The Corner

More on U.S. Debt

A specificity of the U.S. is that much of its debt is what we call short-term debt. The average maturity of the U.S. debt is 4.4 years, which is unlike most other countries’. For instance, according to the International Monetary Fund’s latest Fiscal Monitor study, Portugal, Italy, Ireland, and Spain have maturities that range from 6.2 to 7.4 years; the U.K.’s average debt maturity is 12.8 years.

What’s good about having short-term debt is that, in good times, the U.S. has been able to roll over the debt and benefit from very low interest rates. Think about the benefit of refinancing. The problem with short-term debt is that you need to refinance regularly. Basically, the U.S. is constantly asking the financial markets to roll over its debt. But the real risk comes from a large exposure to sudden increase in interest rates. For instance, at some point our lenders might wise up and increase the interest rates we pay — which, on such a large amount of money, would be painful.

Using the IMF data, economist Donald Marron made this very revealing chart, which shows how much of the U.S. debt is coming to term and how much money it will have to rollover soon.

http://dmarron.files.wordpress.com/2010/05/large-financing-needs-in-2010-imf.jpg?w=796&h=340

The whole thing is here.

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