The Biden administration’s heavy reliance on short-term borrowing is putting taxpayers at risk for an economic reckoning. Despite being in a time of full employment and peace, the government’s trillion-dollar deficits have been driven by profligate spending, leading to an increase in borrowing. However, it’s not just the size of Treasury issuance that matters but also the way the U.S borrows, which plays a crucial role in market assessments of American financial credibility.
The U.S has traditionally funded itself mostly with medium-term notes and long-term bonds. The Treasury Department typically avoids trying to time the market and instead focuses on issuing notes and bonds with a stable and predictable rhythm. This approach helps maintain orderly benchmark interest rates and allows markets to plan for absorbing the significant interest-rate risk associated with longer-term Treasury securities, ultimately reinforcing market stability.
Dan Katz, an adjunct fellow at the Manhattan Institute and former senior advisor at the United States Department of the Treasury from 2019 to 2021, sheds light on these important aspects of U.S borrowing in an article for The Wall Street Journal (paywall). Katz explores the strategic approach to borrowing by the U.S government and its implications for market stability in depth, providing valuable insights into the current economic landscape.
In conclusion, while short-term borrowing may seem like an easy fix during times of crisis, it can lead to long-term consequences if not done carefully. The Biden administration should consider adopting a more balanced approach to borrowing that takes into account both short-term needs and long-term stability.