The Return of the 30 Year Bond

Return_of_the_long_bondLet’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
. 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."

You can read the post in its entirety here; the more ambitious can dig thru this (State Math doesn’t  add up) and this (Data Point versus Trend).

Lastly, what’s an update without a chart:
click for larger graphic


Graphic courtesy of NYT

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What's been said:

Discussions found on the web:
  1. robrob commented on Aug 3

    can you think of anything the government does efficiently or with any apparent intelligence?

  2. Mr. Bill commented on Aug 3

    robrob, the weather service works great. the national park service is good, as it the us geologic survey. what alternatives are you suggesting to government? In the real world, i mean….

  3. Lisa commented on Aug 3

    Government generally works fine. It’s the politicians who mess everything up – and then blame “Washington bureaucrats” for the results of their poor decisionmaking.

  4. Dave L commented on Aug 3

    This wasn’t incompetence, or at least that’s not all it was. I’ve read plenty of commentary over the past three years suggesting that Treasury funding was deliberately over-weighting shorter maturities in an effort to keep LT rates low.

  5. Eschaton commented on Aug 3

    That Didn’t Last Long

    Treasury to sell 30 yr. bonds again.

  6. renato commented on Aug 3

    Government can be very competent. Our state Motor Vehicle Division seems surprisingly efficient. I went in recently to do some business at an MVD office, worked pretty good. Weather service works well as does NPS, as pointed out. Though the employees get paid shit (rangers often need food stamps to get by). Our city’s parks and rec department is pretty good. I think our state’s Dept. of Transportation is very good. They do a great job building and maintaining our freeways and they’ve been very busy at that lately. USGS as pointed out above is great. I’m glad we have a Corporation Commission to regulate the utility monopolies (the CC generally is most citizen-friendly when Democrats are in charge, too. We recently had a real crook on the CC and he was a Republican, surprise surprise). Our county Health Department is very good. Our city water department is very good. So is the sanitation department. And, Social Security is EXTREMELY efficient. Administration costs of less than 1%.

    Shall I go on? This conservative canard that government is never good for anything, is bullshit. In fact, free market cultists will intentionally fuck up government services just so they can say they were right.

  7. William Rose commented on Aug 3

    I’m not an economist; is likely someone will do a study to quantify how much canceling the long bond cost the treasury in increased interest payments?

  8. Aaron commented on Aug 3

    we were running a surplus idiot.- well briefly anyway. Now last I heard that meant we didnt have to borrow money to fund the government. And in fact we could start calling bonds and redeeming them.

  9. John commented on Aug 3

    Bad thinking, Aaron. A surplus, sure, but we couldn’t redeem all $6billion of debt. As the old bonds expired, we had to roll the great bulk of them into new bonds. Hence the comment about “…got to REFINANCE their debt” (emphasis added) in the original post.

    So we didn’t have to borrow money to fund the government, but we did have to borrow money to pay off the debt as it came due.

  10. jill commented on Aug 3

    As I recall, Bob Rubin decided to use money from the surplus to buy back all the high interest rate bonds from the early Nineties that were particularly concentrated in 30-years. I don’t think he appreciates your pissing on his saving the country hundreds of billions net. John O’Neill seems to have considered it a pretty good idea too, keeping it up until the whole lot was back in Treasury hands.

  11. vidkun commented on Aug 3


    The people who bailed out of stocks in time, we made that surplus with our whoppin’ capital gains tax. It was obvious to us that the surplus was unsustainable, and would last only until capital gains turned to losses.

    Guess Aaron missed the boat, either because he didn’t have the money, or because he tinkled it away playing the markets and he still doesn’t understand how.

    Bet he’s dumb enough to vote for Bush again.

  12. theorajones commented on Aug 3

    robrob, the question is always “relative to what.” There are very few things that the government does efficiently or intelligently, until one compares government performance to the performance of non-government entitites. Then it can be shocking how good the government is at rather thankless and hard tasks.

    Take, for instance, the healthcare system…

  13. Hedley Lamarr commented on Aug 3

    Most gov’t programs exist by Congressional acts, and have all sorts of restrictions built in that make some inefficient. They are often no better than the legislators who create them.

