ASK NOT WHAT YOU CAN DO FOR YOUR COUNTRY; ASK WHAT YOUR COUNTRY CAN DO FOR YOU

2/3/11

Today’s Wall Street Journal (Thursday, 2/3/11, page C1) reports that a panel of Wall Street experts is urging the Treasury to take advantage of current low interest rates by issuing plenty of long term debt and even to consider extending the 30 year limit on maturities of new treasury debt, perhaps extending maturities to 100 years.

This idea makes all the financial sense in the world. Why not save the taxpayers money by locking in today’s low rates for a century? But it won’t happen. Why? Because the typical politicians’ time frame is not a century or 30 years or 10 years, but, rather, the time until the next election. As I write this, the yield curve, with the 2 year to 10 year spread at 284 basis points and the 2 year to 30 year spread at 396 basis points, is at near historic steepness. So it will cost the Treasury 3%, 4%, or more to lock in low rates. While this will save billions upon billions of dollars over the life of the bonds, it will cost the treasury billions, albeit far fewer billions, over the typical politician’s preferred time frame; i.e., the few years to the next election. With political pressure on the politicians to save money, why should they risk the wrath of the voters, and their reelection prospects, for something so ephemeral to them as the good of the taxpayers, the public purse, and the Republic? Does anyone think these poltroons went into public life to serve anyone other than themselves?

No wonder the idea was shot down by the Bush/Obama Treasury.