It’s official, the U.S. government is now the largest holder of our own national debt, surpassing China and now holding more than $1.6 trillion in U.S. treasuries. How are they buying these bonds? They are printing currency – U.S. dollars, devaluing our currency to push long-term interest rates down by 20 or 30 basis points. Why are they doing this? Because they think (wrongly) that if rates are lower, somehow banks will lend more money and it will help the economy. The 10-year treasury was already well below 3% and is now below 2%, yet banks are not lending any more money today than they were before the government started buying these bonds.
Here’s a novel idea: instead of printing money to buy our own debt, why don’t we spend the same $1.6 trillion on infrastructure? We have an estimated $2 trillion in needed rebuilding, repairing and replacement that is needed. We could have not only paid for the vast majority of this (80%), but could have also made a nice dent in the unemployment rate at the same time. Every $1 billion in infrastructure spending is estimated to create 30,000 new jobs. More notable still is that, if that much money was spent in the economy, it would have a massive multiplier effect, which would create more economic activity and more jobs.
I am not in favor of printing money, but if we are going to do it, wouldn’t it make more sense to spend that money on something beneficial to the economy and that would create jobs, instead of simply buying our own debt?