THEY'RE SLOW in Washington, but sometimes they do get it.
The Treasury has just figured out what has been obvious to regular Americans for several years: Interest rates are low. Lenders are making enormous amounts of money available for very long periods at extremely favorable prices. Maybe it makes sense to lock in with a long-term, fixed-rate mortgage. Especially if we're hocking ourselves to the eyebrows anyway.
Last week, the administration announced it would reconsider its 2001 move to end sales of the 30-year T-bond, which like other Treasury debt finances cotton subsidies, dysfunctional Amtrak trains and other parts of the federal enterprise.
It's about time.
Reviving the "long bond," which finance pros seem to believe is all but assured, would help Wall Street, taxpayers, investors, pensioners and the economy. And it would deliver the bonus of exposing four years of Treasury statements on the subject as dissembling nonsense.
Abolishing the long bond left the Treasury reliant on borrowings of between 10 years and three months, which like all unamortized loans must be refinanced upon expiration unless cash is there to pay them off. (And it rarely is with the government.) The more short-term debt the government sells, the higher the risk to taxpayers if rates spike up in a few years.
The government can't borrow all or even most of its money for 30-year terms. That brings its own risks, and markets couldn't handle it. But in a mixed menu of Treasury offerings, the long bond has furnished stability to creditor and debtor since 1977. (Bonds issued in 2001 and earlier still trade.)
The 30-year's demise can be blamed on the recent illusion of balanced federal budgets, which was part of a larger hallucination involving profitable Internet grocers, innovative corporate accounting and trees sprouting money.
"We do not need the 30-year bond to meet the government's current financing needs, nor those that we expect to face in coming years," was how Peter Fisher, Treasury undersecretary for domestic finance, explained the decommissioning, as quoted in various newspapers.
That was six weeks after the Sept. 11, 2001, terrorist attacks. It should have been obvious, and soon was, that Fisher was wrong. But nobody owns up to mistakes in Washington. They just temporize and hope people forget.
In 2002, 30-year Treasury rates plunged below 5 percent, deficits ballooned and rumors flew about the long bond's revival. The rumors "are not worth spit," Fisher responded at a press conference.
In 2003, tens of billions were being borrowed for the war in Iraq. "The deficit is temporary and will recede," Treasury Secretary John W. Snow was quoted as saying by the Associated Press, even as the lack of a 30-year bond forced the government to issue more five- and 10-year notes.
Last year, the federal deficit hit $412 billion, prompting new speculation about a long-bond comeback. "There are no plans to do that," a Treasury spokesman told United Press International in December.
What's different now?
In the real world, nothing. In politics, everything.
The 2004 election is over, reducing the political risk of admitting that deficits are forever. And short-term rates are up substantially, eroding the political advantage of shifting the federal debt away from long-term financing.
When short-term rates were 1 or 2 percent, it made public relations sense to load up on short-term borrowing because it reduced near-term government interest costs, and thus the reported deficit, by billions.
Now that Alan Greenspan has substantially raised short-term rates, the gap between short and long rates has narrowed sharply, so the comparative political cost of borrowing long has fallen. The yield on existing 30-years is 4.6 percent. Six-month bills are 3.1 percent.
New long bonds wouldn't appear until next year if they appear at all. But if they do, they'll give investors secure incomes until 2036. They'll allow pension managers to more surely tune assets with distant liabilities. They'll bolster the dollar, which faces competition for global investment from 50-year government euro bonds in France and Germany. They'll let U.S. taxpayer-borrowers lock in at low rates.
What took so long?