Finally, I must mention the inflation strategy. Should we ignite inflation and launch prices into the stratosphere to shrink debt? I don’t think so. Investors no longer represent a captive audience as they did in the 1940s, and “bond vigilantes” will sniff out a devaluation scheme in advance, driving interest rates higher and punishing the value of the dollar and the buying power of citizens. Of course, if the Fed were to take the dangerous, inflationary tack, it would be a lovely time for holders and hoarders of gold and cryptocurrencies. Unlike military campaigns, the war against COVID will not end with a bombing raid, a treaty, or a sailor and nurse smooching in Times Square. Regardless of the final image, COVID-19 will leave us with a debt time bomb. We can defuse it, but only if we can also win the battle against policy inertia and policy stupidity. This war won’t end in a bang – but it better not end in a bankruptcy. Todd G. Buchholz has served as White House director of economic policy and managing director of the legendary Tiger hedge fund. He was awarded the annual teaching prize in economics at Harvard, was named one of the “21 Top Speakers for the 21st Century” by Successful Meetings magazine, and is the author of numerous books, most recently, The Price of Prosperity: Why Rich Nations Fail and How to Renew Them . @econTodd
children a break by issuing 50- and 100-year bonds, locking in today’s puny rates for a lifetime. You might think that no one would trust that a government would be around in 50 or 100 years. But corporations have successfully auctioned long-term bonds. Disney issued “Sleeping Beauty” bonds and the market scooped them up. Norfolk Southern enjoyed a similar reception when the railroad issued 100-year bonds. CBS News reported, “institutional investors bought them like crazy, leading Norfolk Southern to more than double the issue.” Imagine, buying 100-year bonds from a railroad. Will rails even exist in the 22nd century? Dozens of other companies, including Coca-Cola, IBM, Federal Ex, and Ford have also issued 100-year debt. It doesn’t take a rocket scientist to understand the benefit of ultra-long bonds, but institutions of higher education – including the University of Pennsylvania, Ohio State, the University of Southern California, and Yale – have also issued 100-year bonds. Governments across the globe are also grasping the concept. In 2010, buyers even grabbed Mexico’s 100-year bonds, despite a pockmarked history of devaluations and defaults that stretch from 1827 to 1994. More recently, Ireland, Austria, and Belgium have issued 100-year bonds, while France and Spain have sold off 50-year instruments. The average maturity of U.K. debt is 3 times longer than U.S. debt. Deregulation and longer duration will not be enough to solve the debt problem, of course... We must also reform entitlement spending, though that discussion is for another day.
American Consequences
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