I think it might make sense to refinance our public debt to a lower interest rate. I put up a post last week about it here.

One reason we can get such a low interest rate for our public debt right now is that money is scared to take risks. It seems to me that if we can absorb this money at a low rate of return, releasing money that was earning a higher rate of return, then we may boost money's appetite for returns and thus risk. Those who were satisfied with 6% bonds may not themselves choose to invest in 2% bonds once they have received their reward for tuning in their bonds early. These investors may be a little more bold than the 2% bond customers and wish to go bargain hunting in the stock market or look to invest in banks. This hungry money may help to boost the economy by taking on a little more risk than the currently available money would do. After all, the money invested in public debt has not been burned the way the rest of the money has been so it has a right to feel more confident.

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