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Jim Millsteinits spending and tax cutting credentials with its core constituencyonce the Congress re-convenes in 2013. In short, the cliff is morelikely to be a small step down.153Restoring some of the automatic spending cuts would be a goodoutcome for the economy in the short run. However, it increases thelikelihood that the Congressional Budget Office’s (CBO) “alternativescenario” fiscal projection will be realized: deficits averaging 5.4percent of GDP over the 2013-2022 period, and debt held by thepublic increasing to 94 percent of GDP by 2022. 3While deficits and debt levels of such magnitude would normally attracthigher borrowing rates, a Federal Reserve dedicated to avoidinga deflationary debt spiral and the safe-haven status of Treasury securitiesfor European investors confronting a more imminent sovereigndebt crisis have combined to mute the bond market vigilantes. Butwe should not be lulled into a false sense of complacency: The FederalReserve’s recent intervention in Treasury markets has been unprecedentedin the post WWII era. Between 2009 and 2011, the USDepartment of the Treasury issued $5.8 trillion of interest-bearingmarketable debt to finance record deficits and the Federal Reservepurchased $1.3 trillion of those securities in the secondary market,$772 billion in 2011 alone—equivalent to 48 percent of the amountTreasury issued into the market that year.These purchases by the Federal Reserve held down Treasury’s borrowingcosts and allowed Treasury to extend the average maturity of itsportfolio from 4.1 years to 5.2 years over the last three years, despitea worsening fiscal position.3 Congressional Budget Office, 2011 Long-Term Budget Outlook, Feb. 29, 2012(assumes tax cuts implemented by President Bush apart from payroll tax reductionare extended, the alternative minimum tax is indexed for inflation after 2011,Medicare payment rates for physicians remain at current levels, and the automaticdiscretionary spending reductions required by the Budget Control Act do not takeeffect).
154Burning the Furniture to Heat the House – The Potential Role of Asset Sales in Funding the Federal Government’s DeficitsFigure 1: U.S. Treasury Maturity Schedule and Federal Reserve HoldingsUS$, bn2,500U.S. Treasury Maturity Schedule andFederal Reserve HoldingsUS$, bn2,5002,0001,5001,000500AverageMaturityFederal Reserve Holdingsof Treasury Securities2,0001,5001,000500002012 2018 2024 2030 2036 2042Sources: Federal Reserve; Treasury; Bloomberg.Notes: Maturity schedule as of April 30, 2012.Issuance and Interest RatesFigure 2: Issuance and Interest RatesUS$, bn2,5002,000Treasury Issuance (LHS)Fed Purchases (LHS)Avg Int Rate* (RHS)Percent3.53.01,5001,0002.55002.002009 2010 2011 2012Q11.5Sources: Federal Reserve; Treasury; Bloomberg.Notes: Average interest rate on marketable interest-bearing securities.
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ivPublished by FIC Press2405 Ste
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viContents8 Thoughts on Debt Sustai
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viiiContents
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The Contributors Anna GelpernAme
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The Contributors Howell E. Jacks
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The Contributors School, as well
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The Contributors Zoltan PozsarIn
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The Contributors Richard SyllaNe
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xxiAcknowledgmentsWe would like
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xxiiiPREFACEThe Law School and t
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PREFACE academic circles. A sove
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Richard Sylla 11U.S. Government Deb
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Richard Syllasigned from office in
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Richard Syllalike the United States
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Richard SyllaAfter 1815, a generall
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Richard Syllapurchase to back their
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Richard Syllational debt and reduce
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William W. Bratton 132A World Witho
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William W. Brattonwould go from a c
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William W. Brattonthe system, than
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ConclusionWilliam W. Bratton19At th
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Richard J. Herring 213Default and t
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Richard J. Herringpay is seldom in
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Richard J. HerringFigure 2: Archety
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Richard J. Herring27Figure 4: The R
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Richard J. Herring29Figure 6: Deman
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Richard J. HerringGovernment bonds
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Richard J. HerringDuring August 201
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Zoltan Pozsar 354A Macro View of Sh
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Zoltan Pozsartions, forming an inte
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Zoltan Pozsarfunding for safe, shor
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Zoltan Pozsarfor the reduction in t
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Zoltan PozsarWhile increased rollov
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Michael W. McConnell 455Origins of
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Michael W. McConnellAlthough the Co
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Michael W. McConnellvene? Who would
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Michael W. McConnell(Social Securit
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ConclusionMichael W. McConnell53Whe
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Howell E. Jackson 556The 2011 Debt
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Howell E. Jacksonloss in liquidity.
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Howell E. Jacksonand provides resou
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Howell E. JacksonWhile assertions o
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Howell E. Jacksonof those payments.
