No. of Recommendations: 0
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.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.