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Managing the Public Debt

B. U. Ratchford
The Annals of the American Academy of Political and Social Science
Vol. 326, Inflation (Nov., 1959), pp. 101-108
Stable URL: http://www.jstor.org/stable/1033356
Page Count: 8
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Managing the Public Debt
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Abstract

Debt management includes decisions about the composition and terms, but not about the amount, of the public debt. The heart of the countercyclical debt management theory is that short-term obligations provide liquidity and induce spending while long-term obligations do the reverse. The effects of such management are indirect, uncertain, and weak and may be redundant if monetary policy is adequate. Debt management is less flexible than monetary policy, and its effects may persist after a change of policy is required and thus become an obstacle to the effectiveness of monetary policy. In a recession, short-term financing tends to raise short-term interest rates and may delay a resumption of spending by offering attractive returns on funds. In recent years the average maturity of the debt has been declining, thus increasing the possibilities of inflation. The only two recent occasions on which the debt was lengthened moderately were in periods of recession; apparently the lengthening did not delay recovery. The potentialities of countercyclical debt management have been overemphasized in recent years, especially if an effective monetary policy is assumed. At least one competent student of the problem advocates substituting cost for economic stabilization as the proper criterion for debt management.

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