His last study on the issue date of May 2003

Nothing is more! Normally, the public debt is not a casino. Its market is foreseeable and reasonable. But, today, he deserves the formula launched by the dealers when they turn the wheel. In the United States, the State will borrow more than 500 billion dollars this year and, instead of climbing, long-term interest rates are receding. Roulette bond is wrong. According to Paul O'Neill, former Secretary to the Treasury of George Bush, Vice President Dick Cheney has a clear explanation of this aberration: "Reagan proved that deficits have no importance." The position is provocative, or even immoral. Coming from a man known for his oil management or his Warrior zeal for his talents of Economist, it is also fragile. But if, for once, Cheney was

Politically, the right of Bush arm is right: the budget deficit is not. The elector is already struggling to fall in love to a growth rate that still brings wealth and employment. To record the State of public finances. Political scientists have never found correlation between a vote and a deficit. The only case where public accounts have actually had a decisive influence on the election of a large country has been the American presidential election of 1992. Ross Perot had swept nearly 20 million votes in campaigning on this single topic, which had cost George Bush senior victory.

Economically, it is a different story. The increase in the budget deficit implies increased demand for capital on the financial markets. Convince investors to lend more money, to better reward, i.e. raise the rent money. The interest rate is the price balance savings and investment. Markets in the short term, economists analyze many other factors, starting with monetary policy. Keynes had also introduced the preference for liquidity. But bond markets, economists agree on the "neoclassical" design of balance in which the interest rate adjusts offer and demand. In the market halls or in the press, this link is formulated more simply. The State increases its borrowings, so rates will rise. This will deter some manufacturers to raise funds, because the projects that they finance then lose their profitability. The economists speak of "predatory effect."

Only problem: this theory is not consistent with reality. Needless to talk here about Europe. Its bond market depends very largely on the US market, more than its market actions. It is in the United States need to address the problem. Or the rate of interest long term "real" (i.e. excluding inflation) is lower today that in 2000, then the Outlook strongly deteriorated. According to the budget Office of the Congress (CBO), the next decade should result in a cumulative deficit of 4,400 billion while the forecasts published three years ago showed a surplus of 5.600 billion! The link is much more convincing on the past. Since the beginning of the 1990s, real long rates fluctuate in a narrow range between 2 and 4, then Federal Finance emanated a deficit of 4 of GDP in 1992-1993, a surplus more than 2 in 2000 and again a huge deficit today. In the previous two decades, it was the reverse: real rates have fluctuated between 3 and 8 while the budget was in deficit constant.

Generations of economists have mouliné unsuccessfully series of figures to prove that deficits grow rates on the rise. The White House is hard to prove that he is nothing. In its report published in early 2003, the Council of economic experts of the President believed that "the interest rates go up three basis points or 0.03 for each increase of 200 billion dollars of public debt", a small increase.

Since almost a year, said Council is headed by Greg Mankiw, a renowned Harvard Economist, author of textbooks to success. However, in February 1995, Mankiw wrote, with two other experts, an article entitled "The Deficit Gamble" ("the game deficit"), published by the National Bureau of Economic Research. His conclusion "The Government may, without great risk, have a temporary budget deficit and then postpone forever in time public debt as a result."

In these attacks, the Federal Reserve sentence to show that the deficit is raising rates. His last study on the issue date of May 2003. For its author, Thomas Laubach, an increase of one point of the deficit-GDP ratio increasing long rates of 0.25 point. But reasoning only on expectations (of deficit as rate) and not the reality.

Then, public deficits have really no influence on interest rates In the matter, the United States have a crucial advantage: its Federal State issued bonds that form the bedrock of international finance. The best-selling economics manual on the planet, written by Paul Samuelson and William Nordhaus, says without denies that "the assets the safest in the world are the titles in the US State". Thousands of financial players want to buy, of small savers to foreign central banks. But this exception may not be eternal. Last November, the rating agency Moody's gave for the first time a claw to the American public finance.

If economic theory does not clear response to Dick Cheney, the story, she brings two indisputable lighting. First, this is not so much the deficit which has that debt. In the United States, it remains limited for the moment less than 40 of the GDP. Then, the excesses of public borrowing eventually be brutally sponges. Sometimes by a bond crash. The most often by a wave of inflation.