The federal government can borrow money for less than ever.

Of course, the coronavirus crisis is about to end American life as we know it. But let’s look at the silver lining for a moment: thanks to the panic in the financial markets, it is now cheaper for the US government to borrow.

Earlier this month, yields on the benchmark 10-year Treasury fell below 1% for the first time in history. (You can think of given as equivalent to interest rates for our purposes, although they are not quite the same thing.) This week, 30-year Treasuries also briefly fell below 1%, which according to Wall Street standards, is a physics-defying wild developmenta bit like watching a hippo perform a gymnastic jump.

The reason why this happened is quite simple: around the world, investors reacted to the pandemic – and the international oil price war it sparked – by selling off risky assets like stocks and by buying relatively safe public debt. As demand for bonds increases, prices rise and yields fall. Right now the markets are so terrified of where the economy is heading and have so few safe places to store their money that they are willing to lend the US government money for decades at a time. yield of about 1% or less. .

Or, depending on how you look at it, it’s even cheaper than that. Ten-year Treasury securities that adjust their payments for inflation are actually offering negative rates. In English: When you take purchasing power into account, investors are actually willing to pay the US government to borrow now.

And of course we should take care of them. After all, an economic crisis is looming. And while stimulus spending can’t solve all the problems the coronavirus will create, it can certainly cushion the blow of the pandemic and prevent a downturn from becoming devastating. Plus, we have all kinds of roads, bridges, tunnels and more to fix. Now we can do it without worrying too much about the cost. And I mean not in a flip, blogger sense, but in a strict, technocratic sense: the government can currently borrow at long-term interest rates that are probably below the growth rate of the economy, which even completely orthodox economists will tell you mean it is perfectly safe to go into debt. These low bond yields are the market’s way of telling us that it really is time to Infrastructure week.

Comments are closed.