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.