Another Lesson in Monetary Policy, Now With an Understanding of Negative Real Interest Rates
This function of low interest rates also applies to money borrowed by the U.S. Government. The interest rates on most U.S. Treasury Securities, aka Government Debt/Bonds, are also so low they are negative real rates. Investors are foregoing return on investment and handing long term value over to the U.S. Government to be able to invest their money in U.S. Debt. U.S. Debt securities are one of the most sought out, and safest investments in the world, despite a public debt to GDP ratio of 100% and increasing. They are widely held when there is a lot of downside risk to other investments, private or public, in a weak market. Because of that demand, the interest the U.S. Government pays on its debt is very low, and negatively real. But also, The Federal Reserve, although not an official U.S. Government Public institution, is the main broker to the wider market for U.S. Treasury Securities. So, it is through their large holdings, and ability to create money for additional purchases, that they can majorly influence the supply & demand for the Government debt. Through that influence is how the Federal Reserve influences wider important interest rates, because actually, interest rates on U.S. Treasury Securities are a benchmark rate for most other interest rates. I will conclude again by dismantling fear based criticisms of inflation, central bank money creation, and government debt. Like I said before, low interest rates and inflation from money creation, is a fuel for short term economic activity. But unlike what some ideologies insist, this is not leading to out of control inflation. Like central banks can encourage inflation and counteract deflation, they are mandated to and able to counteract inflation. But in economics it is much more taboo to say they encourage deflation. Also, like previously stated, inflation is rather low despite what fearful ideologues say. They point to higher costs of energy (oil&gas), food, and commodities in general, but those are not true indicators of inflation. True inflation is what is measured at what is called core. Also, rising prices for those products are due to a many other contemporary global factors, including the obvious supply & demand, much more so than they are influenced by monetary policy. The most common understandings of inflation are, in general, misrepresenting, and unfortunately is something feared when it is needed in weak economic times.