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Is the government borrowing crowding out private credit access?

The other day, if I heard him right, Alan Greenspan said he thought the Bush tax cuts should be allowed to expire. Alan thought, if I heard him right,  that there was a possibility that Federal borrowing could crowd out private borrowers. I believe this to be an about face for him, as I remember his saying years ago that if the cuts were enacted it would create a prolonged economic recovery, way back when he was Fed Chief. (I hope you are enjoying your prolonged economic recovery!)

I suppose the obvious finally got a hold of him and said, "Gee, if the federal government does not get any tax revenue, it will have to borrow." And, Gee (again), the federal government being very large will have to borrow a very large amount of money, perhaps all the money, and private borrowers won't be able to borrow any! And, to sustain its borrowing, the government will keep interest rates near zero and pay private banks to hold somewhat "risk less" government debt and thus not to lend to private parties.

As an old fart who always thought balancing the books was a good idea, I welcome Alan's conversion, but it does come very late in his career. Alan is not alone in his late conversion, many have now jumped on the band wagon of pay as you go, but his is more noticeable and perhaps more meaningful than the slew of political hacks now trumpeting fiscal and monetary responsibility, even though most of them have been part of the problem for years.

As a consultant to several small, very well run businesses trying to get a loan, I can surely  say yes, federal borrowing is stopping many small business from getting the capital they need. And this has been this way for several years. Glad you finally woke up Alan. Now get on the stump and tell somebody!