Why should the US go on a borrow and spending spree?
The US consumer is in debt in a major way. The typical american has a mortgage at say 6% interest. Most have credit card debt at say 14%. Many have a home equity loan at 9%. I don't know the weighted average interest being paid but it is probably about 10%. So why don't we all just refinance? The government can borrow at 4% and send us all a "stimulus package" to pay down their higher interest debt. Sounds good to me. This is a kind of arbitrage of refinancing. It works as long as people are willing to buy treasuries at these low rates.
This is actually not a bad idea. After all, the stimulus package can be structured to give fixed amounts to American middle class families. The bill that gets stuck with the taxpayers gets payed in the normal progressive fashion. That is, rich people pay more of it. So this acts to redistribute wealth from the rich to the middle class which is exactly what is needed. This is inevitable anyway if the economy is to survive. The only other option is mass bankruptcy which effectively does the same wealth redistribution. If someone who is underwater by $100K declares bankruptcy, he becomes richer by $100K and his creditor becomes poorer by the same amount. If we use tax policy or inflation to reduce their debt load we can fine tune the wealth redistribution more gradually.
