U.S. debt is at record levels and the Treasury Department has missed an opportunity to help ease the burden on Generation Z, a former White House economist has warned.
That’s because Gen Z already has enough worries and has grown up more and more pessimistic. High borrowing costs have kept young adults out of the housing market, while some researchers also point to the impact of social media on anxiety.
But Todd Buchholz, who served as White House economic policy director under President George HW Bush, said that “Generation Zers also have to worry about the irresponsible debt levels that baby boomers and the future generations “. X and the Y (millennials) lean on their narrow shoulders.
Be certain, US Debt Levels have been on the rise for decades. But in recent years, it has reached key milestones. For example, gross federal debt as a percentage of U.S. GDP has exceeded the level reached after the Second World War. In fact, the cost of servicing the debt is now expected to eclipse defense spending this year.
The tastes of Fed Chairman Jerome Powell, CEO of JPMorgan Chase Jamie Dimon, Brian Moynihan, CEO of Bank of AmericaAnd Larry Fink, CEO of BlackRock recently sounded the alarm on the American debt. But Buchholz highlighted the consequences that Generation Z particularly faces.
“Half of young adults think they will never be able to afford housing, and yet they will be asked to pay for their grandparents’ lavishness,” he wrote in a press release. opinion piece for Project Syndicate Wednesday.
The United States had an opportunity to improve its debt outlook, but it did not seize it, Buchholz said. For years after the Great Financial Crisis, monetary stimulus from the Federal Reserve kept Treasury yields extremely low, meaning that interest on U.S. debt was historically cheap.
The Treasury Department, which sells U.S. debt on global bond markets, could have guaranteed these low rates by issuing 50- or 100-year bonds, rather than maturities that typically top out at 20 or 30 years.
“But the Treasury has mostly stuck to short-term borrowing, with an average bond duration of only five years,” Buchholz said. “As a result, it rolls over maturing debt at a higher cost. »
In March 2021, when U.S. bond yields were still at low levels of around 1.5%, Treasury Secretary Janet Yellen said there were “no current plans” to issue debt in the very long term. This prompted hedge fund manager Stanley Druckenmiller last year to call it the “the biggest mistake in the history of the Treasury.” Today, yields are hovering around 4.5% after surpassing 4.7% late last month.
While the United States missed its chance to get cheap debt, at least 14 countries as well as dozens of companies and universities have issued very long-term bonds, Buchholz pointed out.
But he added that there could be other opportunities in the future and suggested that the Treasury Department should unleash a flood of very long bonds whenever inflation-adjusted yields fall below the historical average of approximately 1.55%.
But it won’t solve the huge federal deficits that are causing the U.S. debt to rise.
“Of course the fundamental budget problem is overspending,” Buchholz said. “President Ronald Reagan once joked that government is like a baby: it has a big appetite on one side and no sense of responsibility on the other. This joke is as true today as it was half a century ago.
