According to the latest conservative meme, our Satanic debt load has caused T-Bill returns to outpace corporate bond returns, which is as sure a sign as horseman that we’re all going to be peddling apples on the street. One of Nate Silver’s wonky underbloggers begs to difffer, in a long, non-panicky analysis of the T-Bill market.
According to this guy, the Treasury security market is in a middle of a sell-off, because risk-averse investors are now willing to invest in stocks, corporate and junk bonds. Adding to that is an increased Treasury supply because of our debt, and a historically low interest rate of 4%.
In conclusion, we are seeing a move to a healthier economic environment where investors are more comfortable taking on more risk. That is the primary reason for the increase in long-term interest rates.
Hardly armageddon, but even if it is, as Krugman points out, a modest tax increase can fix our debt issues.
(That last link is via atrios, and, before you all say it, I get the irony of my use of “wonky underblogger”, especially given today’s posts.)
The Grand Panjandrum
I’m still recovering from the title of the last thread. Definitely fits in the Balloon Juice mode for cleverness and irony.
For some reason people who spend almost every waking moment decrying education and intellectual pursuit, and stridently voice denials of all things scientific that do not fit their worldview, then want us to take them seriously when they comment on fiscal and monetary policy? They want us to take them seriously? Seriously? That is ironic.
Roger Moore
Yeah, but what are the chances of the kind of tax increase needed to fix our debt issues? The Republican leaders have quite clearly indicated that taxes are only going to be increased over their dead bodies. Much as I would like to see that happen (both the increased taxes and the dead bodies), I don’t see it happening any time soon.
Martin
Isn’t the analysis as simple as ‘This is the bounceback from when T-bills were effectively yielding 0% because nobody trusted any other debt 18 months ago.’
Sly
@Martin:
Pretty much.
Napoleon
@Martin:
Yep.
@Roger Moore:
Well they clearly could use reconciliation for this, but the question is do you have enough Dem votes (and that is after the election because no one is going to raise it in an election year).
Sly
Krugman obviously never played the Red Alert series. We need to maintain a strong military edge in order to counter the Soviets’ Tesla Troopers and Terror Drones.
PeakVT
If conservatives feel that their T-bills are worthless, they can donate them to me. I promise to put them to good use.
JGabriel
So, in other words, T-Bills are a better buy than they were earlier this month.
Doesn’t really seem like something investors would normally complain about, except maybe the people who were planning to sell off their T-Bills this week.
.
JGabriel
@Martin:
I don’t know for sure, but, yeah, that’s my analysis too.
.
Mark S.
Well, that’s impossible. Would a tax cut work?
JGabriel
Roger Moore:
If we need it, we would only need about 2-3%, per Krugman, which might very well be covered by returning the highest tax bracket to its rates before the Bush tax cut. And that’ll happen when the Bush tax cuts automatically expire next year.
So, we’ll see.
.
srv
Let’s see, the DOW is only up like 60% over last year, no way there could be a stock bubble.
Brian J
@Roger Moore:
Well, we did just pass a major piece of legislation that raised some taxes even as it cut a lot of spending. Raising taxes would never be easy, but Krugman’s point was that dealing with any sort of trouble that may arise down the line won’t require the sort of tax increases that would break the Democrats.
Anyway, I think you should have linked to the Krugman post just a few spots below the one you mentioned above. There, he says:
Brian J
@JGabriel:
Not that Republicans would go along with it, but instead of increasing the income tax, how about we set up a stock transaction tax and, to replace whatever lost revenue wouldn’t be covered by that, a series of smaller taxes on soda or something like that? Perhaps the latter wouldn’t be hard, but the former is probably easiest out of any proposed tax increases, since it can be pitched as a response to the Wall Street bailouts.
Roger Moore
That will help, but I suspect we’ll need a bit more than that. Of course some reasonable spending cuts- like Krugman’s suggestion of not running expensive wars in Iraq and Afghanistan, or bringing runaway Medicare and Medicaid costs under control- could help quite a bit, too.
The flip side of that is that we aren’t spending enough on some other things. We really should be spending a lot more on infrastructure, and a fair amount more on education and basic research. Those things aren’t free, and some of the savings or increased tax revenue really needs to be spent on those things.
mistermix
@Brian J: Thanks, good link.
burnspbesq
I’m a little skeptical of Krugman’s claim that the US is a relatively low-tax jurisdiction.
It may be true on the individual side, particularly for those who are able to arrange to earn most of their income in the form of dividends and long-term capital gain.
But it’s easy to misinterpret the data on corporate income tax rates.
The US statutory corporate income tax rate, 35 percent (as high as 40 percent when state taxes are factored in), is relatively high (IIRC, of our major trading partners, only Japan and Italy have higher statutory rates).
However, there are two ways for the consolidated financial statements of a US-based multinational to show a low worldwide effective tax rate. One is to have a lot of deductions and credits against US income. The other is to earn a lot of income in low-tax jurisdictions – which could be income from real manufacturing and distribution operations in places like Ireland or Singapore, or it could be intra-group royalties on IP “owned” someplace like the Cayman Islands – and avoid having to provide for US income taxes on that income by representing to your auditors that it will be permanently reinvested abroad.
Bob K
So now we can has a sad for our selves?
They used to tell me I was building a dream, and so I followed the mob,
When there was earth to plow, or guns to bear, I was always there right on the job.
They used to tell me I was building a dream, with peace and glory ahead,
Why should I be standing in line, just waiting for bread?
Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it’s done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it’s done. Brother, can you spare a dime?
Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!
Say, don’t you remember, they called me Al; it was Al all the time.
Why don’t you remember, I’m your pal? Buddy, can you spare a dime?
Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!
Say, don’t you remember, they called me Al; it was Al all the time.
Say, don’t you remember, I’m your pal? Buddy, can you spare a dime?
toujoursdan
@burnspbesq:
But American corporations have all kinds of deductions and exemptions that companies in other countries do not have.
Once those are factored in, U.S. Corporate taxes are much lower than in other developed nations.
JGabriel
Brian J:
I’m not an economist (INAE?), but personally, I think a stock transaction tax, say a penny per transaction, or maybe .5%, is an excellent idea.
First, it would fund market regulation. No reason why the markets should get the benefit of regulation without paying for it.
Second, it might help make the markets a tad less volatile. No point in shooting for the quarter cent of profit per stock certificate if it’s gonna cost a penny per certificate to get it. There should be a small transaction cost to prevent huge, market moving, transactions over such piddling percentages of profit.
Third, the surplus from such a tax could help, as you note, reduce the deficit, or fund other programs or infrastructure.
I don’t know what the best rate or mechanism is, but, in principle, I think a stock transaction tax is an excellent idea.
.
Bob K
@ burnbesq
It’s what us DFH liberal socialists like to call “corporate welfare.” Except when you’re talking corporate it’s more like welfare queens in chauffeur driven bentleys taking gulfstream jets to their place in the Hamptons where they then spend their weekends cruising on their yachts. Anyone feel like storming the Bastille? Viva La Revolucion,
Bon Jour Madame Guillotine
mcc
There was some point recently where I saw a very low transaction tax being advocated just because it would discourage “high-frequency trading”, a market-distorting practice where autonomous computer programs will do things like issue zillions of trades in a second and then cancel them all as a way of basically tricking the other brokers’ computers into revealing information.