Eoin Treacy's view -
Why does the US not shift its bonds to 20 and 30-year duration, increase inflation to, say, 2% and pay back the money in 20 or 30 years’ effectively free of interest? This would really kick the can down the road and give them many years to sort out the mess. When I asked this of Americans five years ago, they thought it would cause interest rates to spike if the Fed tried to drastically increase the duration. I think the last few years have proved that the duration could be increased without causing panic in the markets.
Thank you for this email and since no one has ever successfully taken trillions of Dollars out circulation before I suspect everyone is asking how this can be done effectively. The Fed went through a maturity extension program between 2011 and 2012 which swapped about 667 billion from short-dated to longer dated securities. Here is a section from the Fed’s 2012 press release on the subject:
Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative.
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