In fact, after eight years of the Clinton administration keeping a balanced budget a top priority for the nation's economy, President Bush inherited a $127 billion budget surplus. Moreover, shortly after taking office in January 2001, the Bush administration projected a 10-year budget surplus of $5.6 trillion.
Such projections led to many debates about what to do with the spare cash, including funding Social Security, healthcare, and other public spending. It also ultimately led to the end of issuing the 30-year Treasury bond by the end of 2001, as the government deemed that such long-term financing plans were no longer needed.
But as the budget deficit continues to balloon and Bush made clear that reducing the nation's debt will not be a priority for his second term in office, investors are beginning to speculate that the government may not have any choice but to bring back the 30-year bond.
For while military and homeland security expenditures continue to rise on the one hand, the administration is adamant that it will continue to press for more tax cuts. But many economists argue that the government can ill-afford to see such revenue decreases while spending continues to escalate, especially as another Bush proposal is to privatize Social Security, at least partially for younger workers. That process of reforming the pension plan alone is estimated to cost the government anywhere from $1 trillion to $2 trillion over the next decade.
At the same time, the government reached a record budget deficit this fiscal year of $412 billion, and the CBO expects about $3.2 trillion in accumulated deficits over the next decade, and that's without taking into consideration the Social Security reform proposal.
Of course, it could be argued, as the White House does, that Social Security reform will end up paying for itself in the long run, as no change in the system could well cost taxpayers over $10 trillion over the same period. But whether or not such projections are true, there is no doubt that what the White House is proposing to change the nation's pension plan is going to cost money immediately. Meanwhile, it's still unclear where that financing will come from, especially if any sort of tax hike is ruled out.
So it's hardly surprising that financial markets are considering a comeback in long-term government bonds, even as the Treasury vehemently denies such speculations.
"There are no plans to do that," said Treasury spokesman Rob Nichols. "Our position on that matter has not changed," he added.
But Treasury might be wise to reconsider its options, given that it has few other alternatives to raise much-needed cash. Moreover, even those who support the administration's economic policy including privatizing Social Security, are calling for a return of long-term securities, especially when yields are as low as they are now so it would cost the government less to issue them.
"The 30-year Treasury bond was first issued in 1979, at a time when long-term bond yields were near record highs and heading higher...with fundamental economic forces putting upward pressures on interest rates, it's time to bring back the 30-year," argued Brian Wesbury, chief economist at investment group Griffin, Kubik, Stephens & Thompson and an economist regularly invited by the White House to voice Wall Street's perspective on the Bush administration's policies. Wesbury was a panel member at the latest economic conference hosted by the White House last week.
The economist added that "the United States is faced with financing a war against terror and the potential of a transition toward private accounts in Social Security. Both of these government actions will pay dividends for decades into the future. Financing these costs with longer maturity debt, at historically low yields, seems like common sense."