With interest rates falling everywhere, including the US, the natural thought a lot of people have is that the Treasury should take advantage of these super low rates and borrow more money.Back in March, Jim Cramer urged Tim Geithner to do a huge refi of the debt.
Just now on Twitter, Slate econ reporter Matt Yglesias encouraged the same thing: Issuing long-dated securities.
Anyway, the answer to this idea is simple: NO. DON’T.
Why? Because essentially this is reverse quantitative easing.
Think about it: The idea behind quantitative easing is to ply the market with liquidity by reducing the supply of long-dated Treasuries.
If the Treasury issued more long-dated bonds, that would sap the economy of liquidity, taking cash out of coffers and away from risk assets.
That might be worth it if somehow financing the US national debt were an issue, but at the moment, that’s not even in the same universe as the problems the US economy is having. Removing liquidity would be a disaster and totally undermine the Fed.
Ultimately, falling into the “refi the debt” thinking fall into the classic trap of thinking of the US national debt like a household does… the much derided household analogy.
So please, Tim, don’t even consider taking advantage of these CRAZY low rates.
PS: We should take advantage of these low rates by spending and pumping more. Changing the structure of our debt isn’t the answer.
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