Federal Debt Management: An Economists8 View from the Marketplace

I welcome the opportunity to express my views on Federal debt management. This subject was much discussed in the period immediately following World War II, but it has received only limited attention in recent years, even though important changes have occurred in the management of our Federal debt. It has b~:en subordinated in importance to other important official policy requirements. Many modifications in fiscal and monetary policy have gained the spotlight recently. For example, there has been the emphasis on managing the monetary aggregates and on the role of the dollar internationally. Both of these policy developments have had, in fact, an impact on Federal debt management. The large deficit in our balance of payments and the resulting dollar weakness eased the financing task of the U.S. Treasury in recent years when Federal budget deficits were extraordinarily large. The monetarist approach, which made considerable headway in credit-policy implementation in recent years, is also beginning to make its imprint on the theory and implementation of Federal debt management. The neutrality theory of debt management has gained support not only as an approach advocated by the monetarists but also by many market participants. This approach favors that Treasury financing be simplified, routinized, and regularized. The objective is to prevent debt management from being a source of instability and to ease the task of coordinating Treasury debt operations and Fed open market operations. The neutrality theory is, of course, in sharp contrast to the counter-cyclical and pro-cyclical approaches of debt management, which were in favor immediately following World War II. The