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The $13 Trillion Question

How America Manages Its Debt

edited by David Wessel

Publication Year: 2015

The underexamined art and science of managing the federal government's huge debt.

Everyone talks about the size of the U.S. national debt, now at $13 trillion and climbing, but few talk about how the U.S. Treasury does the borrowing—even though it is one of the world's largest borrowers. Everyone from bond traders to the home-buying public is affected by the Treasury's decisions about whether to borrow short or long term and what types of bonds to sell to investors.

What is the best way for the Treasury to finance the government's huge debt? Harvard's Robin Greenwood, Sam Hanson, Joshua Rudolph, and Larry Summers argue that the Treasury could save taxpayers money and help the economy by borrowing more short term and less long term. They also argue that the Treasury and the Federal Reserve made a huge mistake in recent years by rowing in opposite directions: while the Fed was buying long-term bonds to push investors into other assets, the Treasury was doing the opposite—selling investors more long-term bonds.

This book includes responses from a variety of public and private sector experts on how the Treasury does its borrowing, some of whom have criticized the way the Treasury has been managing its borrowing.

Published by: Brookings Institution Press

Cover

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Title Page, Copyright

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pp. i-iv

Table of Contents

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p. v

About the Hutchins Center on Fiscal and Monetary Policy

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p. vi

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Acknowledgments

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pp. vii-viii

In addition to the fine authors and commenters included in the chapters that follow, we are grateful to the many others who contributed to this book. Several of the chapters were first presented as working papers at a Hutchins Center on Fiscal and Monetary Policy event at the Brookings Institution in September 2014. Th e conference versions of those papers were improved upon...

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Preface

Robin Greenwood, Samuel G. Hanson, David Wessel

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pp. ix-xiv

There is a lot of attention on the size and growth of the federal debt, and for good reason. The U.S. Treasury is the world’s biggest borrower. As of fall 2015, it had run up a debt of more than $13 trillion, not counting the money the government owes to Social Security and other government trust funds. In the fiscal year that ended September 30, 2015, the federal debt...

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1. The Optimal Maturity of Government Debt

Robin Greenwood, Samuel G. Hanson, Joshua S. Rudolph, Lawrence H. Summers

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pp. 1-27

The central task of debt management is to decide which debt instruments the government should issue in order to finance itself over time. What programs the government should pursue and whether the government should finance its current expenditures by collecting taxes or by borrowing are outside the purview of debt management.
Historically, U.S. debt managers had three main instruments...

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Comment on Chapter 1

Janice Eberly

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pp. 28-33

Greenwood, Hanson, Rudolph, and Summers bring together academic research, practical experience in policy, and empirical observation to inform debt management, in particular the maturity structure of debt, in concert with monetary policy. Undertaking this project recognizes the singular position of monetary and fiscal policy during and aft er the global financial...

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Comment on Chapter 1

Brian Sack

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pp. 33-47

The Treasury has managed its debt in an effective manner, allowing it to fund a sizable debt stock at relatively low interest rates. Investors place considerable value on the safety and liquidity of Treasury securities, giving the Treasury’s extensive borrowing capacity at all times, even during periods of market stress. These characteristics of Treasury debt reflect many...

Chapter 1 References

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pp. 37-42

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2. Debt Management Conflicts Between the U.S. Treasury and the Federal Reserve

Robin Greenwood, Samuel G. Hanson, Joshua S. Rudolph, Lawrence H. Summers

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pp. 43-75

In this chapter, we discuss conflicts between the U.S. Trea sury and the Federal Reserve in their debt management operations. Our use of the term “debt management operations” is not a conventional way to describe Federal Reserve policy, but we use it here to recognize the role that the Fed has in influencing the net supply of debt held by the public.
We start by documenting empirically the extent to which...

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Comment on Chapter 2

Mary John Miller

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pp. 76-78

From the perspective of a Treasury debt manager during most of the period covered in this chapter, as well as a former market participant, I would like to address three of the authors’ recommendations: first, the addition of new mandates to traditional debt management policy; second, shifting debt issuance to short-term bills; and third, requiring coordination...

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Comment on Chapter 2

Paul McCulley

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pp. 79-81

This chapter is a rich contribution to the growing literature on the optimal monetary-fiscal policy mix in liquidity trap conditions. Our profession has for too long ignored this field of inquiry, presuming that Thomas Sargent was correct when he proclaimed that macroeconomic analysis and policymaking had advanced sufficiently to render study of liquidity trap exigencies to be of...

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Comment on Chapter 2

Stephen G. Cecchetti

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pp. 81-82

The quartet of Greenwood, Hanson, Rudolph, and Summers make two very  important contributions that analysts and policymakers should keep in mind.
First, in thinking about the impact of government bonds on the real economy, consolidate the actions of the central bank and the fiscal authority. So, if the purpose of policy...

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Comment on Chapter 2

Jason Cummins

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pp. 83-86

Greenwood, Hanson, Rudolph, and Summers argue that the Treasury and Federal Reserve should cooperate in managing the federal debt. At first glance, that seems perfectly reasonable. After all, what’s the downside from cooperating to promote the common good?
The prima facie case comes from responses to the Great Recession, when...

Chapter 2 References

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pp. 86-90

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3. A New Structure for U.S. Federal Debt

John H. Cochrane

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pp. 91-139

What securities should the U.S. Treasury offer? Traditionally, the Treasury has offered long-term coupon bonds, short-term notes and bills, and retail savings bonds, securities not much changed since the nineteenth century.
But Treasury debt has taken on new and different functions in our financial system and in monetary...

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Comment on Chapter 3

Darrell Duffie

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pp. 139-143

John Cochrane’s proposal for simplifying the debt management of the United States Treasury is original and radical. In its essence, the plan calls for the issuance of only two securities: floating-rate perpetual debt and fixed-rate perpetual debt. This is not merely a proposal for two general “classes” of debt securities. The proposal means literally that Treasury would...

Chapter 3 References

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pp. 143-146

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4. Concluding Observations

Lawrence H. Summers

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pp. 147-154

Policymakers in political environments are most constructive when they find approaches that are appealing from a variety of perspectives and command widespread support. Academics, on the other hand, are most useful when they provoke thought, and you only provoke thought by saying things with which people disagree. For an academic, the number of people who...

Contributors

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pp. 155-156

Index

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pp. 157-162

Back Cover

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E-ISBN-13: 9780815727071
E-ISBN-10: 0815727070

Page Count: 135
Publication Year: 2015

OCLC Number: 931534191
MUSE Marc Record: Download for The $13 Trillion Question

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Subject Headings

  • Debts, Public -- United States.
  • Finance, Public -- United States.
  • Fiscal policy -- United States.
  • Monetary policy -- United States.
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