Here is an interesting paragraph which describes how a cut in government debt can lead to lower borrowing cost in the economy:

A decrease in the supply of government debt has forced some money fund managers and cash investors to scramble for alternatives. Higher demand for commercial paper, repurchase agreements and other short-term private debt has knocked down borrowing costs on Wall Street. [US expects to pay down debt in Q2 for first time since 2007. Reuters. April 29 2013]

How about that? A clear crowding out (or rather, crowding in) effect between the public and the private sectors.

One Response to “[2681] Government debt cut reduces borrowing cost in the economy”

  1. on 30 Apr 2013 at 11:39 Barry

    Except that in Malaysia, reducing govt debt would probably lead to capital outflows lol

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