Todd Buchholz has an op-ed in today’s WSJ, recommending that the U.S. government string out its long-term debt.
[T]he world is willing to lend us 10-year money at rates substantially below 2%.
So why not give our kids a break by issuing 50- or 100-year bonds, locking in today’s puny rates? Corporations do it. In 1993, Disney issued $300 million in “Sleeping Beauty” bonds, and the market scooped them up. Last year, Norfolk Southern sold $400 million in 100-year bonds despite the obvious uncertainty: Will railroads be spaceships in 100 years?
Other governments are issuing long-term bonds, too. In 2011, buyers grabbed Mexico’s 100-year bonds, despite that country’s pockmarked history of devaluations and defaults. The average maturity of U.K. debt is three times longer than ours.
Instead of following these examples, the U.S. Treasury recklessly borrows short-term funds that must be rolled over.
A good question for anyone at this point. I was worried when my adjustable-rate mortgage (ARM) was about to adjust, and it went down almost 200 basis points. Woo hoo!
Chicago’s John Cochrane, the Grumpy Economist, also endorses locking in low rates.
Buchholz claims this is a political maneuver designed to make the short-term budget deficit look better. Cochrane isn’t so sure. See the respective posts for the dirty details.
Whoever is correct, here’s hoping for the sake of fiscal sanity that the Treasury gets on board.
Well, monetary policy is part of the story. The other part must be that Wall Street profits more from selling short term than long term bonds.