The Wall Street Journal
By Edward Conard | June 26, 2012
Todd G. Buchholz says the U.S. government should lock in low interest rates by issuing long-term debt (“Washington Should Lock In Low Rates,” op-ed, June 20), but it is a bad idea. No surprise that the Fed has wisely done the opposite. Our economy currently suffers from a surplus of price-insensitive, risk-averse short-term savings. With the now-recognized risk of damage from withdrawals, the private sector has dialed back its use of these savings, which now sit idle. Growth has slowed and unemployment has risen as a result.
It is true that the government’s interest expense may be lower in the future if it locks in lower long-term rates today, but it makes little sense for the government to compete with private investors for long-term capital. Instead, the government should use its valuable guarantee to put idle short-term savings to work and leave long-term capital for the private sector to use more productively now or later. The Fed’s approach has a better chance of increasing employment in the short run.