The conventional wisdom is that the United States is borrowing too much. But don’t tell that to the markets. As Daniel Kruger reports in Bloomberg, demand for American debt was stronger in 2011 than in any year since 1995. It’s cheaper for the U.S. to finance its debt today than it was when we last had surpluses. For all that Washington is sure we’re borrowing too much, the signal from the markets is that we’re borrowing too little, that they wish we would borrow more.
This is not, to be fair, a bet on America’s economic strength. It’s a judgment about the rest of the world’s economic weakness. U.S. Treasuries are what savvy investors buy when they’re in a canned-goods-and-ammunition sort of mood and they think gold is overvalued. But though that makes the demand we’re seeing more depressing, it doesn’t make it any less real.
The Treasury Department keeps track of something called “Daily Treasury Real Yield Curve Rates.” It’s the actual rate — the one that takes into account expected inflation — at which the United States can borrow. And something amazing has happened to it in the past year. For three-year, five-year, and 10-year treasuries, the rate has turned negative. That is to say, the market is so afraid of losing money in the dangerous, uncertain world out there, that they’ll pay us to keep their money safe for them.
That’s a sad commentary on the state of the global economy. But it’s an incredible opportunity for us.