U.S. debt is soaring to record levels, and the Treasury Department squandered an opportunity to help ease the burden on Gen Z, a former White House economist warned.
That’s as Gen Z already has enough to worry about and has grown increasingly pessimistic. High borrowing costs have kept young adults out of the housing market, while some scholars are also pointing to social media’s impact on anxiety.
But Todd Buchholz, who served as White House director of economic policy under President George H.W. Bush, and James Carter, who is a former deputy assistant secretary for economic policy at the Treasury Department, said “members of Gen Z must also worry about the irresponsible debt levels that baby boomers and Generations X and Y (millennials) are foisting onto their narrow shoulders.”
To be sure, U.S. debt levels have been surging for decades. But in recent years, it has topped key milestones. For example, gross federal debt as a share of U.S. GDP has exceeded the level reached in the immediate aftermath of World War II. In fact, the cost of servicing the debt is now expected to eclipse defense spending this year.
The likes of Fed Chairman Jerome Powell, JPMorgan Chase CEO Jamie Dimon, Bank of America CEO Brian Moynihan, and BlackRock CEO Larry Fink have sounded the alarm on U.S. debt recently. But Buchholz and Carter highlighted the consequences Gen Z in particular faces.
“Half of young adults don’t think they will ever afford a home, yet they will be asked to pay for their grandparents’ profligacy,” they wrote in an op-ed for Project Syndicate on Wednesday.
The U.S. had an opportunity to improve the debt outlook, but passed up on it, they explained. For years after the Great Financial Crisis, the Federal Reserve’s monetary stimulus kept yields on Treasury bonds at rock-bottom lows, meaning the interest on U.S. debt was historically cheap.
The Treasury Department, which sells U.S. debt to global bond markets, could have locked in those low rates by issuing 50- or 100-year bonds, rather than durations that typically max out at 20 or 30 years.
“But the Treasury mostly stuck to short-term borrowing, with the average duration of bonds at just five years,” Buchholz and Carter said. “As a result, it is rolling over maturing debt at a steeper cost.”
In March 2021, when U.S. bond yields were still at low levels of around 1.5%, Treasury Secretary Janet Yellen said there were “no current plans” to issue super-long debt. That prompted hedge fund manager Stanley Druckenmiller last year to call it the “biggest blunder in Treasury history.” Today, yields are hovering near 4.5% after topping 4.7% late last month.
While the U.S. missed its chance to secure cheap debt, at least 14 countries as well as dozens of corporations and universities issued super-long bonds, Buchholz and Carter pointed out.
But they added there may be other opportunities in the future and suggested the Treasury Department should unleash a flood of super-long bonds whenever inflation-adjusted yields drop below the historical average of about 1.55%.
Still, that won’t tackle the massive federal deficits that are driving the surge in U.S. debt.
“Of course, the fundamental budget problem is too much spending,” Buchholz and Carter said. “President Ronald Reagan once joked that the government is like a baby: it has a big appetite at one end, and no sense of responsibility at the other. That quip is as true today as it was a half-century ago.”
Clarification, June 1, 2024: This story has been updated to include James Carter as coauthor of the Project Syndicate op-ed.
