The Danger of Short-Term Debt

Jason Trennert's column in the Wall Street Journal last Friday points out 60% of America's debt matures in three years or less.

Recently, we've seen the kind of crisis that occurs when leveraged institutions can't "roll over" debt. I can think of a few companies that seemed just fine under this kind of financing arrangement for many years until hitting the wall in 2008.

There are huge differences, of course. The U.S. has huge advantages having all its debt in its own reserve currency. That's not a small differentiator. Nor is how productive the country is.

As a reserve currency, the financial flexibility of the U.S. cannot be compared to a large financial institution or some other financially weaker sovereign nations. That doesn't make the use of short-term borrowing to fund long-term liabilities wise. The U.S. has the flexibility now and would be better off relying more on longer term funding before, in some material way, that ends up not being the case. From the column: might be wise to remember Hemingway's Mike Campbell from "The Sun Also Rises," who, when asked how he went bankrupt, responded, "Gradually, then suddenly."

At some point this kind of financing just invites problems. It seems to work (maybe for decades) just fine until it doesn't.

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The Danger of Short-Term Debt
The Danger of Short-Term Debt
Reviewed by Pisstol Aer
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