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Howell E. Jacksonwhich payments to
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Concluding ThoughtsHowell E. Jackso
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Richard Squire 697A Market for End-
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Richard SquireSo far, there is litt
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Richard Squirethat the reference en
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Richard SquireIn fact, the gross no
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Richard Squireto only 22.6%. Thus i
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Richard Squirewill default. An econ
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Richard Squireannounced that in liq
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Richard SquireCDS on USA and Correl
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Richard Squiremean, however, that t
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Peter R. Fisher 878Thoughts on Debt
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Peter R. Fishernot really an insura
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Peter R. FisherU.K. prospered great
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Peter R. FisherSources of income be
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Peter R. Fisherlead to greater comp
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Peter R. FisherCentral bank mytholo
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Peter R. Fisherboth sides of their
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Deborah Lucas 1019The Federal Debt:
Page 130 and 131: Deborah LucasProjected Size of Defi
Page 132 and 133: Deborah Lucasrevenues. In fact, man
Page 134 and 135: Deborah Lucasly from the global des
Page 136 and 137: Deborah Lucas109Figure 2: Primary S
Page 138 and 139: Deborah Lucas111Figure 4: Medicare
Page 140 and 141: James R. Hines Jr 11310The Tax Reve
Page 142 and 143: James R. Hines Jrrevenue rely on ex
Page 144 and 145: James R. Hines JrStates is the lone
Page 146 and 147: James R. Hines Jr119Table 3: Social
Page 148 and 149: James R. Hines Jrtapped federal tax
Page 150 and 151: James R. Hines Jrer economic costs
Page 152 and 153: James R. Hines Jrtries, and consequ
Page 154 and 155: James R. Hines Jrtries from 1999 to
Page 156 and 157: James Kwak 12911Can the United Stat
Page 158 and 159: James Kwakone hundred years. 6 At t
Page 160 and 161: James Kwakthe Royal Navy had over o
Page 162 and 163: James Kwak135Figure 1: National Deb
Page 164 and 165: James Kwaka real growth rate of 2.2
Page 166 and 167: James Kwakkeep the national debt at
Page 168 and 169: James KwakRepublicans have seized o
Page 170 and 171: James Kwakreduction package. 45 Fur
Page 172 and 173: James KwakThe bottom line is that f
Page 174 and 175: James Kwakprovisions, including hea
Page 176 and 177: James KwakDespite these political c
Page 178 and 179: Jim Millstein 15112Burning the Furn
Page 182 and 183: Jim MillsteinWhile safe-haven flows
Page 184 and 185: Jim Millsteinon reserve balances wi
Page 186 and 187: Jim Millsteinfull list of options i
Page 188 and 189: Jim Millsteinfundamental disagreeme
Page 190 and 191: Jim MillsteinHowever, other things
Page 192 and 193: Jim Millsteinwould likely command a
Page 194 and 195: Jim MillsteinThere will inevitably
Page 196 and 197: Charles W. Mooney, Jr 16913United S
Page 198 and 199: Charles W. Mooney, JrSecond, would
Page 200 and 201: Charles W. Mooney, Jrticipants, did
Page 202 and 203: Charles W. Mooney, JrThe extent and
Page 204 and 205: Charles W. Mooney, Jr“Treasury Di
Page 206 and 207: Charles W. Mooney, Jrin subpart B i
Page 208 and 209: Charles W. Mooney, Jrcount holders
Page 210 and 211: Charles W. Mooney, Jrdefault. If an
Page 212 and 213: Charles W. Mooney, Jrcould be achie
Page 214 and 215: Charles W. Mooney, Jrconsider adopt
Page 216 and 217: Charles W. Mooney, Jror gold coin.
Page 218 and 219: Charles W. Mooney, Jrpre-1933 legis
Page 220 and 221: Charles W. Mooney, Jrbegin by notin
Page 222 and 223: Charles W. Mooney, Jrformity requir
Page 224 and 225: Charles W. Mooney, Jrnation based o
Page 226 and 227: Charles W. Mooney, Jrthe Treasury d
Page 228 and 229: Charles W. Mooney, JrUnder any cohe
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Charles W. Mooney, Jrcontext of ban
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Charles W. Mooney, Jrcans in Congre
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Charles W. Mooney, JrThe government
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Charles W. Mooney, JrIf Wade’s sp
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Charles W. Mooney, Jring in Perry,
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Charles W. Mooney, JrThere would be
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Charles W. Mooney, JrBut that concl
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Charles W. Mooney, JrCourt of Feder
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Charles W. Mooney, Jrtem. 135 This
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Charles W. Mooney, Jr. b. The Race
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Charles W. Mooney, JrBut, of course
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Charles W. Mooney, Jrhave adopted r
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Charles W. Mooney, Jrtions Conventi
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Charles W. Mooney, Jrthe other hand
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Charles W. Mooney, JrIf the U.S. co
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Charles W. Mooney, Jrpursue massive
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Charles W. Mooney, Jrof multination
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Donald S. Bernstein 23714A Comment
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Donald S. Bernsteinis what most ban
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Donald S. BernsteinAmendment, simpl
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Donald S. Bernsteinfallout of alloc
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Steven L. Schwarcz 24515Direct and
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Steven L. Schwarczin Perry held tha
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Steven L. Schwarczwould apply to fe
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Steven L. Schwarczunder Section 13(
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Steven L. SchwarczD. Assessing the
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255AppendixThe 2011 Debt Limit Impa
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Jeremy Kreisberg & Kelley O’Mara
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