During the 2016 election, Larry Kudlow was a big Donald Trump supporter. There were even reports that Kudlow would have a part in a potential Trump administration. Although that has yet to surface, Kudlow is still advocating Trump to adopt certain policies, even policies that appear Keynesian to many.
Last week, the CNBC contributor sent out a tweet that encouraged the president-elect to start issuing the bonds. Here is the tweet:
“In a Trump boom, where real interest rates will rise, Treasury should refinance entire US debt by selling 100 year bonds ASAP.”
In a Trump boom, where real interest rates will rise, Treasury should refinance entire US debt by selling 100 year bonds ASAP.
— Larry Kudlow (@larry_kudlow) December 8, 2016
A day later, he published an op-ed entitled “US Must Issue 100-year Treasury Bonds Now.”
Citing an array of European countries that have instituted the fiscal policy of selling long-term bonds, Kudlow made the case that a Trump-led United States government should immediately perform the same acts.
Here is an excerpt from his op-ed:
The average duration of marketable Treasury bonds held by the public has been five years for quite some time. Almost incredibly, Treasury Department debt managers have not substantially lengthened the duration of bonds to take advantage of generationally low interest rates. Hard to figure.
Treasuries held in public hands have moved up from 32 percent of GDP back in 2008 to 74 percent today. Interest expense for fiscal 2016 is nearly $250 billion. So if Treasury debt managers had significantly lengthened their bond maturities, they would have saved taxpayers a bundle.
Now, with new economic-growth policies poised to drive up average Treasury rates to perhaps 6 percent, the Treasury folks better get moving fast to capture today’s historically low yields. Up to now they’ve been sleeping at the switch.
The key point? Start issuing much longer bond maturities. Much longer. If possible, the U.S. should experiment with 50-year debt issuance, and maybe go out as long as 100 years.
And this better happen fast.
This comes about a month after Barron’s magazine published an op-ed calling for Trump to channel the spirit of Alexander Hamilton and go long by issuing 100-year bonds (SEE: Barron’s urges Trump to adopt Hamilton policy by issuing long-term bonds). Since the U.S. government is facing a $45 trillion national debt within the next 20 years, the only way the government can maintain the status quo – in other words, kick the can down the road – is to start selling long-term bonds.
As legendary free market economist Ludwig von Mises wrote 70 years ago, which is now the length of an Austrian bond, these long-term government bonds offer up an illusion of certainty. According to Mises, long-term public debt is a fictitious concept and doesn’t fit in the mold of a market economy.
Here is what he wrote:
The long-term public and semipublic credit is a foreign and disturbing element in the structure of a market society. Its establishment was a futile attempt to go beyond the limits of human action and to create an orbit of security and eternity removed from the transitoriness and instability of earthly affairs. What an arrogant presumption to borrow and to lend money for ever and ever, to make contracts for eternity, to stipulate for all times to come! In this respect it mattered little whether the loans were in a formal manner made irredeemable or not; intentionally and practically they were as a rule considered and dealt with as such. . . . The financial history of the last century shows a steady increase in the amount of public indebtedness. Nobody believes that the states will eternally drag the burden of these interest payments. It is obvious that sooner or later all these debts will be liquidated in some way or other, but certainly not by payment of interest and principal according to the terms of the contract.
Since the economic collapse, governments around the world have taken more debt than they can afford. In order to delay the inevitable, the likes of Italy, Belgium, Ireland, Japan and others have issued 50-year, 70-year and even 100-year bonds. The rates of return are horrific, but there is still an appetite and demand for them.
The boom in the long-term bond market won’t last too long as there is already a bubble in long-term debt (SEE: The looming bubble in long-term debt).
So no, Larry Kudlow, Trump should not issue 100-year bonds. Instead, he should cut spending, end the wars and start tackling the national debt. That’s more a sane fiscal policy he should institute now.
JRATT says
It is time for the U.S. government to freeze all spending at current levels for the next 10 years. Then as the economy grows we will end up with a balanced budget and surplus to start paying down the debt. If they do nothing the whole house of cards is going to implode. Force the managers in each department to do their jobs of really managing their budgets.
I know many on SS, food stamps and other welfare programs will say it is unfair, but how about a cut, then?