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Does anybody want to have a reasonable discussion on Interest Rates
12 Sep 2025 7:26 am
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Economic Prism - The Unvirtuous Cycle of Rate Cuts
E
Economic Prism
to me
2 hours agoDetails
From the Desk of MN Gordon
The Unvirtuous Cycle of Rate Cuts
Economic Prism
Friday, September 12, 2025
Knoxville, Tennessee
Rate Cuts to the Rescue?
President Trump wants rate cuts. Stock market investors do too. As do home buyers.
Their reasons are slightly different. But they all generally believe rate cuts to be the path to greater riches and glory.
Trump wants cheaper credit for several reasons. First, he wants cheaper credit so the Treasury can better finance the U.S. government’s massive $37.5 trillion pile of debt.
The 2025 fiscal year ends September 30. Through August, the federal government has run a budget deficit of $1.97 trillion. About half of this – $933 billion – was merely to cover the interest on the debt.
If interest rates were to drop by a percentage point or two the annual debt interest could fall by several hundred billion. This may buy a little time for the U.S. government’s fiscal reckoning. But it really wouldn’t change anything.
The U.S. government is on target to run a budget deficit of $2.2 trillion for FY 2025. Lower interest rates, and thus a lower net interest payment, would only reduce the deficit to around $2 trillion – a difference of just over a half percent of the total $37.5 trillion of outstanding debt. In other words, it would do exactly diddly-squat for the nation’s finances.
Trump also wants rate cuts because he thinks it will boost the economy. The big idea is that lower borrowing costs stimulate business activity. For example, a business owner may be enticed by lower interest rates to borrow money to expand operations. This could mean buying new equipment, opening a new location, or investing in new technology.
Lower interest rates can also provide a boost to consumers. Lower borrowing costs for mortgages, car loans, and credit cards mean that monthly payments go down. This leaves consumers with more disposable income to spend on other things, like dining, shopping, or taking vacations."
Secure, fast & organized email
OPEN
Economic Prism - The Unvirtuous Cycle of Rate Cuts
E
Economic Prism
to me
2 hours agoDetails
From the Desk of MN Gordon
The Unvirtuous Cycle of Rate Cuts
Economic Prism
Friday, September 12, 2025
Knoxville, Tennessee
Rate Cuts to the Rescue?
President Trump wants rate cuts. Stock market investors do too. As do home buyers.
Their reasons are slightly different. But they all generally believe rate cuts to be the path to greater riches and glory.
Trump wants cheaper credit for several reasons. First, he wants cheaper credit so the Treasury can better finance the U.S. government’s massive $37.5 trillion pile of debt.
The 2025 fiscal year ends September 30. Through August, the federal government has run a budget deficit of $1.97 trillion. About half of this – $933 billion – was merely to cover the interest on the debt.
If interest rates were to drop by a percentage point or two the annual debt interest could fall by several hundred billion. This may buy a little time for the U.S. government’s fiscal reckoning. But it really wouldn’t change anything.
The U.S. government is on target to run a budget deficit of $2.2 trillion for FY 2025. Lower interest rates, and thus a lower net interest payment, would only reduce the deficit to around $2 trillion – a difference of just over a half percent of the total $37.5 trillion of outstanding debt. In other words, it would do exactly diddly-squat for the nation’s finances.
Trump also wants rate cuts because he thinks it will boost the economy. The big idea is that lower borrowing costs stimulate business activity. For example, a business owner may be enticed by lower interest rates to borrow money to expand operations. This could mean buying new equipment, opening a new location, or investing in new technology.
Lower interest rates can also provide a boost to consumers. Lower borrowing costs for mortgages, car loans, and credit cards mean that monthly payments go down. This leaves consumers with more disposable income to spend on other things, like dining, shopping, or taking vacations."