The U.S. Treasury revealed on Monday its plan to borrow $1.592 trillion from the private debt market through the end of the March quarter, following a $1.01 trillion borrowing in the September quarter. On Tuesday, prominent “SPAC king” Chamath Palihapitiya criticized the U.S. for its fiscal policies of living beyond its means.
What Happened: “To state the obvious, borrowing $1.6T every six months is unsustainable and will only go up if we are pulled into a war,” said Palihapitiya in a post on X. He questioned why the Treasury wasn’t selling long-dated maturities past 30 years.
“If you believe the terminal value of America goes beyond 30 years, then sell bonds to match and start now,” the venture capitalist said. “There is no point timing the market — we already missed our golden moment so best to get on with it.”
Palihapitiya also called out the federal agencies for the current fiscal mess. “This is beginning to become a huge fiscal and monetary failure of action between The Treasury Department and The Fed,” he said.
Responding to the comments, Tesla CEO Elon Musk said, “This won’t end well.”
When an X user asked whether there would be an appetite for a 50-year U.S. Treasury, Palihapitiya said, “Just any Central Bank in the world that expects the U.S. Fed to be there for them…so everyone.”
Why It’s Important: Treasury yields have been surging as the Fed funds rate remains elevated and the funding needs of the government continue to go up. The benchmark 10-year U.S. Treasury now yields 4.912%, just off the 16-year high of over 5% hit in late October.
Higher yields pushed up the borrowing costs of the government. More importantly, the U.S. treasury yield curve remains inverted. The yields of the shorter-term Treasury bills and notes are higher than their longer-term counterparts.
The longest maturity for the Treasuries is now 30-years. In 2019, the Treasury mulled the possibility of issuing a 50-year Treasury bond, although the plan hasn’t fructified.
Data released by the Treasury on Oct. 20 showed that the U.S. ended the fiscal year 2023 with a deficit of $1.669 trillion or 6.3% of the GDP, up from 5.4% of the GDP in the previous fiscal.
A Federal Reserve Bank of San Francisco research paper showed that extending the maximum debt maturity from 30 years to 50 years will benefit by way of guaranteeing funding for a full 50 years.
It may also help reduce the stress on future government budgets as it would offer protection in case interest rates rise much above the expected levels, as the interest payment is spread out over a longer period.
A 50-year Treasury bond could expand and diversify the set of investors available to help meet funding needs, the research paper said.
The iShares TIPS Bond ETF (NYSE:TIP), an exchange-traded fund that tracks the investment results of an index composed of inflation-protected U.S. Treasury bonds, ended Tuesday’s session down 0.25% at $102.80, according to Zenger News Pro data.
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