What Are Current Borrowing Costs for the Federal Government?

Remember Δbt = (r-g)bt-1 + deft , where b is debt/GDP, r is the real interest rate, g is the GDP growth rate, and def is the primary budget deficit/GDP ratio. What’s r?

Figure 1: Ten year constant maturity Treasury yield (black), WSJ October survey mean forecast (green +), CBO July projection (red), and ten year TIPS (teal), all in %. October 2020 is data through 10/26. Source: Federal Reserve via FRED, WSJ, and CBO.

27 thoughts on “What Are Current Borrowing Costs for the Federal Government?

  1. Moses Herzog

    I’m assuming this is a semi-subtle argument for fiscal stimulus in the short-term, with fiscal belt tightening somewhere down the line where it’s more logical and schematically pragmatic?? I tend to agree if this is the subtext here.

  2. pgl

    The current nominal rate = 0.8% and expected inflation = 1.7% so the current real rate = -0.9%.

    But your forecast has the nominal rate rising to 2% by 2025. If expected inflation = 1.7% in 2025 then the forecasted real rate is still a mere 0.3%.

  3. pgl


    The White House’s science policy office on Tuesday ranked “ending the Covid-19 pandemic” atop the list of President Donald Trump’s top first-term accomplishments, even as the country registers record amounts of infections and hospitals fill up again. The list, included in a press release from the Office of Science and Technology Policy credits the administration for taking “decisive actions to engage scientists and health professionals in academia, industry, and government to understand, treat, and defeat the disease.”


    What moron did they get to write this crap? What morons do they think will believe this lie?

    BTW the Wisconsin v. Nebraska Big 10 football game has been postponed. Someone from the White House needs to tell them to play the damn game as those positive tests are just fake news.

    1. Moses Herzog

      If “Damarius Jackson” scores 2-3 touchdowns in Saturday’s game, the NCAA doesn’t care if his grandmother caretaker/legal custodian of the first 18 years of his life gets Covid-19 and dies 2 weeks later after Damarius goes back home to visit. NCAA got their touchdowns and got their ticket sales and TV contract honored, so dead Grandma Jackson can go F*** herself.

      Of course the NCAA administrators and head coaches will phonily say “But Damarius has to play, we have to play the game ‘for Damarius’ future’ ” Watch what these NCAA admin fraudsters say on the one year wait on scholarships after a transfer or when they decide they want to red-shirt a guy because they got two 5-star athletes competing for the same spot, one a junior the other a senior. Then all this “We’re doing all of this for Damarius Jackson” shit goes right out the window.

    2. D Roger Pederson

      Not postponed, cancelled. The big ten doesn’t have any available time for rescheduled games.

      1. pgl

        Big Ten football fans will be steamed when they learn this game is canceled. Of course Trump took credit for starting the Big Ten season but yea he will blame this on the governor somehow.

  4. pgl

    First Jared Kushner tells black men that they are not successful because they do not try and now this?
    President Donald Trump’s son-in-law and senior adviser Jared Kushner boasted in mid-April about how the President had cut out the doctors and scientists advising him on the unfolding coronavirus pandemic, comments that came as more than 40,000 Americans already had died from the virus, which was ravaging New York City. In a taped interview on April 18, Kushner told legendary journalist Bob Woodward that Trump was “getting the country back from the doctors” in what he called a “negotiated settlement.” Kushner also proclaimed that the US was moving swiftly through the “panic phase” and “pain phase” of the pandemic and that the country was at the “beginning of the comeback phase.” “That doesn’t mean there’s not still a lot of pain and there won’t be pain for a while, but that basically was, we’ve now put out rules to get back to work,” Kushner said. “Trump’s now back in charge. It’s not the doctors.” The statement reflected a political strategy. Instead of following the health experts’ advice, Trump and Kushner were focused on what would help the President on Election Day. By their calculations, Trump would be the “open-up president.”
    Yes – the Bruce Hall strategy from the beginning. And if a lot of people die? Blame the governors!
    Kushner also described for Woodward the political calculations for the President — instead of coming up with a federal plan to tackle the virus, Trump put that responsibility on governors. In his April 18 interview, Kushner described how he believed Trump had set himself up to reap the political benefits of a successful containment of the virus while ensuring that state governors, and not the President, would be blamed for any failure to stop the spread. “The states have to own the testing,” Kushner said. “The federal government should not own the testing. And the federal government should not own kind of the rules. It’s got to be up to the governors, because that’s the way the federalist system works.” He went on: “But the President also is very smart politically with the way he did that fight with the governors to basically say, no, no, no, no, I own the opening. Because again, the opening is going to be very popular. People want this country open. But if it opens in the wrong way, the question will be, did the governors follow the guidelines we set out or not?”
    Let’s hear more from Richie Rich as Jared’s own words will insure a Biden landslide!

