“For years, we lived in a world where there was basically zero risk premium on U.S. debt,” Jared Bernstein, the former head of Joe Biden’s Council of Economic Advisers, told me.
“In four short months, Team Trump has squandered that advantage.”
“For years, we lived in a world where there was basically zero risk premium on U.S. debt,” Jared Bernstein, the former head of Joe Biden’s Council of Economic Advisers, told me.
“In four short months, Team Trump has squandered that advantage.”
Let’s pretend there are only $100 in our imaginary economy which buys and sells a limited supply of 100 bricks at $1/brick. You ask to borrow $50 to buy 50 bricks, so a lender loans you $50, to be repaid with 10% interest. You work and are paid from the other $50 owned by others. Eventually, you pay back $55 (due to interest). There’s still only $100 in the economy throughout this exercise, just the relative proportions owned by people change.
Alternately, the government prints that $50 and gives it to you (this is a gross oversimplification of quantitative easing). Now there are $150 in the system. The brick sellers know the government has done this and that you have more money, so they bump up their prices to $1.50 simply because they want the most money possible. $1 now buys less, 33.3% less.