US debt is rising to record levels, and the Treasury Department has squandered an opportunity to help ease the burden on Generation Z, a former White House economist has warned.
That's because Generation Z already has enough to worry about and has grown increasingly pessimistic. High borrowing costs have kept young adults out of the housing market, while some scientists also point to the impact of social media on anxiety.
But Todd Buchholz, White House director of economic policy under President George HW Bush, said that “members of Generation Z should also be concerned about the irresponsible debt levels that baby boomers and generations X and Y (millennials) crowd on their narrow shoulders.”
To be sure, US debt levels have been rising for decades. But in recent years it has achieved important milestones. For example, gross federal debt as a percentage of US GDP has exceeded the levels reached in the immediate aftermath of the Second World War. Debt servicing costs are now expected to overshadow defense spending this year.
The will of Fed Chairman Jerome Powell, CEO of JPMorgan Chase Jamie Dimon, Brian Moynihan, CEO of Bank of AmericaAnd BlackRock CEO Larry Fink have recently raised alarms about US debt. But Buchholz highlighted the consequences that Generation Z in particular faces.
“Half of young adults think they will never be able to afford a home, yet they will still be asked to pay for their grandparents' debauchery,” he wrote in an article. opinion for Project Syndicate on Wednesday.
The US had an opportunity to improve its debt outlook but missed it, Buchholz explains. For years after the Great Financial Crisis, monetary stimulus from the Federal Reserve kept Treasury yields at record lows, meaning U.S. Treasury yields were historically cheap.
The Treasury Department, which sells U.S. Treasury bonds to global bond markets, could have maintained those low interest rates by issuing bonds with maturities of 50 or 100 years, instead of bonds with maturities typically limited to 20 or 30 years.
“But the Ministry of Finance mainly stuck to short-term loans, with the average term of bonds being only five years,” Buchholz said. “As a result, maturing debt is being rolled over at a higher cost.”
In March 2021, with US Treasury yields still at a low level of around 1.5%, Treasury Secretary Janet Yellen said there were “no current plans” to issue super-long debt. This prompted hedge fund manager Stanley Druckenmiller last year to introduce the 'biggest blunder in the history of the Ministry of Finance.” Today, interest rates are hovering around 4.5%, after peaking at 4.7% late last month.
While the US missed the opportunity to secure cheap debt, at least fourteen countries, as well as dozens of companies and universities, issued super-long bonds, Buchholz noted.
But he added that there may be other possibilities in the future and suggested that the Treasury Department should unleash a flood of super-long bonds when inflation-adjusted rates fall below the historical average of about 1.55%.
Yet this will not address the massive federal deficits that are driving the rise in U.S. debt.
“The fundamental budget problem, of course, is that there is too much spending,” Buchholz said. “President Ronald Reagan once joked that the government is like a baby: on the one hand, it has a big appetite and on the other, no sense of responsibility. That joke is as true today as it was half a century ago.”
This story originally ran Fortune.com
