A Novel Construction For U. S. Federal Debt

A new paper yesteryear that title, here.

I suggest a novel construction for U. S. Federal debt. All debt should hold out perpetual, paying coupons forever with no primary payment. The debt should hold out composed of the following:

1. Fixed-value, floating-rate debt: Short-term debt has a fixed value of $1.00, together with pays a floating rate. It is electronically transferable, together with sold inward arbitrary denominations. Such debt looks to an investor similar a money-market fund, or reserves at the Fed. 
2. Nominal perpetuities: This debt pays a coupon of $1 per bond, forever. 
3. Indexed perpetuities: This debt pays a coupon of $1 times the electrical flow consumer toll index (CPI).
4. Tax free: Debt should hold out sold inward a version that is gratis of all income, estate, uppercase gains, together with other taxes. Ideally, all debt should hold out taxation free. 
5. Variable coupon: Some if non all long-term debt should let the authorities to vary the coupon charge per unit of measurement without triggering legal default. 
6. Swaps: The Treasury should care the maturity construction of the debt, together with the involvement charge per unit of measurement together with inflation exposure of the Federal budget, yesteryear transacting inward elementary swaps alongside these securities.

Of these, I intend the outset is the most important. Think of it equally Treasury Electronic Money, or reserves for all. Why?

Economists bring long dreamed of interest-paying money. It fulfills Milton Friedman’s (1969) optimal quantity of money without deflation. Paper money is gratis to produce, thus the economic scheme should hold out satiated inward liquidity...

Our economic scheme invented within interest-paying electronic money inward the shape of money marketplace funds, overnight repurchase agreements, together with short-term commercial paper, together with constitute it useful. But that money failed, suffering a run inward the 2008 fiscal crisis. Treasury-provided interest-paying electronic money is immune from conventional runs. Money marketplace funds 100% backed yesteryear fixed-value Treasury debt cannot endure a run...

By analogy, inward the 19th century, the Treasury provided coins. Banks issued notes. Notes were convenient, existence a lot lighter than coins. But at that topographic point were repeated runs together with crises involving depository fiscal establishment notes. The U.S. authorities issued newspaper money, which powerfulness inflate, just cannot endure conventional default or a run. That money eventually drove out person banknotes, together with that rootage of fiscal crises was permanently ended. (Crises involving need deposits did non end, just hither the U.S. tried a dissimilar policy response, deposit insurance together with direct a opportunity regulation. It has non worked equally well.)

In the 21st century, the Treasury has just the same natural monopoly inward providing default-free together with run-free electronically-transferable interest-paying money to person parties. It should scope so.

If the Treasury offers what are essentially interest-paying reserves, together with then nosotros don't bring to fence well-nigh the size of the Fed's residue sheet, ON RRP, etc.

Nominal perpetuities are a dainty agency to condense the hundreds of outstanding issues into one, which should growth their liquidity a expert deal.

Indexed perpetuities are a cleaner agency to implement today's tips.

The taxation gratis analysis is perhaps the most interesting. I set together a footling taxation clientele model with to a greater extent than or less interesting results. No, issuing taxation gratis debt is non a introduce to rich people. By attracting the high taxation clientele dorsum to Treasury debt, nosotros should run across lower cyberspace (after tax) involvement costs to the Treasury.

I bring a dainty implementation of Treasury swaps too, that powerfulness opened upward them upward a lot.

Comments welcome. It's a fleck long because it responds to a previous circular of comments, thus if you're bubbling over with what's incorrect with the proposals, scope depository fiscal establishment stand upward for that I haven't already answered your comment.