Magazine article Foreign Affairs

The New Normal

Magazine article Foreign Affairs

The New Normal

Article excerpt

To the Editor:

Martin Feldstein ("The Fed's Unconventional Monetary Policy," May/June 2016) warns that the Federal Reserve's unprecedented quantitative easing has created substantial risks for the global economy. He argues that "once interest rates return to normal," investors will realize that they have overpaid for assets, such as commercial real estate, and another crash may be on the horizon.

Yet interest rates may remain low for years. Since 2008, U.S. government debt has grown from under 40 percent of gdp to nearly 80 percent, a ratio that in a closed economy would crowd out other borrowing and cause interest rates to rise. But the United States is by no means a closed economy. U.S. trading partners have been more than willing to purchase U.S. government debt at low interest rates. Indeed, interest rates are lower than they've been for a century.

Because foreign investors hold more than one-third of U.S. government debt, it has not crowded out private domestic investment. …

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