United States’ last best chance to fix infrastructure, refinance debt


Sure has been a while…

❝ There are times when a confluence of events creates a rare opportunity. The U.S. now is at one of those moments…

❝ Campaign promises were made by the president-elect to upgrade infrastructure;
The U.S. federal debt is almost $20 trillion;
The U.S. has both a high credit rating and a stable, growing economy;
There is a worldwide shortage of sovereign, A-rated bonds;
Negative interest rates are prevalent around the world;
The U.S.’s infrastructure is outdated and deteriorating;
Interest rates are very low, but will likely rise in the near future;
The president-elect comes to office with a background in real-estate development and understands the use of debt.

❝ If this were an equation, the above points would result in an obvious answer: the refinancing of long-term debt and obligations at the lowest possible rate for the longest possible time. I am suggesting that the U.S. issue bonds that mature in 50 or 100 years…

❝ Improving U.S. roads, highways, bridges and tunnels as well replacing or constructing new transport systems is a two-part project: first, commit to making the basic repairs to counter the effects of wear, tear, weather and age. One part of the solution is to fully fund the national Highway Trust Fund by raising the federal gasoline tax. Second, use long-term bonds to upgrade the transportation system, electrical grid and water works that are so crucial to the U.S.’s well-being.

RTFA for the details of Barry Ritholtz’ outline in the issuance and sale of bonds up to 100 year term. We wouldn’t even be the first in North America on the street. Doesn’t lessen the sensible character of his proposal.

Thanks, Barry Ritholtz

6 thoughts on “United States’ last best chance to fix infrastructure, refinance debt

  1. List of X says:

    It should be noted that the rates are low when we are talking about shorter term bonds, but rise for the bonds of longer maturity. For example, 1 year bonds pay about 0.75%, 5 year – 1.75%, and 30 year around 3%, I’m guessing that 100 year bonds could go as high as 5% interest rate, which isn’t exactly a low interest rate. Converting all our debt to 100 year bonds at that rate would mean $1 trillion a year in just the interest payments (compared to $223B we paid in 2015).
    But yes, infrastructure spending would be a no-brainer – and now that the Republicans don’t have to pretend they care about deficits just to prevent Obama from getting credit for the infrastructure projects, they may actually get something passed.

    • morey says:

      But, then, most bond traders aren’t keeping much of anything to maturity. Haven’t read of folks sitting on the Mexican 100 year bonds, yet.

      And Ritholtz proposes a range of bonds over time.

      • List of X says:

        True, the bond traders won’t keep the bonds for 100 years, but the US Treasury receives the cash when it sells the bonds, and if the market will assign 5% to this bond, Treasury will get the cash equivalent to what a bond paying 5% would get, not the nominal value.

          • List of X says:

            Maybe only around $100B in today’s money – but as the budget works now, that $1T of interest payments every year would have to be borrowed and added to the debt every year, so by 2117 we would be paying much more than $1T.

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