[klenwell]

According the Planet Money's Giant Pool of Money, which I've come to realize is a superb postmortem on the 2008 financial crisis, this is exactly what happened:

Adam Davidson: All right. Here's one of his speeches that really drove that army of investment managers crazy.

Alan Greenspan: The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance.

Adam Davidson: You might not believe me, but that little statement, that is central banker's speak for, hey, global pool of money, screw you.

Alex Blumberg: Come on, that's not what he said.

Adam Davidson: It is. I speak central banker. Believe me, that's what he said. What he is technically saying is he's going to keep the fed funds rate-- that's when you hear, the fed interest rate-- at the absurdly low level of 1%.

And that sends a message to every investor in the world, you are not going to make any money at all on US Treasury bonds for a very long time. Go somewhere else. We can't help you.

https://www.thisamericanlife.org/355/transcript

To the question: why should you get a return above inflation at all?

I guess one way of looking at it is: do you want to treat low-risk returns for conservative investors as a sort of public utility guaranteed by the government? Or do you want to put it in the hands of private industry?

[neffy]

What I´ve never understood in all these arguments, is why do economists think that the laws of supply and demand supposedly (given that from this article it´s clear that they´re not), suspended for debt?

If for whatever reason (and having a moderately stable currency is the answer there) there is more demand for bonds than supply, then the price will fall. This has nothing to do with economic reality and everything to do with market pricing mechanisms. Whether it´s good in the long term for the government to increase its lending this way, is a completely separate question.

[pas]

I can't possibly imagine where you have read/heard that any self respecting Economist thinks that yields (interests, cost of credit/capital) are somehow exempt from supply-and-demand.

[tomjen3]

If the US can sell treasuries at rates not much above inflation, then it is because they are not loaning enough -- is there really no bridges or other infrastructure that could benefit the economy if they are built?

[maxander]

Check out the price tags on most infrastructure projects these days. As badly needed as they are, the US government currently doesn’t have re ability to execute them for less than the mid-horizon returns, if that.

[jchanimal]

Much of the infrastructure we need is self-financing. Eg bike lanes, transit etc. increase tax base and keep money in the local economy, while increasing foot traffic and retail sales. There’s no reason curing the 20th century’s car hangover shouldn’t be profitable.

[abakker]

If this were true, they would be easier to get done. Borrowing money to finance is fine, but a lot of these projects have to borrow a vet long way in the future, and the longer the term of the loan, the more interest rates eat into the real return from the project.

Secondarily, many prospective borrowers of these projects are already in debt, and have cash flows which are not growing fast enough to borrow more.

[chii]

> real return from the project.

why should a gov't project need to have any real returns? Social returns is enough. If the city is nicer to live in, if the businesses thrive because of increaed foot traffic, lower car accident rates, cleaner air etc.

[Armisael16]

The city has to pay the money back at some point. This either requires higher tax rates, reduced services, or a larger pool of money to tax. The first two are quite unpopular.

[maxander]

No good reason- but like I said, check out the price tag; a mile of subway development in the U.S. can cost billions (with a B!) of dollars. Additional foot traffic along that mile couldn't get you that much back.

[undersuit]

I would say most of the solidly profitable infrastructure projects, in the US are gone, combined with pretty much all the state legislatures and Congress being taxation adverse.

We're running our governments like businesses and you're not going to find any nimble or disruptive startups in the mix.

[bsanr2]

And so we circle back around to, "All socialism is evil except the parts that benefit me."

Which isn't to say that I think the government should do what it do out of spite. Is there any chance of... I dunno, cutting off the public handout and then regulating the private vacuum-fillers sufficiently? Or does the implied drug analogy here reach its logical conclusion (on the black market)?

[isoskeles]

That "postmortem" explains nothing at all about how real estate factored in. I'd have to be in-the-know enough to understand that people overinvested in real estate partly because they could get loans easily from low interest rates. But even then, doesn't cover how financial markets were repackaging mortgages and hiding or miscalculating the risk.

[klenwell]

If you listen to the episode, or even scan the transcript, you'll find that all of this covered. For a one hour show, it does an amazing job of putting everything together.

[isoskeles]

Ah, I misunderstood because from what I read, it sounded like the part you quoted was supposed to cover all that happened.