It could happen here: Forever bonds

    It’s a politician’s dream: debt you never have to pay off.

    Britain is looking at the possibility of perpetual bonds, according to Reuters. Instead of lasting a set term and then having to be repaid, the government will simply pay interest on these bonds – forever.

    The thought behind these everlasting bonds is that governments should take advantage of ultra-low interest rates. Reuters reports Britain hasn’t issued forever bonds since World War I and before that following the 18th-century South Sea Bubble.

    The U.K. is also considering 100-year bonds, or gilts, as they call them across the pond. Mexico issued $1 billion in 100-year bonds last year. The wizards at MIT issued century bonds, too.

    According to Reuters Breakingviews, no one will actually choose to buy perpetual bonds anyway. Only pension funds and banks that have to hold government bonds will shell out for them.

    The problem with perpetual bonds is that your debt service never goes down.

    Plus, bonds are usually used to buy things that last as long as the bond. It makes sense to issue 20-year bonds for a bridge or school. You use the bridge or school for at least the 20 years you are paying for it.

    However, when we use long bonds to pay for current expenses we are taking from future generations.

    What is the government going to buy with the bond proceeds that lasts forever? Diamonds? Gobstoppers?

    Raising Hale is bringing back It could happen here, a feature that has been dormant for a while. Each Friday, Raising Hale will highlight one crazy thing from the latest headlines that could happen in Connecticut. To suggest a topic, contact Zach.

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