If the US needs to issue more debt over the coming decades — and it will — then it has to make bonds more appealing to individual investors.
President Donald Trump’s efforts to stack the Federal Reserve with economists willing to cut interest rates is providing all the drama this week. But the longer-term future for monetary policy, the bond market and the US economy is even more ominous.
That’s because the US has an aging population, like many countries in Europe and Asia, and faces both growing debt and lower growth. And the ways out of this predicament come at a price American investors and retirees may not be willing to pay.
A new paper presented at last week’s Jackson Hole economic symposium lays out a more hopeful scenario: Aging countries can issue more debt, it says, because all those older people will buy up all those new bonds. Demand may even outstrip supply. If interest rates don’t go up, the paper estimates, the US can manage a 250% debt-to-GDP ratio. That’s close to Japan’s — and Japan is fine, kind of.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by Don Mason/Getty Images