That is federal interest payments divided by Nominal GDP. Does that go up or down over time? Yes, it has gone down to 2.5%, where it has remained since the crash.
Why has it become stuck.
One might think, wait, government can borrow today and its interest payments will be fixed as nominal GDP rises. Sure, unless rates and principal have equilibriated, which they have. DC is in continual roll over of bonds that are as old as the monetary cycles, 30 years, an waddya know, the monetary cycles is as old as the longest bond.
This was the big discovery that basket weavers at MIT discovered, there is a connection between the principal, term and rates. We have a name for this connection, the contract printed on the damn bond.
Krugman claims to have discovered the liquidity trap. No, that moron has simply discovered the Shannon sample rate corresponds to the longest bond on the curve. So the economy has equilibriated to the 30 year bond. The economy is not some yearly thing, it is a 30 yearly thing. That is why their DSGE error are large, they do not get the relationship between equilibrium times in the economy and variances.
How do economists deal with all the missing variance in their model? They stole expectations from the probability guys. But the probabilities guys know that expectation function only work if the full spectrum of the system is included in the model.
How did the economist screw this up?
I really do not know, but they also screwed up currency theory for 250 years. So it is hard to decipher what they think, hence it takes time to ferret out all the boneheads they have left along the trail. John Cochrane gets it, he should just write the definitive treatment and save us all headaches. Otherwise we will be scratching out heads of the Krugman and Lewis and Delong and Blanchard and Stanley Fischer for a long time.
What about banker bot?
Well, I am still learning a bit about banker bot, after all the geeks only recently invented it. So, hold on there is still a bit of research to do.
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