Former U.S. Treasury Secretary Robert Rubin cautioned against taking rock-bottom interest rates for granted and said the government should take advantage of the moment by substantially increasing the maturity of its debt, including possibly issuing ultra-long bonds.

In a paper for the Peterson Institute for International Economics released on Wednesday, Rubin and his co-authors suggested the change in the Treasury’s borrowing strategy as part of a broad-based revamp of fiscal policy.

Rubin cautions that rock-bottom rates may eventually rise

While significant budgetary support for the economy is needed in the near term to fight the fallout from the coronavirus pandemic, longer-run changes in the fiscal framework would enhance the government’s ability to counter future shocks, Rubin, Nobel Prize-winning economist Joseph Stiglitz and Lazard Group LLC executive Peter Orszag wrote in the paper.

They proposed “reducing the budget’s exposure to interest rate variation while also making it respond more automatically” to the economy’s ups and downs and to an aging society.

Among their recommendations: automatic adjustments to Social Security in line with changes in life expectancy and a new federal infrastructure program that would provide states and localities with more funding when the economy turned down.



Source Google News