If there is one advantage to the current economic malaise, it is this: Borrowing costs for the United States have reached record low levels, creating an opportunity for the government to make much-needed investments at a low cost.
The U.S. government, thanks to its safe haven status, can currently borrow at rates of 0.6% for five years, 1.5% for 10 years and 2.55% over 30 years -- yields that contrast sharply with those demanded by purchasers of Greek, Spanish or Irish debt.
Larry Summers, the former Treasury Secretary and Obama adviser, says the low rates mean it's a good time to borrow.
The idea is that if a government knows it must make certain investments -- repairs to a bridge, say, or replacing military equipment -- it should move on those items now while borrowing costs are low. If the government waits, borrowing costs are likely to rise, elevating the net cost of the project.
It may seem counterintuitive for the government to be borrowing more with deficits topping $1 trillion, but Summers argues Monday in the Financial Times that the debt-conscious need not worry.
"Countries regarded as havens that can borrow long-term at a very low cost should be rushing to take advantage of the opportunity," Summers said. "This is a view that should be shared by those most alarmed about looming debt crises because the greater your concern about the ability to borrow in the future, the stronger the case for borrowing for the long term today."
Of course, borrowing costs for the United States have been very low for the past two years, and with rare exception, Congress has not taken advantage of the lower rates.
But in this case, government should take its cues from the private sector, Summers said. "Any rational business leader would use a moment like this to term out its debt. Governments in the industrialised world should too."
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