E Trump Should Absolutely Issue 100-Year Bonds

Donald Trump should absolutely issue 100-year bonds. Besides the advantages of pushing the rollover of bonds far into the future, the 100-year bond would give a better interest rate, would lock in a low rate over time, and be useful to companies that desperately need those bonds, such as pension funds and insurance companies. It could help the middle and lower classes if jobs were created by stimulus.

100-year bonds, which we could call very long bonds, would likely not be used as collateral in the lending and derivatives markets as collateral. In fact, I would not mind a law against using them as collateral. Certainly, collateral is in short supply. Issuing 100-year bonds would likely free up at least some 10 and maybe 30-year bonds for use as collateral. This may have a small impact on rates, but if they got out of hand the central banks could simply QE them. Most likely there would be little impact on rates, as demand for collateral remains strong.

And it isn't like insurance companies and pensions would not buy shorter duration bonds. But these companies would not be forced to sell the bonds if there was price fluctuation. They could be happy with the yields compared to what we have now for them. Banks may be interested in very long bonds in order to satisfy capital requirements under the LCR program. 

While governments come and go, it is likely that the US government isn't going anywhere short of world catastrophe. Bonds would not be in demand in that scenario, so it makes no sense from the government's view to not issue the very long bonds.

It would help government, and people who may want to buy the bonds, and firms that are mandated to buy bonds. It could impact counterparties holding collateral some, but the amount of very long bonds could be issued in a way that controls the amount in circulation so that the counterparties would not panic.

Ultimately, the government would still issue bonds of shorter duration. It would have to do so, or else desperate people may consider very long bonds as collateral and that could be a problem. It could cause those bonds to be gobbled up as all other bonds are in massive demand.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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Comments

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Joe Economy 1 year ago Member's comment

Thanks for that interesting analysis of bond issues. I was wondering what the downside might be to issuing bonds. Is there an inflation concern by raising more money into the economy? Is this a last resort option done in times of depression or post war? Why don't more countries do it? Are there other tools that a government can use to raise money? Are taxes a better option? Looking forward to hearing more on this fascinating topic.

Gary Anderson 1 year ago Author's comment

Well, Joe, it is obvious that the elite don't want to pay more taxes. Some do, but most don't. And Trump wants to cut corporate taxes, leaving an even bigger gap. If we are entering a recessionary time, and Edward Lambert has the charts to show this probably is the case, then now would be the time to issue these bonds, at the end of the business cycle. Notice that governments have issued these bonds recently, as the world economy is slowing. Now is the time, and it makes sense to do it now, not at the peak of a business cycle.

David P. Sims, CPA 1 year ago Contributor's comment

Interesting idea. I wonder what these bonds might yield.

Gary Anderson 1 year ago Author's comment

Historically David, yields have a range of around 3.5 percent to 5 percent. The US should be on the low end.

David P. Sims, CPA 1 year ago Contributor's comment

I'd say we should probably issue a few trillion dollars in 100 year bonds and spend that money on infrastructure, asap.

Here's an interesting and related story on CNBC. Apparently #Trump is a Keynesian.

www.cnbc.com/.../...ho-supported-clinton-says.html

Gary Anderson 1 year ago Author's comment

I still think monetary or very long bond solutions are preferable to shorter term deficit spending. #Trump people are at least talking about the 100-year bond.

Norman Mogil 1 year ago Contributor's comment

I agree that this is once in a generation opportunity to raise cheap funds. The buyers will likely put the bonds in their desk drawer and just wait for maturity--which is exactly what the Federal govt needs to happen. I am not sure these bonds would operate as helicopter money---helicopter money is designed to be channelled into short consumption. 100yr bonds would be used for long term cap ex.

Gary Anderson 1 year ago Author's comment

I agree Norman, helicopter money should be a one time event for no more than 18 months, according to Eric Lonergan. But for government, lifting the burden of rollover debt could be accomplished either way.

James Madison 1 year ago Member's comment

Gary Anderson, who is Eric Lonergan? I couldn't find him on this site.

Gary Anderson 1 year ago Author's comment

Hi, info is in the article I wrote about him: www.talkmarkets.com/.../eric-lonergan-precisely-defines-helicopter-money I think there are links to him there and an explanation of what he is trying to accomplish.