A last chance for fixing roads, refinancing debt


There are times when a confluence of events creates a rare opportunity. The U.S. now is at one of those the moments.

To wit:
As of January, a single party will control the executive and legislative branches of government; Campaign promises were made by the president-elect to upgrade infrastructure; The U.S. federal debt is almost $20 trillion; The U.S. has both a high credit rating and a stable, growing economy; There is a worldwide shortage of sovereign, A-rated bonds; Negative interest rates are prevalent around the world; The U.S.’s infrastructure is outdated and deteriorating; Interest rates are very low, but will likely rise in the near future; The president-elect comes to office with a background in real-estate development and understands the use of debt.
If this were an equation, the above points would result in an obvious answer: the refinancing of long-term debt and obligations at the lowest possible rate for the longest possible time. I am suggesting that the U.S. issue bonds that mature in 50 or 100 years.
Given the decades of gridlock in Washington, there is a genuine chance that something positive may occur.
This isn’t the first time I have brought up infrastructure in these pages (see 2016, 2015 and 2014). However, in the past, only some of the key factors mentioned above were present. What
makes this moment different is how many of the conditions exist that not only favor an infrastructure build-out, but a wholesale refinancing of all federal debt outstanding.
By virtue of the fact that the president-elect is a lifelong New Yorker he has to know the dismal condition of the state’s infrastructure. And since he traveled around the country during the campaign, he surely got a chance to see that things no better elsewhere in the U.S.
Improving U.S. roads, highways, bridges and tunnels as well replacing or constructing new transport systems is a two-part project: first, commit to making the basic repairs to counter the effects of wear, tear, weather and age. One part of the solution is to fully fund the national Highway Trust Fund by raising the federal gasoline tax. Second, use long-term bonds to upgrade the transportation system, electrical grid and water works that are so crucial to the U.S.’s well-being.
And as long as we are in the midst of issuing a trillion dollars worth of bonds over four years to fund these infrastructure projects, why not start refinancing the rest of the debt at the current low, low rates?
I am not suggesting that in February 2017, the U.S. Treasury come to market with $20 trillion in 100-year paper. However, what would make sense would be to start aligning the funding needs for America’s spending with existing credit availability.
What might that look like?
Imagine an issuance program that included 10-, 30-, 50- and 100-year bonds. Test the market with $250 billion of each, spread over 50 weeks of bond auctions. The yields might be 2 percent on the 10 year, 3 percent on the 30 year, 4 percent on the 50 year and 5 percent on the 100 year.
Those are rough, round numbers, but they are a good start. I suspect the demand for the bonds would be substantial. The issuance could easily increase to meet the demand, refinancing more longer-term debt as necessary.
The impact of these bonds would resolve a number of financing issues that confront America. The sooner the country starts addressing these, the better off it will be.


Barry Ritholtz

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker

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