Zero interest rates in the US?…. Bloomberg

Noah Smith, Bloomberg, discusses the real possibility of zero interest rates in the US, here…

Debt continues to increase:

“Why is this a problem? If the government decides to cut deficits by raising taxes even more than the CBO predicts, it could slow the economy. If it decides to let the debt grow, it will have to borrow more and more in order to cover its increasing interest, and both borrowing and interest costs will snowball. That could provoke what the CBO calls a fiscal crisis — a private investor panic about the government’s ability to repay its debt, causing a drop in bond prices that render financial institutions insolvent and causing an economic crisis.”

Therefore, the Fed will keep interest rates low (and lower)…

Here is Smith:

”But there’s a possibility that long periods of low interest rates have negative consequencesthat don’t appear in traditional economic models. For example, low rates might encourage the survival of unproductive zombie companies, or it could allow monopolies to dominate markets with cheap borrowing. These potential downsides are not well-researched or well-understood yet.”