Monday, March 09, 2009
The US Treasury
If we are going to run massive deficits for a few years (however the current debate ends over what we spend on, we are going to spend much more than we take in), the least we could do would be to finance it out many years and not put ourselves in the not-so-good position of refunding this mess every 2 years. You can't inflate away what you owe if its all short-funded, since you have to re-up the buyers in 2 years. On the other hand, sell them a 50 year bond, and you have time to talk. This is about intelligent corporate finance, not politics. Our country could use a really smart CFO about now.
7 Comments:
By 
MTF, at
Mon Mar 09, 12:07:00 PM:
A minimally competent administration at every top level job would be welcome.
By 
, at
Mon Mar 09, 12:21:00 PM:
100 Years? Don't be a piker. Let's sell us some consols!
By Escort81, at
Mon Mar 09, 12:22:00 PM:
Is there currently a buy side to the market for bonds with greater than a 30 year maturity?
What kind of rates do you think would be associated with super-long bonds?
I agree with you from the standpoint of "intelligent corporate finance" -- clearly it is in the interests of the U.S. Treasury not to constantly refinance (with the attendant risks each time it goes to the well) the accumulated deficits which will result from the stimulus package, TARP I & II, and have resulted from the prior Bush budgets -- but I am not sure I have a good sense of the other side of the transaction right now.
The short side of the yield curve doesn't have a lot of juice at the moment, and I would think the super long side would have to be pretty sweet to bring in buyers. What would result from such steepness? Are there unintended consequences?
How would you try to price this stuff? Would it be CPI adjusted or not? How back-end loaded would you make it, and/or is there a sweet spot at some ideal duration?
By , at
Mon Mar 09, 12:27:00 PM:
Didn't the British sell a War Bond during WWI with no maturity date? They just pay 3.5% interest forever?
By , at
Mon Mar 09, 01:04:00 PM:
You're assuming that they don't WANT to inflate away what they owe every two years. If instability allows them to reach their goal of consolidating power, then inflation can be helpful toward that end if its characteristics are robust.
When doing the analysis of a crime, one must learn to think like a criminal, and likewise marxism/marxist.
Guy Average
By Cardinalpark, at
Mon Mar 09, 02:08:00 PM:
A couple of responses -
Guy Average - I think you misunderstood. They should want to inflate away the liability. Far easier to do that with a veyr long maturity. Impossible to do with a short maturity.
Escort 81-
There would be a market for such long dated securities, I believe. Foreign govts, pension plans - those with very long dated liabilities - would like to baseline their asset base with some very long dated fixed return securities. Because there's no supply of these things, they would likely meet with pretty good demand, esp if they came at a nice premium to to 30 year, currently around 3.60%. We do have to world's reserve currency. Let's take advantage of it before they change their mind.
I would not offer inflation protection. That would remove some of the benefit.
By MTF, at
Mon Mar 09, 02:51:00 PM:
OT, but with reference to the AIG discussion of last week ABC says it has a copy of an AIG filing the company submitted in connection with the latest round of new money they secured from the Treasury. In it, AIG characterized the fallout from a failure of their firm pretty much along the lines we discussed last week.
