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We’ve hit on this meme a number of times, but it continues to go around, so we’ll do it againDoug Kass is the latest to argue that the Treasury needs to issue a lot more longer-dated debt to, as he puts it, “Lock in low rates for the long haul.”
At first blush, this is an appealing idea. The 30-Year bond is trading with just a 2.59% yield.
Of course a corporation would want to lock in rates for the long term, so why not the Treasury?
The government isn’t a household and it’s not a corporation. It doesn’t have the same borrowing constraints, and beyond that, its goal isn’t to borrow cheaply, but rather to keep economic performance strong.
And issuing a lot of long-term debt is the exact opposite of good economic management. Think of it as reverse QE.
When the Fed does QE, it buys a lot of long-term debt, and replaces that debt with fresh liquidity. Issuing a big batch of extra-long Treasuries would sap all that liquidity ouf of the system. That is not the goal.
Bottom line: The Treasury shouldn’t be (and probably won’t be) tempted to issue lots of long term debt. Let’s let this idea die.
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