A former White House economist warns that U.S. debt is soaring to record levels and the Treasury Department is squandering an opportunity to help ease the burden on Generation Z.
Gen Z already has enough to worry about and is becoming increasingly pessimistic. High borrowing costs keep young people out of the property market, while some academics have pointed to the impact of social media on anxiety.
But Todd Buchholz, who served as White House economic policy director under President George H.W. generation) have imposed irresponsible debt levels on their narrow shoulders.”
To be sure, U.S. debt levels have been soaring for decades. But in recent years, it has reached key milestones. For example, total federal debt as a share of U.S. gross domestic product has exceeded post-World War II levels. In fact, debt service costs are now expected to exceed defense spending this year.
Federal Reserve Chairman Jerome Powell, JPMorgan Chase CEO Jamie Dimon, Bank of America CEO Brian Moynihan and BlackRock CEO Larry Fink are among those who have recently sounded the alarm on U.S. debt. But Buchholz highlighted the consequences that Gen Z in particular faces.
“Half of young people think they will never be able to afford a home, but they will be asked to pay for their grandparents’ extravagant spending,” he wrote in an op-ed in The New York Times. Project Syndicate Wednesday.
Buchholz explained that the United States had an opportunity to improve its debt outlook but gave up. In the years since the financial crisis, the Federal Reserve’s monetary stimulus has kept Treasury yields at rock-bottom levels, meaning interest rates on U.S. Treasuries are at historic lows.
The Treasury Department, which sells U.S. Treasuries to global bond markets, could have locked in those low rates by issuing 50- or 100-year bonds instead of the typical maximum maturities of 20 or 30 years.
“But the Treasury mostly stuck to short-term borrowing, and the average maturity of the bonds was only five years,” Buchholz said. “As a result, it is rolling over maturing debt at a higher cost.”
In March 2021, when U.S. bond yields remained low at around 1.5%, Treasury Secretary Janet Yellen said there were “no current plans” to issue ultra-long bonds. That prompted hedge fund manager Stanley Druckenmiller last year to call it “the biggest mistake in Treasury history.” After breaking through 4.7% at the end of last month, the yield rate is now hovering around 4.5%.
Buchholz noted that while the U.S. missed out on access to cheap debt, at least 14 countries and dozens of companies and universities issued ultra-long bonds.
But he added that there may be other opportunities in the future and suggested that the Treasury Department should release large amounts of ultra-long bonds as long as inflation-adjusted yields remain below the historical average of about 1.55%.
Still, that won’t solve the massive federal deficit that’s causing the U.S. debt to balloon.
“Of course, the fundamental budget problem is too much spending,” Buchholz said. President Ronald Reagan once joked that government is like a baby: a big appetite but no sense of responsibility. This quip is as true today as it was half a century ago.