    1. noneconomist

      But it was good to hear from Jared on the subject of Black economic improvement. They have to WANT to succeed, just like Jared. Oh sure. Jared was born into wealth and has never worried about receiving a paycheck or having to worry about paying for health insurance.
      But he knows success and how to achieve it. When you’re born on third bases and you believe you ‘re there because you hit a triple, anything is achievable.

    2. Dr. Dysmalist

      The Trump/Kushner Plan: Privatize the benefits, socialize the costs. Where have we heard that before? I wonder if the big money center banks learned that from Trump’s prior “career,” or if he learned that from them both pre- and post-2008.

    3. Willie

      Jared’s mama didn’t spank him enough as a child. He needs it now. He is the poster boy for the banality of evil.

  5. macroduck

    If memory serves, a similar chart, showing a history of falling interest rates and a forecast of rising interest rates could be (and was) drawn at any point in the period represented in this chart. Yet the trend in rates, real and nominal, has remained downward throughout the period.

    Should we expect rates to rise, as the CBO and Goldman do? Yeah, probably, because we’ve come through a recession and rates have reached a new low. The pattern has been for rates to rise after each step down – random walk around a trend. The trend, however, has been downward. I’m not aware of any fundamental reason to expect a rising trend in interest rates starting now.

    At our present debt level, a sharp rise in borrowing costs would be a big problem. That risk should be part of our thinking about the fiscal balance. However, we have other big problems and allowing ourselves to be frozen by the fear of a possible rise in interest rates would be stupid. We should also keep in mind that limiting spending is not the only method of fiscal rebalancing. With both wealth and income disparities historically high, taxing the rich, through higher tax rates and elimination of tax shelters, could do a lot to reduce the risk from an interest rate shock.

    1. The Rage

      Your only talking about public debt. A large reason interest rates are so low, is private debt. Everything since 1980 and especially 2000 feels like a gold standard era credit bubble. Once the currency goes, it will be tragic.

  6. joseph

    Perhaps Thursday will be a good opportunity for Menzie Chinn to explain the use of the log difference approximation for a very large percentage decrease and very large increase in GDP. That is, a 30% nominal decrease followed by a 30% nominal increase doesn’t get you back to where you started.

    1. pgl

      When one compares real GDP as of 2019QIV to real GDP as of 2020QIII, it has declined by 3.5%. Simple and useful comparison that you will not hear from either this lying White House or our lame press.

  7. ltr


    October 27, 2020

    What to Look for in the Third Quarter GDP Report

    While we are virtually certain to see record growth for GDP in the third quarter, without a new stimulus package a drop is likely in the fourth quarter.

    We are virtually certain to see a record growth figure for GDP in the third quarter, likely close to 35 percent at an annual rate. The sharp growth is a bounce back from a record plunge in the second quarter, which followed a sharp drop in the first quarter, when the shutdown measures first started to go into effect.

