A once in a lifetime opportunity to fund the National Debt

Via The Big Picture, take advantage of the panicked flight to treasuries to issue all the 3% long-term notes the market will bear:

Let’s hope President-elect Obama’s Treasury Department resists the urge to issue T-Bills, despite the microscopic current cost of doing so. Such a program would subject our nation to rollover risk in future years, and those who yesterday sought to actually pay Uncle Sam for the privilege of holding their capital while riding out the current storm won’t be there (at least not on the same terms) once the storm finally passes. No, the novel thing to do would be to issue as much long dated paper as the markets will stand. Locking in the lowest long term rates in more than five decades is the cheapest bill we can hand future generations. Issue 50 year bonds, even 100 year obligations if need be. Just let investors seeking safety, duration, etc. flock in droves to these low yields. Let them, at some point in the future, feel the opposite form of regret that Bill Gross is feeling right now. It may sound silly in this environment, but at some point investors will come to scorn Treasurys almost as much as they do subprime mortgages today.

– Jack McHugh

Subject Meta: 

Forum Categories: 

Let them eat Treasuries

The Treasury Department announced today that it is considering “novel approaches” to the future issuance of U.S. government debt

I take this article as an amazing way to avoid saying the "I" word or the devalue phrase.

US Constitution and appropriations

The US Constitution is very clear that Congress and ONLY the Congress can appropriate money out of the US Treasury. I won't pretend to be an expert on the Federal Reserve Act, but the US Congress, as representatives of the taxpayers, should be very jealous of not watering down their exclusive Constitutional power.

It is not clear at all the the Federal Reserve has the power to issue these bonds, let along Hank Paulson unilaterally committing the Treasury to backstop favored corporations.

Just another long-term serious problem being created by this Congress' refusal to engage in any meaningful oversight.

Right now it's "Let them eat cash"

But of course with all the carnage on Wall Street, "let them eat cash" rapidly transmogrifies to "let them eat treasuries". So I guess in a way, you're correct.

Between Sept 15 and October 31, the Treasury issued $950 billion in new debt. Since then the Fed has printed $600 billion in new cash and the Treasury has issued only $75 billion in new debt. All that cash needs a place to go and Wall Street and Hedge Funds aren't looking so good. Couple the expansion of the monetary base with a 10 fold reduction in the issuance of new debt and dollar recycling from places like China and shezam, negative returns on T-bills.

These absolutely insane zig-zags in policy coordination between the Fed and Treasury are creating some very serious distortions in the market. With all that education and experience you'd think these folks could do better. Of course if it's the wrong experience...

Seriously, I think NDD has it right. Issue some egregiously long term debt. That would be very beneficial to the US and a very nice hedge against a sudden increase in the cost of US debt should the idiots currently in charge continue to lurch from one policy position to the next. Financial epilepsy is not a pretty sight.