Deficit Financing: Planning Ahead

Donald Maron has a great post on Treasury securities and the current maturity schedule. It’s short and too the point.

Bottom line, the Treasury has been financing the current deficit with short dated securities which makes good sense but sooner or later you have to lengthen them as rates rise. Maron has a good suggestion about how to go about that.

A thought to keep in mind here is that we’ve been able to finance the current deficit with low rates. That masks the long-term cost of the deficit. If we keep running deficits of the magnitude of the past year we will find ourselves in a position of paying higher coupon rates. Right now it’s basically free money a year or two from now it will be real money and the interest cost alone will be punitive.

The free lunch won’t last.

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