Government Bringing Back 30-Year Bond
The Bush Administration wants you to believe that more debt is a good thing:
The Bush administration announced Wednesday that it is bringing back the 30-year Treasury bond next year, a move that would help finance the national debt and should hold appeal for investors looking for a safe [sic!], longer-term investment option in their portfolios.
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The United States stopped selling the “long” bond in October 2001, which turned out to be the last year the government produced a budget surplus. After that, though, it has racked up record amounts of red ink, helping to push up the national debt, which now stands at $7.8 trillion.
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The bond industry, which urged the department to revive the long bond, said 30-year bonds are a good asset for pension funds, insurance companies and other investors to round out investment portfolios and hedge risk. With the big wave of upcoming retirees coming from the baby boom generation, demand for a safe [sic!], longer-term, government bond is likely to increase, bond experts say.
I too thought retiring the 30-year bond was a logistical mistake given the prevalence of private and agency securities that were tied to 30-year interest rates (e.g., conventional mortgages).
But let’s call a spade a spade. The return of the 30-year treasury has nothing to do with industry preferences or a concern for pension funds (or rich retirees) to be able to diversify their portfolios.
The return of the long bond is not about the variety of federal debt, but rather the amount of federal debt. The national debt is growing under the Bush administration and the tax-and-spend Republican Congress (do not confuse lower budget deficits with lower debt — any deficit, no matter how small, increases national debt), and will flat-out explode starting around 2017 when the fraud of the Social Security “trust fund” is finally exposed.
Those “treasury securities” in the trust fund filing cabinet — analogous to an individual writing IOUs to himself and stuffing them under his mattress — will almost certainly be legitimized by issuing new, real treasury securities (as opposed to the alternatives of massive tax hikes or inflationary monetization) when 2017 rolls around. The government knows this and is preparing now for the debt tsunami that is now forming in our fiscal policy. We’re going to need all the debt instruments we can find. In fact, don’t be surprised if the government eventually proposes issuing 40-, 50- or even 100-year treasuries.
The higher debt iceberg is right ahead, complete with the higher interest rates that it requires to finance it. This latest maneuver is just prepping the lifeboats.
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A quick footnote: Treasury securities are not “safe.” They merely have no default risk. Treasuries face many of the same risks that all conventional bonds face, including interest rate risk and reinvestment risk. Let’s hope the government keeps its terminology straight and doesn’t try to mislead investors in this new, rapidly approaching mega-debt era.
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- Treasury Acknowledges Social Security “Trust Fund” is Meaningless
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