That’s what a lot of analysts and economists are now proposing. Guys like Larry Kudlow, consulting to President-elect Trump, and in line for the Chairman of the Council of Economic Advisors.
Heck, why not? Other countries are now issuing long-term debt. Ireland and Belgium issued 100-year debt. Austria issued 70-year debt. Italy, France, and Spain issued 50-year debt. And Japan pushed out a 40-year maturity and is now considering 50 years.
Mexico, believe it or not, has already issued three 100-year bonds since 2010.
Britain’s U.K. Treasury has issued 40- to 50-year bonds seven times.
Here’s the thinking:
First, the average duration of marketable Treasury bonds held by the public has been roughly five years for a very long time. That’s not likely to change much, even if maturities are extended. Or so they think.
Second, Treasury’s held in public hands have moved up from 32 percent of GDP back in 2008 to 74 percent today. So, despite all our problems, economists basically believe debt isn’t hurting us.
Well, if that’s the case, does that really justify extending maturities and adding on our debt? Are these MBAs and PHDs just brain dead? Have they never traded the markets?
Probably not. They don’t have a clue how debt can destroy a market, a sector, entire industries and even an entire economy.
Third, they claim extending or refinancing debt would somehow save the country hundreds of billions in interest expense.
How so? All it does is kick the can down the road. Meanwhile, interest expense for fiscal 2016 is nearly $250 billion.
And it assumes that the average duration would remain five years and that the debt would not increase above the current 74 percent.
Once again, the economists assume “no unintended consequences” in their thinking — which is always where things come back to bite them — and us.
And what if rates rise, as they are now doing? That would compound the interest expense repeatedly.
The principal value of those long-dated bonds would crash faster than you can bat an eye, way faster than the crash just experienced in the 30-year Treasury, which lost $108,497 of its value (based on $1,000,000 face value bond) — an astounding 10 percent — in just 26 trading days.
Excuse me, but I think issuing longer-dated Treasuries is …
1. A sign you’re broke.
2. A sign you’re desperate for credit.
3. A sign of great weakness to your foreign trade and credit sources.