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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 749254  
Subject: Re: Socialized medicine - Part Nth Date: 10/3/2012 3:02 PM
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Let us now take a look at the average maturity date of the debt portfolio (Chart 3). It tells us that the U.S. was in real trouble during the financial crisis of 2008, where debt maturity hit an all-time low of 4 years. Imminent default was looming in that period.


What an incredible silly statement. At no time in history was DEMAND for US treasuries - ESPECIALLY short-term US treasuries - as high as during the financial crisis of 2008. That is why the treasury issued short-term instead of long-term maturities at the time, in order to provide market participants a highly liquid "flight-to-safety" asset. The idea that in 2008 "default was looming" shows that the author of the article has no understanding whatsoever of what goes on in the bond market.

Today, the average debt maturity has risen to a high of 5 years, but it is still very low compared with other countries.

Even Greece has a higher maturity of 8 years


First of all, the US doesn't need long-term maturities for solvency reasons the way Greece does because unlike Spain/Italy/Germany etc., the US can print its own money and have the Fed buy the bonds. It is thus much less vulnerable to short-term demand volatility.

The reason why US debt maturity dropped so much during the 2000s was that short-term debt carries a lower interest rate than long-term debt, and so taking on short-term debt makes the deficit look better.
It made little long-term sense at the time, because during the Bush presidency long-term yields were at record lows and it would have made sense to "lock in" those low rates for the long-term.
However, making the budget deficit look small in the short-term was Bush's top priority, not the long-term fiscal health of the US government.

Note that under Obama, the maturity of government debt has been rising rapidly. If it hadn't, the US would be paying considerably less interest, lowering the deficit in the short term, but likely resulting in higher interest payments down the road.
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