People who worry the most about the recent increases in US government borrowing are generally worried about one of two things: crowding out or inflation. They fear that either if The Fed doesn’t “print new money” for the govt to borrow, then the government’s demands for borrowing money will drive up interest rates. This driving up of interest rates would then, in turn, discourage businesses from borrowing/expanding/growing. I’ll deal with the inflation fear in a different post. But right now, it appears there’s little prospect of crowding out. It’s true businesses (and households) aren’t borrowing, but it’s not because of high interest rates.
In the past, when the government became a heavy borrower, there was talk about crowding out private borrowers. But this time, interest rates have remained low and no one seems to be worried about that.
The reason is simple: Rather than crowding out the private sector, Uncle Sam is now standing in for it. Much of the government borrowing went to investments in financial institutions needed to keep them alive. Other hundreds of billions went to a variety of programs aimed at stimulating the private economy, including programs that effectively had the government pick up part of the cost for some home buyers and some auto buyers.