A decade ago, I was a fractional-reserve banking skeptic. Today, I’m all for it. Here’s why.
Americans spend $400 billion dollars per year to comply with the tax code. Americans also dedicate 9 billion hours of labor to comply with the current tax code. Beyond costly compliance, the current tax code distorts investment and work decisions in the economy. Something needs to be done to simplify the tax code and make it pro-growth.
When people refer to the national debt, they almost always mean the debt owed by our government. But there are actually two important types of debt in the American economy: government debt, and private debt owed by households and businesses.
Many economists have argued that government mortgage programs and low interest rates policies caused the 2008 financial crisis. We maintain that government deposits insurance, provided in the United States by the Federal Deposit Insurance Corporation (or FDIC), may have also been a contributing factor. By failing to price risk fairly, the FDIC encourages banks to increase their risk-taking activities.
The Bipartisan Budget Act of 2015 suspended the debt ceiling through mid-March of this year. On March 16, the debt ceiling was raised to the current level. When the debt ceiling is reached, the Treasury will not be able to issue more debt to borrow new funds from the public. Instead, the Treasury must take extraordinary measures to raise cash. Extraordinary measures are policies that temporarily lower the national debt by reducing the Treasury securities held by government agencies—known as intragovernmental debt.
Ongoing federal budget deficits have required the U.S. Treasury to issue substantial amounts of debt to finance government spending. The Treasury has been able to easily issue debt since the federal government enjoys the highest credit rating, which lowers the interest rate that creditors demand. Historically low interest rates in general have further helped limit interest expense.