Does the government keep interest rates low to lower the cost of its borrowing?

[Howard_Roark]

The Federal government is the largest borrower in the world with $14 trillion in debt, and yet it has the ability, through the Fed, to lower interest rates and the cost of borrowing money. This seems like an enormous conflict of interest when you think about it. It lowers them officially because they claim it will spur economic growth, but when you really think about it anyone with savings in the form of bank deposits or fixed income investments is basically getting ripped off because there money is earning less. Whose really benefitting economically is the government and anyone working for it, doing business with it or receiving payments from it. It's basically a massive transfer of wealth from savers to spenders, in this case the government.

 

[malkusm]

Well, it might account for some part of it, but I think the real reason is that too many government economists really, truly believe the Keynesian method of spurring short-term consumption through disincentives to long-term investment.

 

[Jordan]

It's a pretty great way to tell American investors that they better go invest overseas.

Financial services lead US exports. Why not have investors take their dollars overseas, invest them, and bring the cash back home? Fed buys US debt indiscriminately (OM NOM NOM), US investors go out and buy debt obligations from other countries/companies, but also equity in devalued stock markets.

Whether or not you like it, of course, is up to you.

 

[efiniti]

Does the government keep interest rates low to lower the cost of its borrowing?

You mean the Central Bank (the Fed). Yes, but only for the banks. The big banks get to lend to each other without competition and the government gets a steady buyer of its debt.