    Maybe Rob²would like to join Grover Norquist, who likes to inspect his own meat, guide his own Delta flight, etc.

  14. HB commented on Aug 3

    Seeing the dollar go down so far so fast over the last four years, you’d have to be stupid to buy US govt (dollar denominated) bonds. You can only default once on your debt by letting your currency devalue. After that, smart people want to denominate loans to you in something else.

    Perhaps conservatives will fall for this. But seeing how false their patriotism is, bet they’ll stay away too.

  15. New Economist commented on Aug 3

    Thirty year Treasuries are back

    In periods of low inflation and unusually flat yield curves, issuing ultra-long bonds make sense. The US Treasury Department today confirmed it will resume sales of 30-year bonds in early 2006, after a four-year hiatus. Announced as part of its quarter…

  16. Eli Rabett commented on Aug 3

    First of all the debt was 6 trillion not billion unless you are British. Second, without the tax cuts of the last 5 years, yes, it would have all been paid off by 2020 or so. Third, 30 years is too long a horizon to efficiently manage debt and minimize interest. Rubin et al were bond traders and knew how to do this. They brought their expertise to the treasury. Snow is a former railroad president and has no idea about how to manage money.

  17. The Oracle commented on Aug 3

    Well, lucky for us the Rapture is just around the corner, so any discussion of 30 years bonds is meaningless…especially if one is a neo-con, evangelical Rapturist.

    Oh, I wonder if this was one of the reasons they were cancelled in October 2001? How can 30 year bonds reach maturity when the Rapture is about to happen anyday now?

    Actually, it seems to be all part of a pattern…the Grover Norquist “starve the beast” pattern of defunding the federal treasury. And besides, based on the claims of the neo-cons, aren’t the proposed 30 year bonds just like the Social Security Trust Fund, which according to them, is just a bunch of worthless bits of paper taking up space in filing cabinets in a U.S. Treasury office?

    The year is 2001. A simpering, right-wing ideologue enters the White House…along with his chimp pals. Massive tax-cuts are enacted. Budget surpluses suddenly become huge budget deficits. And one month after the 9/11 attacks, the Treasury revenue increasing 30 year bond is discontinued.

    Conclusion: the neo-cons are the greatest danger to our democracy that “we the people” have ever encountered. Lying. Deceitful. Greedy. Evil. Thieves.

    But maybe the Rapture will happen shortly like some of the neo-con religious fanatics claim and all the neo-cons will be plucked from our midst. Then, sane, sensible, intelligent people will finally be able to make sane, sensible, rational, intelligent decisions that will salvage what will be “left behind” by the neo-cons after they’re done ravaging our society.

    Oh, wait, the Rapture, just like the hundreds of Raptures before this current impending one, is just a bunch of crap, sir. I guess sane, sensible, rational, intelligent people will have to take matters into our own hands if our democracy is to survive the neo-con Armageddon machine from hell.

  18. sooner commented on Aug 3

    re: Armageddon Don’t bet against the christo-facists. Self-fullfilling phrophesy is a BITCH!

  19. donna commented on Aug 4

    I for one will be pleased to inherit the earth when the Good Christians are all raptured…..

  20. Captain Video commented on Sep 19

    This discussion has helped me make sense out of the Bush Administration’s borrow and spend fiscal policy, which otherwise appears totally irrational and irresponsible.

    Its a good idea to run up huge deficits because the people who are saved will soon be raptured and the Godless people who are left behind will be stuck with dealing with the consequences of the deficits. Serves them right! :-)

  21. Secret Rapture commented on Jan 17

    My inaugural address at the Great White Throne Judgment of the Dead, after I have raptured out billions!


    Your jaw will drop!

    eschatology,End Times,second coming,rapture,secret rapture,Second Resurrection,Great White Throne Judgment of the Dead,
    End of Days,Day of the Lord,Endtime,Judgment Day

  22. commented on May 15

    My inaugural address at the Great White Throne Judgment of the Dead, after I have raptured out billions!

    Posted by

  23. Jim Berentsen commented on Dec 31

    Question, Did the FED cause this housing crisis by lowering interest rates so low for so long? My feeling is they did. Now everyone is wanting rates to keep going lower. Can someone explain how this will make things better?

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