EconAir

Secretary of the Treasury UPDATE (10/2026) Some general background. Since 2000, the net government debt of America has tripled as a percent (share) of GDP. If the U.S. had to refinance (not reduce) all of its government debt at the current interest rate of a five-year bond, it would need higher taxes or spending cuts equal to 4.7% of GDP. That would cause a recession. Most of the U.S. national debt has to be refinanced in the next five years. Nobody believes yearly deficits will be eliminated or even reduced significantly. One reason is that interest expense is rising. The new (hopeful) goal is that government debt as a percent of GDP will fall over time. In other words, nominal GDP will grow faster than government debt. Possible but unlikely. Even to achieve a stable debt/GDP ratio, the government would have to run a "primary" budget surplus, that is, a budget surplus before interest expense. For the U.S., it would be about 1.0% of GDP (about $300 billion). Instead, the ...

  The Red Queen's Race TWO DEFINITIONS   Fed funds rate .    The Fed funds rate is the interest rate banks charge other banks that borrow their excess reserves. It is a very short-term (overnight) rate. An increase in the Fed funds rate increases the cost of capital of large banks (net borrowers) and puts pressure on these banks to raise their lending rates. A change in the rate also changes the rate charged by other sources of short-term funds.   The Fed funds rate is the most watched interest rate in the United States and probably the world. It is not set by supply and demand in financial markets. It is set (fixed) by the Federal Reserve Bank (the Fed), America’s central bank.    The Fed funds rate determines or heavily influences almost all other short-term interest rates in financial markets. It also indirectly influences many other longer term interest rates. It summarizes how the Fed views the economy and near-term changes. It is at the heart of ...