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The $13 Trillion Question

The $13 Trillion Question: How America Manages Its Debt

David Wessel EDITOR
Copyright Date: 2016
Pages: 176
Stable URL: http://www.jstor.org/stable/10.7864/j.ctt15hvr8b
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  • Book Info
    The $13 Trillion Question
    Book Description:

    What is the best way for the U.S. Treasury to finance the federal government's huge debt?

    Everyone talks about the size of the national debt: now at $13 trillion and climbing. Few talk about how the Treasury does the borrowing, even though it is one of the world's largest borrowers. Yet 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.

    InThe $13 Trillion Question, 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. The Hoover Institution's John Cochrane joins the discussion by suggesting a series of new and innovative ways for Treasury to finance the debt.

    Each chapter ofThe $13 Trillion Questionincludes responses from a variety of public and private sector experts on how the Treasury does its borrowing. Larry Summers offers concluding comments with a call for the policy community to pay greater attention to debt management. "Debt management is too important to leave to the debt managers," he says.

    eISBN: 978-0-8157-2707-1
    Subjects: Finance, Economics, Political Science
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Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. ACKNOWLEDGMENTS
    (pp. vii-viii)
  4. PREFACE
    (pp. ix-xiv)
    Robin Greenwood, Samuel G. Hanson and David Wessel
  5. 1 THE OPTIMAL MATURITY OF GOVERNMENT DEBT
    (pp. 1-42)
    Robin Greenwood, Samuel G. Hanson, Joshua S. Rudolph and Lawrence H. Summers

    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 available to them: Trea sury bills with a maturity of less than one year, intermediate-maturity notes with maturities up to ten years, and long-term bonds. Inflation-protected securities were introduced in 1997 and floating-rate notes were added in 2014. The maturity structure...

  6. 2 DEBT MANAGEMENT CONFLICTS BETWEEN THE U.S. TREASURY AND THE FEDERAL RESERVE
    (pp. 43-90)
    Robin Greenwood, Samuel G. Hanson, Joshua S. Rudolph and Lawrence H. Summers

    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 monetary and fiscal policies have been pushing in opposite directions in recent years. We show that, despite successive rounds of quantitative easing (QE), the stock of government debt with...

  7. 3 A NEW STRUCTURE FOR U. S. FEDERAL DEBT
    (pp. 91-146)
    John H. Cochrane

    What securities should the U.S. Trea sury offer? Traditionally, the Treasury has off ered long-term coupon bonds, short-term notes and bills, and retail savings bonds, securities not much changed since the nineteenth century.

    But Trea sury debt has taken on new and different functions in our financial system and in monetary and fiscal policy. Short-term debt has become a form of interest-paying electronic money, and all Trea sury debt is widely used as liquid collateral.

    Underlying these changes, financial, communications, and information technology have changed rapidly. The securities that financed Treasury borrowing and served financial markets decades ago are not...

  8. 4 CONCLUDING OBSERVATIONS
    (pp. 147-154)
    Lawrence H. Summers

    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 find what you say surprising, unsettling, or irritating is a correlate of success. I am today an economics professor, not a government official, and so my hope is that my concluding comments here will be surprising and unsettling to many.

    My work with Greenwood, Hanson,...

  9. CONTRIBUTORS
    (pp. 155-156)
  10. INDEX
    (pp. 157-162)
  11. Back Matter
    (pp. 163-163)