Thanks to the Federal Reserve’s zero interest rates and quantitative easing policies, borrowing costs are near generational lows. The costs of funding the repair and renovation of America’s decaying infrastructure are as cheap as they have been since World War II.
But the era of cheap credit may be nearing its end. And thanks to a dysfunctional Washington, D.C., we are on the verge of missing a once-in-a-lifetime opportunity…
The argument [in 2011] was that a major infrastructure repair program would create jobs, keep us competitive with China and improve the security of our ports, energy facilities and electrical grid. And as a fantastic bonus, borrowing costs for funding these repairs were at the lowest levels in a century. Imagine the least costly way to improve and repair our infrastructure imaginable, and that was what was available to us: the deal of the century.
All of the above remains true — except the bit about ultra-low rates. They have begun to move higher as markets anticipate the end of the Fed’s quantitative easing. The most widely held U.S. Treasury, the 10-year bond, was yielding about 2.6 percent late last week — a full percentage point higher than in early May. The 30-year bond, which we tend to think of as the cost of funding infrastructure that will last for decades, has risen almost as fast.
As a nation, we still have a window to take advantage of these historically low rates. However, that window is beginning to close, and we need to act sooner rather than later.
As D.C. dithers, the rest of the economy has already jumped at the chance to put this cheap credit to work. The corporate sector has taken advantage of low rates to refinance its debt. Today, publicly traded U.S. companies have the cleanest balance sheets seen in decades. It is in no small part a driver of the stock market rally that began in March 2009.
Households have also taken advantage of low rates. Families with a reasonable income and a half-decent credit rating should be refinancing their consumer debt, especially home mortgages. And the data show that many of them have been.
That leaves Uncle Sam, along with the states and municipalities, as the odd men out of the debt refinancing boom. Rather than waiting for bridges to collapse to do expensive emergency repairs, we should proactively be upgrading and improving the rest of our infrastructure. We should be refinancing whatever debt we can while rates are still low…
RTFA for a detailed consideration of all that could be accomplished if the Republican Party cared sufficiently for the best interests of their electorate to participate in bipartisan legislation. That party exists only in memory.
If we fail to take advantage of this once-in-a-century opportunity, future generations will look back at us with a mix of disgust and anger. They will wonder how we let such a golden opportunity slip by and will think of us as “the idiot generation.”
And you know what? They will be right.
As ever, Barry Ritholtz is my favorite Recovering Republican.
