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Here’s a painless way to save taxpayers trillions amid coronavirus pandemic

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managed wordpress hostingHere’s a painless way to save taxpayers trillions amid coronavirus pandemic 1
To combat the economic damage from the coronavirus pandemic, the federal government may have to borrow hundreds of billions of dollars more than the $1.8 trillion Uncle Sam is already expected to borrow. And that’s on top of our pre-emergency deficits.

What about the borrowing costs? Fortunately, there is an opportunity to save trillions of dollars in projected spending on interest rates that could offset the cost of this extra borrowing and even trillions of dollars of past borrowing: That extra money comes from the unique opportunity the United States has to refinance its debt at a remarkably lower interest rate.

The US government has a once-in-a-lifetime chance to save American taxpayers trillions of dollars over the next 30 years — without raising a single tax or cutting a dime from government programs. The window on this opportunity could slam shut quickly and unexpectedly, so the time to take advantage of this windfall is right now.

The federal government should immediately begin refinancing the near $20 trillion national debt (publicly traded) by replacing all expiring bonds with 30-year bonds. The Treasury Department should also issue new 50-year bonds and should even experiment with issuing 100-year duration bonds.

Here is why: For the past several decades, interest rates on government bonds have been falling fairly steadily (to 2 percent at the start of this year, down from 15 percent on 30-year treasuries in 1980). This decline has accelerated in the last several weeks, as fear of the coronavirus has paralyzed many parts of the economy and caused an investor rush to safety in US government bonds.

The interest rate on 10-year Treasury notes has fallen to 0.75 percent, and, even more incredibly, rates on 30-year bonds have dropped below 1.5 percent.

Some bond experts are even predicting that rates could fall close to zero in the coming months. There are many economic problems that could be associated with bond rates this low, but the biggest beneficiary of these low interest rates is the planet’s biggest debtor: the American government. The United States currently has roughly $20 trillion in outstanding publicly held debt.

We could face an unprecedented fiscal crisis if interest rates began to rise, or even if they simply drifted back up to their 50-year average of 5 to 6 percent. This normalization of rates would cause a massive spike in interest costs paid by the US government and add $3 trillion to $5 trillion to our debt-servicing costs. The danger has always been that spiking interest rates would create a debt death spiral for the feds. Higher rates would require more new debt to pay for the old debt, and the cycle repeats over and over. This would require massive tax increases to cover the added debt — or sweeping cuts in our most popular programs.

Right now, the Congressional Budget Office predicts that interest on the debt will be one of the fastest growing expense items in the entire federal budget. With interest costs expected to more than triple, from 1.8 percent of gross domestic product today to 5.7 percent in 30 years. Foreigners hold 40 percent of this debt, and their shares are likely to rise.

Here’s a painless way to save taxpayers trillions amid coronavirus pandemic 3Here’s a painless way to save taxpayers trillions amid coronavirus pandemic 4

To inoculate ourselves from a fiscal doomsday scenario of ever-rising debt payments, the US Treasury Department should lock in today’s historic low rates for as long as possible. Every time a short-term bond expires, the new bonds should be for 30-years or more. The time to experiment with 50- and 100-year bonds is now. Other nations, such as Austria, have started issuing long-term bonds of this duration and have found buyers at very low rates of 1 percent and even some close to zero.

This is a much larger reduction in debt than either party is talking about right now, and this one is totally pain-free.

Given the rush to safety right now, there is a massive global demand for Treasuries, so this move shouldn’t drive up long-term rates. And given that the yield curve is mostly flat now, meaning long-term rates aren’t much higher than short-term rates, there isn’t much cost even in the near term of converting to longer-term bonds.

Germany has issued 30-year bonds with a zero-percent interest rate. Some $16 trillion in debt has been issued worldwide with negative yields. Mexico, Belgium and Ireland have issued 100-year bonds. Canada has issued 40-year bonds. Why not Uncle Sam?

How much could be saved? Given the expected upward float of interest rates, this strategy at a minimum could cut interest-rate payments by two full percentage points. Each one percentage point reduction in rates saves $1.7 trillion over a decade.

The savings from an immediate and prudent plan to issue longer-term debt could easily save $5 trillion in government interest expenditures over the next decade.

This is a much larger reduction in debt than either party is talking about right now, and this one is totally pain-free.

Newt Gingrich was speaker of the US House of Representatives from 1995 to 1999 and is now chairman of the board at Gingrich 360. Stephen Moore is the distinguished visiting fellow for the Project for Economic Growth at the Heritage Foundation.

Here’s a painless way to save taxpayers trillions amid coronavirus pandemic 5Here’s a painless way to save taxpayers trillions amid coronavirus pandemic 6
Here’s a painless way to save taxpayers trillions amid coronavirus pandemic 7Here’s a painless way to save taxpayers trillions amid coronavirus pandemic 8
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