Administration announces it is considering bringing back sales of a 30-year Treasury bond

Wednesday, May 4th 2005, 10:25 am

By: News On 6

WASHINGTON (AP) _ The Bush administration announced Wednesday that it is considering bringing back the 30-year bond to provide financing for the government in an era of record budget deficits.

The government stopped selling the bond in October 2001, the fourth and last year the government ran a budget surplus. The sales stopped at a time when the government was projecting surpluses over the next decade of $5.6 trillion.

However, those surpluses never materialized as a recession, a war on terror and President Bush's string of tax cuts turned the black ink into oceans of red. The administration is projecting a record deficit this year of $427 billion.

Officials at the Treasury Department announced on Wednesday that the government is considering bringing back new sales of 30-year bonds.

Timothy S. Bitsberger, assistant Treasury secretary for financial markets, said that a decision on whether to bring back the bond would be announced on Aug. 3, the date the government will announce its borrowing plans for that quarter.

Bitsberger said if the government does decide to sell the 30-year bond again, it would do so in auctions twice a year beginning in February 2006.

The government stopped selling the 30-year bond because officials believed it cost the government money to finance borrowing with such a long issuance period. The longest security the Treasury now sells is a 20-year inflation-indexed bond.

Bitsberger, who had just joined Treasury when the administration decided to stop selling new 30-year bonds, said that the government was facing a different era now than in 2001.

``It is a different world than in 2001,'' Bitsberger told reporters at a briefing. ``We have more debt outstanding than we did in 2001.''

Bitsberger said the discussion of bringing back the 30-year bond was not related in any way to Bush's Social Security overhaul proposal that would allow younger workers to set up private investment accounts. By diverting money into the private funds, it would require the government to borrow an extra $100 billion or more annually to meet payments to current retirees during a transition period.

The government in 2001 recorded a surplus of $127 billion, its fourth year in the black, a feat that had last been accomplished seven decades before with a string of 11 straight surpluses that ended in 1930.

Last year, the federal government had a deficit of $412 billion, the third straight deficit under Bush and the second straight record in dollar terms. The administration projects this year's deficit will be an even higher $427 billion, although private forecasters pointing to a huge jump in tax collections this year believe the shortfall will not be that high.

Bush campaigned in 2000 on a proposal to provide across-the-board tax cuts and gained help in selling the idea to Congress from Federal Reserve Chairman Alan Greenspan, who said in early 2001 that the projected 10-year surplus at the time of $5.6 trillion was so large that it could be safely reduced by trimming taxes.

But the surpluses quickly turned to deficits after the bursting of the stock market bubble and the 2001 recession cut into government revenues. Spending increased with the need to fight a global war on terrorism and receipts were also shrunk by a string of tax cuts, starting with a $1.3 trillion, 10-year package that Bush got Congress to approve in the summer of 2001.

The national debt now stands at an all-time high of $7.75 trillion. It is the publicly held part of that debt that the government must finance.

The announcement on the 30-year bond was made as part of the government's regular announcement of how much debt it will sell next week at auctions that are held quarterly.

The government said it planned to offer $51 billion in notes next week to refund $39.6 billion in existing Treasury securities that are coming due and to raise $11.4 billion in new cash.

The auctions will include $22 billion in a three-year note sold on Tuesday, $15 billion in a five-year note sold on Wednesday and $14 billion in a 10-year note sold on Thursday.