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The Economists' Voice 2.0The Financial Crisis, Health Care Reform, and More$
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Joseph Stiglitz and Aaron Edlin

Print publication date: 2014

Print ISBN-13: 9780231160155

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160155.001.0001

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Dr. StrangeLoan

Dr. StrangeLoan

Or, How I Learned to Stop Worrying and Love the Financial Collapse

(p.142) Chapter 18 Dr. StrangeLoan
The Economists' Voice 2.0

Aaron S. Edlin

Columbia University Press

This chapter describes how the U.S. government came close but missed its chance to solve the problems of debt and taxes. For years, government debt has soared. The Treasury borrowed more and more funds and the government paid obscene sums in interest to service the debt. All that almost came to an end on Wednesday, September 17, 2008, when the interest rate on ninety-day Treasuries fell to three basis points. That is 75 cents of interest on $10,000 of borrowing. Government borrowing was essentially free. And the interest rate, falling fast, seemed sure to go negative. Negative interest on Treasuries would mean no more costs from servicing the debt. People would be paying the Treasury for the privilege of using their money. The Bush administration, however, came up with a plan to bail out the private financial system, destroying the Treasury’s competitive advantage by shoring up the Treasury’s competitive rivals in borrowing. Not only does the government now bear the costs of other borrowers failing to repay, but it must now again pay significant sums for its own borrowing.

Keywords:   government debt, Treasury rates, negative interest, fiscal policy, borrowing, financial regulation, bailout, private financial system

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