    While this sort of bounce back following the shutdowns is encouraging, it still does not get the economy anywhere close to being back on track. The economy would have to grow at a 53.3 percent annual rate in the third quarter to make up the ground lost in the first and second quarters. If we assumed a modest 2.0 percent growth path, then we would need to see a 62.7 percent annual growth rate to get the economy back to its pre-pandemic growth path.

    There will be sharp differences across sectors in the extent of the recovery….

  8. ltr


    October 29, 2020

    Record 33.1 Percent Surge Still Leaves GDP 3.5 Percent Below Pre-Pandemic Level

    The trade deficit reached a record in the third quarter.

    GDP grew at a record 33.1 percent annual rate, as the economy bounced back from the pandemic-driven shutdowns in the second quarter. However, even with this record growth, the economy was still 3.5 percent below its pre-pandemic level. If we assume a modest 2.0 percent annual growth rate, the third quarter GDP would be more than 5.0 percent below the trend path from the pre-recession period.

    Sharp Divergences in Growth Paths

    There are very different growth stories depending on the sector. Goods output in most areas has largely recovered from the shutdown, with much of third-quarter spending the result of pent-up demand. Consumption of durable goods was 11.9 percent above the 2019 fourth-quarter level, as spending on cars, furniture, and recreational goods and vehicles were all sharply higher. Spending on nondurable goods is up a more modest 4.0 percent from the fourth-quarter level, mostly due to people buying food at stores instead of eating at restaurants.

    Spending on services continues to be badly depressed. It was 7.7 percent below the 2019 fourth-quarter level. Spending on recreation services was down 32.4 percent and on restaurants 19.5 percent, from the pre-pandemic level. Spending on health care is down 7.0 percent, while spending on transportation is down 23.3 percent from its pre-pandemic level.

    Housing is Booming

    Housing construction rose at a 59.3 percent annual rate, adding 2.09 percentage points to the quarter’s growth. Residential construction in the third quarter was 5.1 percent above its 2019 fourth quarter level. This reflects both extraordinarily low interest rates and the many people that opted to move in response to the pandemic and increased opportunities for remote work.

    Investment Shows Mixed Picture ….

  9. ltr


    October 30, 2020

    Defense spending was 59.7% of federal government consumption and
    investment in July through September 2020. *

    $887.3 / $1,486.6 = 59.7%

    Defense spending was 23.2% of all government consumption and
    investment in July through September 2020.

    $887.3 / $3,824.5 = 23.2%

    Defense spending was 4.2% of GDP in July through September 2020.

    $887.3 / $21,157.6 = 4.2%

    * Billions of dollars

  10. ltr


    Qiao Collective @qiaocollective

    Despite endorsements from China, Europe, Japan, and Africa, the U.S. has vetoed the appointment of Ngozi Okonjo-Iweala as the first African head of the World Trade Organization:


    Nigerian set for WTO nod, but US-China divided on leadership choice
    The race to lead the World Trade Organization is nearly run, with the Nigerian candidate looking most likely to take the reins of the Geneva body.

    10:39 AM · Oct 29, 2020

  11. ltr

    That the United States at this time would not choose to allow the World Trade Organization to be led by a Nigerian woman strikes me as similar to the US choice to withdraw from a World Health Organization being led by an Ethiopian man.

  12. ltr

    October 28, 2020



    Cases   ( 9,120,751)
    Deaths   ( 233,130)


    Cases   ( 8,038,765)
    Deaths   ( 120,563)


    Cases   ( 1,235,132)
    Deaths   ( 35,785)


    Cases   ( 942,275)
    Deaths   ( 45,675)


    Cases   ( 901,268)
    Deaths   ( 89,814)


    Cases   ( 479,621)
    Deaths   ( 10,359)


    Cases   ( 225,586)
    Deaths   ( 10,032)


    Cases   ( 85,868)
    Deaths   ( 4,634)

  13. ltr

    October 28, 2020

    Coronavirus   (Deaths per million)

    US   ( 703)
    Mexico   ( 694)
    UK   ( 672)
    France   ( 548)

    Canada   ( 265)
    Germany   ( 124)
    India   ( 87)
    China   ( 3)

    Notice the ratios of deaths to coronavirus cases are 10.0%, 4.8% and 2.9% for Mexico, the United Kingdom and France respectively.  These ratios are high, but have been significantly higher, while falling recently as new cases are recorded and treatment is increasingly effective.

