Ultralow Interest Rates Bring Opportunity and Danger to States
What’s good for funding infrastructure is bad for pensions—and in the long run, bad for infrastructure, too.
It’s no secret that U.S. infrastructure is in dire need of an overhaul. The American Society of Civil Engineers estimates a lack of investment will cost almost $4 trillion in gross domestic product by 2025. Measured per household, that’s a loss of $3,400 a year thanks to congested roads, overworked electric grids, and other deficiencies.
With that in mind, the global trend of debt yields falling below zero seems like a massive windfall for U.S. states and cities. After all, they borrow for public works projects in the $3.8 trillion municipal bond market, where rates are within spitting distance of all-time lows. Just about every state can borrow at less than 2% for 10 years—a better rate than the federal government can get. If U.S. Treasury yields drop to zero, as some prognosticators expect, it stands to reason that those for Florida, Maryland, and Texas will go down, too.