Monday Thoughts: Geithner & Treasury Want to Refi USA “ARM’s”


Great piece from Bloomberg this weekend outlining the problem facing our country. Currently, the average maturity of the 11+ trillion dollar national debt is 4 years. The reason is that the Treasury has been refunding maturing long term bonds and short term bonds with mostly shorter term bonds because 1. it’s cheaper to finance our debt at lower short term rates (for now) and 2. I believe there is less demand for longer term US debt  because buyers don’t want to lock in rates this low, so all they could sell is the short term stuff.

Now however, Treasury Secretary Geithner appears to see the gravity of this problem and wants to lock in low rates for a long term:


Why is this such a problem? With all the money the government has been borrowing, along with the Fed’s policy of printing money ad infinitum (see this funny article talking about the need for a $1Million bill with the dollar devaluation), rates are BOUND to rise soon. What would this mean? If currently, interest payments are 19% of our tax revenue, then a doubling of rates on our debt would mean 38% of our tax revenue would go strictly to interest payments. And what would that mean? It means EVERY government program would likely be cut – every one!

Our government is playing chicken with interest rates and unless they get very lucky, we are all in BIG trouble. If you knew someone who bought a house using a 4 year adjustable rate mortgage (ARM) you might think they were dumb for not learning lessons from the housing bubble this decade – and tell him he was dumb for not locking in. Our government has been doing the SAME thing by borrowing for the short term using short term treasury debt – what do you think of their decision? is it smart or dumb? Did the person you voted for approve of this?

The big question is – will investors buy and lock in their money for 20+ years at 3-4%? Would you lock your money in for 20 years at 3.5%?

Chris Grande

PS bonus – clip from CNN Money with Jim Rogers on how to invest and maybe protect yourself from the risks of the moves by the government:

Embedded video from CNN Video