[PEN-L:32599] re:am i wrong in recalling conservative mantra from past about gov't deficits causing (or resulting in)

[Gassler Robert <rsgassle@xxxxxxxxx>]

You are not wrong. Before Reagan the Democrats said deficits were okay since the deficit was falling as percent of GNP, and the Republicans cried about crowding out. Government deficits increase the demand for loans, raising interest rates, reducing the amount of borrowing firms can do for their new factories and equipment. It is easiest to show on a supply-and-demand diagram with loans as the quantity and interest rates as the price.

Reagan increased the deficity enormously; later analysis showed that at least 2/3 of it was tax cuts and spending increases, not the recession (which was the biggest since the 1930s). Democrats started worrying because the deficit was rising as a percent of GDP, and Republicans were told by the Reagan Administration to stop complaining about the deficit. They did, except for Martin Feldstein, who got into trouble.

The fact is that interest rates did not fall. Why not? Because starting in 1982 the Fed was lowering them through its monetary policy.

The new partisan attitude toward deficits dates from that time.

Hope that helps.

Scott Gassler

>am i wrong in recalling conservative mantra from past about gov't deficits causing (or resulting in) high interest rates because feds
>crowd out private sector (or something like that), white house
>people are saying there is no relation between deficit size and interest rates and are pooh-poohing 'fiscally responsible' dem
>criticisms...   michael hoover
>
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