Final answer:
The Treasury faces a contradiction when borrowing short-term debt as it must refinance it often, potentially at higher interest rates, which opposes the goal of keeping interest on the national debt low. Frequent refinancing risks increasing interest expenses, especially if market rates rise. This balancing act is crucial for fiscal responsibility and economic stability.
Step-by-step explanation:
The contradiction between the US Treasury borrowing large amounts of short-term debt and the goal of keeping interest on the national debt as low as possible arises from the inherent nature of short-term borrowing. When the government issues short-term Treasury bills, notes, and bonds, they will all need to be refinanced within a short period, usually less than a year. Refinancing this debt frequently can lead to higher interest costs if the market interest rates increase, which contradicts the goal of maintaining low interest expenses on the national debt.
Engaging in short-term borrowing helps the Treasury to take advantage of lower interest rates in the short run but includes the risk of interest rates rising in the future. Since these debts need to be rolled over often, any increase in interest rates can significantly impact the interest expenses that the government has to pay. This necessity to refinance can also coincide with economic downturns or periods of rising interest rates, which further compounds the budgetary challenges.
It's a delicate balancing act for the Treasury, seeking to fund government operations and maintain fiscal responsibility without leading to trade imbalances or financial crises. The Treasury's strategy can impact everything from budget deficits to the availability of capital for private sector firms and the overall health of the economy.