Cramer: US Needs to Refinance to Prevent Liquidity Crisis
The US government is making the same mistake as those who took out variable rate mortgages, Cramer said. They share the belief that they would save money with the low rates in the short-term, only to get slammed when mortgages were reset during the financial crisis.
Right now, the US is borrowing a lot of short-term money that comes due in a few years, rather than taking advantage of the massive demand for Treasuries — the safest place to put your money thanks to European contagion locking in slightly higher, but still incredibly low rates for the long-term.
Greece is having a massive liquidity crisis. The country has payments on its debt due over the next two years that are larger than its entire economy, Cramer said. It also has a solvency issue that the US never will, Cramer said. But the US could face a liquidity crisis in the future, when it isn't as easy for the government to borrow money.
"The greatest financial risk to our nation is a liquidity crisis brought on by the fact that we have too much short-term debt," Cramer said. "At some point we might have to roll it over and pay much higher rates."
For two years, the US has been selling mostly short-term debt because the rates are low. This is the same mistake made by people, who took out 2- and 3-year variable mortgages and then got wiped out. Cramer doesn't think the US will get wiped out, but will suffer if things don't change.
The US government needs to refinance, Cramer said. A liquidity crisis can be averted by selling $2 trillion worth of 30-year Treasuries, Cramer explained and lock-in the low rates, as the world sends its money to the US because its viewed as the safe.
Cramer said some are worried about the debt the US is incurring, but others claim it's saving $150 billion by not lengthening out because rates on short-term debt are lower.
"If we were to pay a mere $150 billion to protect our country from a liquidity crisis for five years, that’s a very cheap price considering how leveraged we are right and the rapid increase in government spending that’s going on as we speak," Cramer argued. "If we sold $2 trillion in debt now, we could take a liquidity crisis out of play for thirty years."
Cramer adds that the interest rate would the lowest in years. Yet, the demand for Treasuries is off the charts. He said the US should take advantage of the demand for before it goes away.
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