One of the nation’s top bankers told a Rapid City audience not to worry about the federal government’s debt, at least for now.
Neel Kashkari is president and CEO of the Federal Reserve Bank of Minneapolis. He participated remotely in a live video discussion Tuesday as part of the Morning Fill Up speaker series in Rapid City.
The federal government was $23 trillion in debt before the pandemic, and the Treasury is borrowing $3 trillion more to finance relief spending by Congress. Kashkari said that’s the right thing to do.
“I think one of the things we’ve all learned is that the U.S. government has an extraordinary ability to support a lot of debt,” Kashkari said.
As evidence of that “extraordinary ability,” Kashkari offered several supporting points. He said the debt has not caused the inflation that some economists feared. He said Japan is managing a debt twice as big as America’s, relative to the size of the two countries’ economies. And he said the U.S. is borrowing at low rates from investors who buy Treasury bonds.
“If you as an individual, or your business, took on more and more debt, and then you went to your bank and said, ‘I want a loan to take on yet more debt,’ your bank would say, ‘OK, but to compensate us for the risk, I'm going to charge you a very high interest rate, because I’m nervous about your ability to pay it back,’” Kashkari said. “Well, what investors around the world are saying is, ‘Even though the U.S. government’s issued all this debt, we still have great confidence they can pay it off.’”
After the pandemic, Kashkari said, the country should get its fiscal house in order. He said the country’s aging population means there will be fewer workers to support older people who depend on Social Security, Medicare and other programs.
“So either we have to cut benefits, or we have to raise taxes, or we need to lean on immigration to grow our workforce, so that we can keep these ratios in balance,” Kashkari said. “That’s just math.”
While Kashkari is comfortable with adding to the national debt during a crisis, he said a past crisis changed his views on personal debt.
He worked in the Treasury Department during the financial crisis and Great Recession of the late 2000s. At that time, with his personal savings in collapsing money markets, Kashkari said he feared losing the ability to pay his mortgage. He said it was government action to stabilize money markets that saved him from that situation.
“But that changed me,” he said. “I hate debt. I pay off whatever debt I can as quickly as I possibly can, and I don’t want to take on more debt if I can possibly avoid it.”
The free Morning Fill Up speaker series is typically hosted at The Garage co-working space in downtown Rapid City, but it’s gone digital during the pandemic. The series is sponsored by The Numad Group and the Bush Foundation.
- Seth Tupper is SDPB's business and economic development reporter.