The Post continued its editorializing in its news section by gratuitously pointing out in a front page article that negotiations to extend tax cuts and unemployment benefits will:
“would add hundreds of billions of dollars to future deficits, even as a bipartisan commission appointed by Obama is trying to build support for a plan to balance the budget.”
If the Post was interested in informing its readers rather than pushing its budget agenda it could have pointed out that deficits during a period of high unemployment need pose no burden to the economy or future taxpayers since the Federal Reserve Board can simply buy and hold this debt. In Japan the central bank holds an amount of debt that is close the size of its GDP, which would be $15 trillion in the United States.
This can be seen in the difference between the IMF’s estimate of Japan’s gross debt (227.2 percent of GDP) and its net debt (121.7 percent of GDP). In spite of these massive holdings of government debt by the central bank Japan continues to experience deflation instead of inflation.
To some extent the Fed is already following a similar course. As a result of its holdings of government debt and other assets it refunded $77 billion to the Treasury last year, an amount that was more than one-third of the government’s net interest payments. A newspaper that was interested in informing its readers rather than pushing an agenda would have explained that deficits in the current context do not impose a burden rather than gratuitously pointing out that spending and tax cuts add to the deficit.