HH Why The 100-Year Bond Is Unethical

With central banks globally once again suppressing the borrowing cost of sovereign entities to near zero rates, with yields in some countries even going negative, there is significant talk of issuing a 100-year bond to take advantage of these rates. Part of the argument is to lock in low rates now to hedge against future increase; though if the past decade is any consideration, central banks globally will fight until they collapse to keep sovereign borrowing near zero permanently because they legitimately have no choice in the matter. Even if governments do lock in these rates now, it won’t matter considering interest rate manipulations have placed banks on shaky ground. But if we assume this is a good idea on a purely financial basis (it’s not, I’ll get into that later), the concept of these ultra-long bonds are highly unethical.

Government Admits It has No Intention of Paying Off Debt

One of the key reasons behind the relatively short maturity rates of United States debt instruments is to maintain the illusion that the federal government is a responsible debt payer. While debt may be formally paid, it’s done by borrowing additional funds to cover the maturity of the bond. This is demonstrated by examining the federal cash flow statements, which show that $9 trillion was spent paying debt, or over twice the formal federal outlays. Two-thirds of all cash that transitions through the US Treasury today is related to debt maintenance.

While this is technically the government admitting it has no intention of paying off its debt, only perpetually engaging in credit card kiting, the Treasury does operate primarily on instruments that are due in four years or less. This does, hypothetically speaking, allow for the government to formally pay it off; or at least pretend to with new borrowings.

However, with the issuance of the 100-year bond or even a perpetual bond, such as this incredible bond that was issued 371 years ago and is still being paid by the Netherlands to this day, is that it’s akin to the government admitting it has no intention to ever pay back the debt. 100 years, for all intents and purposes, is akin to a permanent bond. Government is asking to take the principal and never pay it back, only interest.

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Gary Anderson 2 weeks ago Contributor's comment

I think the 100 year bond is ok. The future generation can offset the taxation through issuing long bonds themselves.