The Wall Street Journal: Long-Term Federal Debt Unlikely to Be a Hit

September 09, 2019

Article by Lloyd B. Thomas, Ph.D. in The Wall Street Journal

Stephen Moore (“Refinance U.S. Debt While Rates Are Low,” op-ed, Aug. 30) is very likely correct in asserting that sharply lengthening the average maturity of U.S. Treasury debt by issuing 50- and 100-year bonds now to retire shorter-term debt would ultimately save the Treasury several billions of dollars annually in interest expenditures. It should be noted that these significant benefits to the U.S. Treasury and taxpayers will likely accrue as all bondholders, especially those who purchase the new long-maturity bonds, are shortchanged.

History shows that countries that exhibit persistently irresponsible budgetary policy end up with high inflation.

Our national debt has nearly doubled in the past decade. Recent and prospective U.S. structural budget deficits have increased at a pace that is without precedent in times of low unemployment. Given this ongoing irresponsible fiscal profligacy, the burden of the burgeoning debt will very likely be reduced eventually via a government-induced increase in inflation.

Five percent annual inflation maintained for 14 years, for example, would double the price level and cut the real debt in half. Ten percent annual inflation would do the job in seven years. This of course means that bondholders will be cheated—they will earn large, negative real returns.

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