There is a lot of attention paid to the size of the federal debt, which amounts to more than $13 trillion. There is very little attention paid to how the U.S. Treasury borrows all that money – how much short-term, how-much long-term, how much at fixed rates, how much at rates that vary with inflation.
On November 10, the Hutchins Center on Fiscal and Monetary Policy at Brookings and the University of Chicago Booth School’s Initiative on Global Markets took a close look at how the US government does its borrowing, the subject of a new Brookings Institution Press book, “The $13 Trillion Question: Managing the U.S. Government’s Debt.”
Robin Greenwood and Samuel Hanson, both of Harvard Business School, argued that that Treasury should rely more on short-term and less on long-term borrowing than it has traditionally and that, particularly when the Federal Reserve pushes interest rates to zero, the Treasury and Fed should do more coordinating than they generally do. And John Cochrane of Stanford and University of Chicago made the case for a radical change in the debt instruments the Treasury issues, suggesting that the Treasury rely heavily on debts with no fixed-maturity (perpetuals, in the jargon of the trade.)