Let’s not mince
words: Canceling the 30 year bonds, when
rates were low and heading lower – towards half century lows – will go down in
history as one of the most imprudent and irrational bungles ever made by any
government anywhere. That’s saying something.
It also points out the
foibles of a problem us Humana Beans (and bean counters) have: Our tendency to
over-emphasize recent data, at the expense of longer trends. We’ve discussed
this in the past.
Despite an historical
Federal deficit (a half century worth and rising), the surplus of cash
following an enormous tech bubble was hardly an intelligent basis for canceling
our primary and least expensive deficit funding mechanism, and we said as much
at the time. To draw the conclusion that the U.S.’ budget deficit was not
structural but cyclical requires a kind of optimism that is hard to reconcile
with real life experience. Call it the triumph of the economic idealogues over
reality. This is not revisionism, but something we discussed way back when.
Anyone can be wrong.
What is unacceptable, as a famous hedge fund manager once said, was staying
wrong. When interest rates hit 40-year lows 2 years ago, its all but
unthinkable that Treasury didn’t bring back the 30 year.
Up until now, everyone
in America got to refinance their debt at ultra low rates – except Uncle Sam.
As taxpayers, we now can join homeowners, consumers and business in starting to
clean up, however belatedly, our national balance sheets.
Note that’s not the
same as reducing our debt – all we are doing, in very small $30 billion steps,
is lowering our interest servicing. Still, saving a few percent on $30B ain’t
chicken feed. To paraphrase Senator Everett Dirksen, save a few percent in
interest payments on $30 billion here and $30 billion there, and soon you’re
talking about real money . . .
UPDATE: August 4, 2005 10:01 am
A quickie: I’ve been reading all your comments, and I promise to address them (been on the go for the past 48 hours, moving offices and otherwise running around, and it won’t get better til Monday).
The one thing I have to laugh about is the accusation of conspiracy theories; As I wrote just last month:
"While conspiracy theories may be sexy, the reality is far more
mundane. Its all there if you have the temerity to dig thru endless
data (eternal vigilence and all that). This must be terribly disapppointing to the black helicopter/tinfoil hat crowd.
The amazing thing is that most people don’t bother. By "most people," I am referring to the economists, journalists, strategists and fund managers who trade off of this data."
Lastly, what’s an update without a chart:
click for larger graphic
Graphic courtesy of NYT
Graphic courtesy of NYT