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DEBT

Let's NEVER Repay the National Debt, says Noted Analyst

Gov't should borrow money with perpetual bonds - just like 18th century Britain

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by Mary Noble

Senior Editor t

Image: Dallas Morning News

All loans have to be repaid, right? Not so, argues economic analyst Matt Yglesias – and the US government should take advantage of that fact by issuing perpetual bonds – in other words, borrowing money that never has to be repaid.

The bonds would be an ideal way for America to take advantage of record low interest rates, writes Yglesias. The interest rate on 10-year Treasury bonds is currently negative 0.56 percent. In other words, the US government can take out 10-year loans and be paid 0.56% to do so. That's because demand for US government debt is "sky high," global faith in the US financial system is strong, and those lending the US money are willing to pay, in the short-term, for the privilege.

If the government issued perpetual bonds - that is, if they borrowed money that never had to be repaid - the government would no doubt have to pay a higher interest rate than for 10-year bonds. (Imagine a bank lent you money for which the principal never had to be repaid – they would set a pretty high interest rate.)

But with interest rates on 10-year bonds currently so ridiculously low, the interest rate on perpetual bonds probably wouldn't be that high. So, says Yglesias, now is the moment for the government to lock in that low interest rate.

Issuing the bonds would mean the US government would get a sudden influx of cash with no pressure to repay it. And that indefinitely borrowed money could be spent in any number of ways – stimulating the (now-shrinking) economy with public works programs, cutting taxes, or funding better education and infrastructure.

Via Slate.
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Should the US borrow money on perpetual bonds that never have to be repaid?

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Comments (view in Forum)

  • Thunderchicken
    !
    From the source article; “Instead, a modern-day consol would target another problem: political reluctance to take advantage of record-low interest rates.” You can’t really do that when you’re head over heels in debt already.
  • jessejaymes
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    It's an unworkable idea for the simple fact that Washington won't stop deficit spending. In theory if D.C. came in with a balanced budget and lived within that budget into perpetuity then the plan would work. But it won't work if you don't stop deficit spending at the same time as you issue the bonds. Care to bet on which way D.C. would go on that one?
  • marine1
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    It's an end run around accountability and typical of goverment to pass the buck to the next dummy that gets elected.The time for fiscal responsibility is long overdue.
  • jessejaymes
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    @marine1 No kidding. Remember they used to claim stealing from Social Security was just "borrowing". They said they were going to pay it back.
  • marine1
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    @jessejaymes Incompetent people do incompetent things beause that is what they are or are they just plane old high dollar crooks?

  • View all 7 replies >

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    woodtick57
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    Actually they should...i bought a car for my daughter i could have paid cash for, but with 0 down and 0% interest, i saved a lot of money financing it (borrowing money at a zero interest rate...) the money i paid off that loan with was not worth nearly the money i would have spent at the time of purchase...

    this is why so many US citizens do not really understand how our economy works....
  • Thunderchicken
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    @woodtick57

    I'll agree that the time to borrow is when money's cheap like it is now. I’ve done similar things. But I'll bet that our balance sheets look much better than the country's. You can't take advantage of low interest rates while you’re spending more than you take in.
  • Tralee
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    @woodtick57 This works now because the gov. is printing money, good for us, we too borrowed at a stupidly low interest rate the money to renovate our house, we can pay it back in less than 5 years using just income and not have to touch our investments, making more than the 2+% and not have to pay the higher taxes we would now have to pay. Not bad for almost half a mil. BUT!!!! This does not work for a country, we get a break because the government is doing a bad job and making poor decisions such as printing money, having this negative interest rate for years and in general doing exactly the opposite of what it should do, good for us, bad for the gov. And, this only works for those with the highest credit rating, John Smith still can't get a mortgage.
  • o
    tinfoil
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    why just this am my 6th grader while having coffee and eggs said Dad I think we should go get a 25 year 5 mil loan at negative interest like Matt Yglesias just think of our return if we were to buy credit default swaps, on the Syrian pound, and the Rial, go short the Renminbi and go long on the Euro 30 -90 day futures we'd be able to pay for college that way. doesn't everyone's kids think that way or just Neo's and my son
  • o
    woodtick57
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    @Thunderchicken

    sure you can. if you qualify for the no or below zero interest rate, it does not matter about your credit rating. in fact, it would improve your balance sheet.