  14. ltr


    October 29, 2020

    Donald Trump and Jair Bolsonaro Plot to Get Brazilians Killed
    By Dean Baker

    It’s not normal for a president of the United States to make plans with the president of an allied country, that is likely to get tens of thousands of people in that country killed. But we’re not talking about ordinary presidents; we’re talking about Donald Trump and Jair Bolsonaro.

    The goal of the Trump-Bolsonaro plot was to keep Brazil from getting access to a vaccine developed in China. China is apparently somewhat ahead of the United States in developing an effective vaccine. While the pharmaceutical companies in the United States have approached a vaccine by developing a new RNA method, the leading Chinese companies have pursued an old-fashioned dead virus approach.

    This allowed these companies to move more quickly * with their testing and get to the final Phase 3 stage of clinical trials before the U.S. companies. They also went the route of picking countries with high infection rates, like Brazil, to conduct their trials. A high infection rate makes it easier to determine how effective a vaccine is in preventing infections.

    Now that Sinovac, one of the leading Chinese companies, is concluding its trials, it is negotiating large sales of the vaccine to Brazil. Joao Doria, the governor of Sao Paulo, had negotiated a major purchase for the people in his state. Bolsonaro has sought to nix the deal.

    According to a press account, ** Bolsonaro made this decision after meeting with Trump’s national security adviser, Robert O’Brien. Trump apparently would consider it a setback in his contest with China for global stature, if Brazil were to adopt a vaccine developed by a Chinese company.

    Brazil ranks second to the United States in total deaths from the pandemic and is seeing close to 400 deaths a day. This means a delay in getting a vaccine of even a month can mean over 10,000 additional deaths. If the delay is longer, as seems likely, the number of needless deaths would increase accordingly.

    Bolsonaro’s claim is that he doesn’t want his country to be “anyone’s guinea pig.” But this is hardly the issue. Large-scale purchases of the Sinovac vaccine would come only after Brazil’s regulatory authority had determined that the vaccine was safe and effective. Bolsonaro’s move was purely an effort to satisfy his friend Donald Trump. He apparently has no more respect for the lives of the people in Brazil than Trump does for people in the United States.

    * https://cepr.net/its-not-vaccine-nationalism-its-vaccine-idiocy/

    ** https://www.scmp.com/news/china/diplomacy/article/3107222/brazils-coronavirus-vaccine-squabble-another-fight-over-us

  15. ltr

    When after all these months there are more than 90,000 new coronavirus cases recorded in a day in the United States:

    October 29, 2020



    Cases   ( 9,212,767)
    Deaths   ( 234,177)


    Cases   ( 8,088,046)
    Deaths   ( 121,131)


    Cases   ( 1,282,769)
    Deaths   ( 36,020)


    Cases   ( 965,340)
    Deaths   ( 45,955)


    Cases   ( 906,863)
    Deaths   ( 90,309)


    Cases   ( 498,353)
    Deaths   ( 10,435)


    Cases   ( 228,542)
    Deaths   ( 10,074)


    Cases   ( 85,915)
    Deaths   ( 4,634)

  16. ltr

    October 29, 2020

    Coronavirus   (Deaths per million)

    US   ( 706)
    Mexico   ( 698)
    UK   ( 676)
    France   ( 551)

    Canada   ( 266)
    Germany   ( 124)
    India   ( 87)
    China   ( 3)

    Notice the ratios of deaths to coronavirus cases are 10.0%, 4.8% and 2.8% for Mexico, the United Kingdom and France respectively. These ratios are high, but have been significantly higher, while falling recently as new cases are recorded and treatment is increasingly effective.

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