Why Tim Geithner Will Never Refinance America's Debt At Today's Super-Low Interest Rates

On CNBC just now, Jim Cramer asked why Tim Geithner doesn’t just refinance America’s debt at these super-cheap long-term rates.

To back up for a second, here’s a long-term look at the yield on 30-year US Treasuries.


Photo: FRED

Like pretty much all US debt, rates are super-low.

And so Cramer’s thinking is this: Let’s “lock in” these super-low rates, and take the possibility of a bond-vigilante-inspired, Greece crisis off the table.

Sounds reasonable, right? Who doesn’t want to lock in low rates? Well, let’s explain real quick why this is never going to happen.

These reasons are in no particular order.

  • The US is nothing like Greece. The US has its own currency which it can print. Greece doesn’t. That instantly makes it impossible that the US will ever “run out of dollars” in the way Greece ran out of Euros.
  • The Treasury can’t just refi its debt like this. For this to work, the Treasury would have to simultaneously issue tons of long-term debt, and then buy back the short-term debt, otherwise this would just blow us past the statutory debt ceiling. What’s more, it’s not clear that the Treasury would have the authority to start buying back debt since that’s not budgeted for.
  • Also, this could end up being costly. Imagine if we’re Japan, and long-term yields fell for another decade, and here we were with $1 trillion in debt that we arbitrarily took out at high yields, thinking rates couldn’t possibly go lower.

Most importantly, this would be bad for the economy.

Twitter user Fullcarry nailed it:


Right now, the policy goal of the Fed is to lower long-term rates to help people refinance debt, and theoretically to force holders of US Treasuries into riskier assets.

This would accomplish the opposite. Selling $1 trillion extra 30-year Treasuries would suck tons of liquidity out of the market, increase long-term rates, while making it easier for people to stay in non-productive risk-free assets.

Basically, there’s no point for Geithner to do this, he can’t do it, and it would hurt the economy.

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