  • View all 11 replies >

  • u
    ctc
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    I guess Plan A.....a reverse mortgage on all government property starting with the White House and Capital....didn't go over so well.
  • u
    Center
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    For every $1 in food stamps puts $1.73 back in economy. Food stamp study done under Bush and expanded eligibility in Nov 2008.
    More white people are on food stamps than minorities. It is good for small business. Having said all that, I think the amount people get is too high. I was poor once and ate ramen, rice, and pasta with my own money. Regardless how good it is for economy, people become dependent on system.
  • Tralee
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    @Center Thanks for the reply, however, I don't care who the study was done under, it's not logical or rational to believe that every $1 in food stamp money puts $1.73 back into the economy. If that were so, why not ALL of us get food stamps, that would go a long way toward solving our almost 17 Trillion debt. LOL - as an accountant, I just can't wrap my mind around that finding. :()
  • u
    Center
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    @Tralee you have to research to understand how this works. It keeps the deficits at same dollar amount, but it grows the gdp number, which lowers deficits to gdp ratio. Check out Bush's commission on this and how it was explained. This does nothing to pay down debt, but adds to it. Again, the debt to gdp ratio is still a lower percentage.
    A small part of 1.73 is given back to government through taxes.
  • Knightkore
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    More money....more printed money....out of "thin air"....devalues currency....

    http://www.spaulforrest.com/2011/03/us-dollar...

    Hyperinflation Not Necessary
    Some doom and gloomers out there are claiming that the US is poised to experience massive hyperinflation like the Veimar Republic in the 1920's and Zimbabwe in 2000's. This may occur, I can't say for sure one way of another. My point, is that hyperinflation is not necessary to greatly damage our country. All we would need is 6-10$/gal gas. Since WTO, NAFTA, and GAD, the US has lost much of its manufacturing infrastructure, and we import much of our natural resources, including oil and food. If oil is priced in SDR in the near future, the demand for, and value of the USD will fall, and the price for oil will increase. With a higher price of gas, US companies will still be manufacturing and importing, but many in the US will not be able to afford to purchase basic necessities.

    US Government Bankrupt
    According to Wiki, there are over 50 million Americans receiving some sort of Federal Assistance through Medicare, Social Security, Disability, or Unemployment. As the dollar is devalued, the higher prices will stretch the poor in America to the breaking point. There will be more unemployment, more bankruptcies, and more home foreclosures. However eventually, there just won't be enough money to support all the poor and support our global military goals at the same time. The US can continue to print USD, but the value of the USD in relation to other currencies will continue to drop. High oil prices is all it takes to cause high food and energy prices.

    Weak USD => Famine
    If the USD is replaced by the SDR, and no longer accepted by foreign countries in exchange for natural resources or finished goods, I cannot see how the USD will not become even more devalued. And with the weak, devalued dollar, I just don't see how millions of Americans don't begin to go hungry. And hungry people, especially if government subsidies are cut, will set the stage for what happens next.

    Famine => Protests => Riots
    As we have seen on TV in many countries already, hungry people will peacefully take to the streets in demonstration just like Egypt, Great Britain, Greece, and Iran. With a great many demonstrators on the streets or our large cities like Chicago, it wouldn't take much for a handful of anarchists/agent provocateurs to break a few windows and torch a few cars to turn a peaceful demonstration into a riot. With a riot, comes police, and possibly military engagement against the citizenry to quell the violence. However, there is a difference between Egypt vs the US, and that is that while Egyptians had plenty of rocks to through, Americans have guns. If there are street clashes, I hope and pray that civil unrest does not break out all over the country.

