Biden wants to spend $1.9 trillion to address a variety of problems caused by the vaccine. Needless to say, Republicans are now objecting to spending so much money that the federal government does not have. It is worth asking what such an expenditure will actually cost the government.
Since the government does not have the money, it must borrow it. It does this by issuing IOUs which are called treasury bills and treasury bonds. In order to entice people with money to lend it to the government, the government must offer to pay them. Since the gimlet eyed wonks who handle these matters are constitutionally stingy, they pay as little as they can get away with. Currently the U.S. Treasury is paying a rate of 0.13% on two year treasury notes. That means that to borrow $1 trillion, it must promise to pay back $1,001,300,000,000 in two years.
However, there is a catch. The treasury borrows the money in January 2021 dollars, but it does not pay the lender back two years from now in 2021 dollars. Instead, it pays the lender back in 2023 dollars. So we have to factor in the rate of inflation to see whether those future dollars are worth more or less than current dollars and if so by how much.
Well, as Yogi Berra noted wisely, it is difficult to make predictions especially about the future but we can at least ask what the current rate of inflation is. That is something we know, and with a little searching around on the web we find that the current rate of inflation is 1.4%.
This means that lenders around the world are actually paying the U.S. Treasury 1.27% of their money for the privilege of being permitted to lend it to the United States! Unless the United States goes into a serious depression economically (I am of course not speaking about emotions) and suffers a negative rate of growth, the United States can make out like gangbusters by borrowing money at these rates.
We have not yet asked what the US government plans to do with the money it is being paid to borrow. If it invests that money productively by giving it to individuals who will go out and spend it or to small businesses that will use it to generate revenue by staying open, then some of what the government spends will come back to it in the form of tax revenues. It is above my pay grade to figure out how much that is likely to be, but since the government is already been paid to borrow, any tax revenues that are generated by its expenditure of the money it has borrowed is just gravy.
I know next to nothing about these matters and yet even I can figure this much out, so why is Mitt Romney, who made a fortune at Bain Capital, complaining that it is too soon for the federal government to undertake such large expenditures as those proposed by Biden?