The 10-year Treasury bond, the benchmark rate for the US in borrowing money, dipped to an all-time low yesterday of 1.459%. Treasury sold notes at that price at a $21 billion auction, amid high demand. Today it’s jumped back to an astronomical 1.48%.
These numbers are outrageous. It shows both what a basket case the rest of the world economy is right now, and how desperate investors are for some economic growth somewhere in the world. This kind of lending costs investors money. Adjusted for inflation, the US now borrows at a real negative interest rate. Yet this has done nothing to increase borrowing to take advantage of the rates. This is fiscal malpractice.
The market will literally pay us a small premium to take their money and keep it safe for them for five, seven or 10 years. We could use that money to rebuild our roads and water filtration systems. We could use that money to cut taxes for any business that adds to its payrolls. We could use that to hire back the 600,000 state and local workers we’ve laid off in the last few years.
Or, as Larry Summers has written, we could simply accelerate payments we know we’ll need to make anyway. We could move up maintenance projects, replace our military equipment or buy space we’re currently leasing. All of that would leave the government in a better fiscal position going forward, not to mention help the economy.
Failing to take advantage of record-low borrowing rates is little different from setting cash on fire. We know that we have to make investments over time, just paying for them now would save tens if not hundreds of billions of dollars in the future. And while I know we had a half-decent unemployment report today, it’s probably attributable to one-time factors, and even if it weren’t, we would need years of similar reports to get the country back even close to full employment. The demand needs exist and are not being met by the private sector. Government has the capacity. Investors are begging government to spend. The refusal boggles the mind.