    Riots => Martial Law => Gun Confiscation => Civil War
    With riots going in throughout the country, these could easily spill over into suburban areas. The national guard and US military will be called in to put down these insurrections, and will likely go door-to-door confiscating guns. If the US Government tries to enforce a policy of widespread gun confiscation, there would be all out civil war. The Federal Government has been encroaching on our civil liberties such as freedom of speech, press, religion, assembly, and from illegal searches and seizures for too long. While I am not so passionate on this one issue, I fear any further encroachment on the 2nd Amendment would be the straw that breaks the camel's back.
  • Knightkore
    !
    18th century[edit] The Age of MercantilismMain article: Mercantilism
    The basis of the British Empire was founded in the age of mercantilism, an economic theory that stressed maximizing the trade inside the empire, and trying to weaken rival empires. The modern British Empire was based upon the preceding English Empire which first took shape in the early 17th century, with the English settlement of the eastern colonies of North America, which later became the United States, as well as Canada's Maritime provinces, and the colonizations of the smaller islands of the Caribbean such as Trinidad and Tobago, the Bahamas, the Leeward Islands, Barbados, Jamaica and Bermuda. These sugar plantation islands, where slavery became the basis of the economy, comprised Britain's most lucrative colonies. The American colonies also utilized slave labour in the farming of tobacco, indigo and rice in the south. Britain's American empire was slowly expanded by war and colonization. Victory over the French during the Seven Years' War gave Britain control over almost all of North America.

    Mercantilism was the basic policy imposed by Britain on its colonies.[3] Mercantilism meant that the government and the merchants became partners with the goal of increasing political power and private wealth, to the exclusion of other empires. The government protected its merchants—and kept others out—by trade barriers, regulations, and subsidies to domestic industries in order to maximize exports from and minimize imports to the realm. The government had to fight smuggling—which became a favorite American technique in the 18th century to circumvent the restrictions on trading with the French, Spanish or Dutch.[4] The goal of mercantilism was to run trade surpluses, so that gold and silver would pour into London. The government took its share through duties and taxes, with the remainder going to merchants in Britain. The government spent much of its revenue on a superb Royal Navy, which not only protected the British colonies but threatened the colonies of the other empires, and sometimes seized them. Thus the British Navy captured New Amsterdam (New York) in 1664. The colonies were captive markets for British industry, and the goal was to enrich the mother country.[5].

    [edit] The Industrial RevolutionIn a period loosely dated from the 1770s to the 1820s, Britain experienced an accelerated process of economic change that transformed a largely agrarian economy into the world's first industrial economy. This phenomenon is known as the "industrial revolution", since the changes were all embracing and permanent.

    Great Britain provided the legal and cultural foundations that enabled entrepreneurs to pioneer the industrial revolution.[6] Starting in the later part of the 18th century, there began a transition in parts of Great Britain's previously manual labour and draft-animal–based economy towards machine-based manufacturing. It started with the mechanisation of the textile industries, the development of iron-making techniques and the increased use of refined coal. Trade expansion was enabled by the introduction of canals, improved roads and railways. Factories pulled thousands from low productivity work in agriculture to high productivity urban jobs.[7]

    http://en.wikipedia.org/wiki/Economic_history...

    {Anybody starting to see some flaws in Yglesia's ideas yet?}
  • u
    AceLuby
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    @jessejaymes It used to happen... just wanting the good 'ol days when both parties saw the value of investing in our country a la the highway system and NASA.
  • u
    TBarmy97
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    someone has lost there mind...Print and borrow money I do it I go to Federal Prison... the government does it it is alright... does anyone else here see the problem with that... just a small one...
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    Happy2BeHere
    !
    The dollar will eventually be worth nothing. I love how news articles don't cover the "collapse of the dollar." Instead, tell us there is faith in the "strong US dollar." We will see how strong it is when its pouring back into the US like a facet. Time will tell...
  • mimi57
    !
    We'll never repay the debt...we'll just continue printing and spending, like drunken
    sailors, he has no intention of repaying any debt, just to get deeper in it!
  • o
    Sabio
    !
    well hell yes, i will max out all my cards and send them a note not to bill me and i will give them part ownership to a car in the drive!
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