Now that the government actually has a surplus, one would think we could pay the debt down. My question is this: Why is the government still selling Savings Bonds, T-Bills and the like? Aren’t these basically loans from the individual person to the governement. Why is the gov’t taking out loans if there’s a surplus?
Because bonds, T-bills, etc. are a cornerstone of our financial system. The US government will never eliminate the debt completely- it would be very bad for the economy to not have these financial instruments available.
Arjuna34
Also, from time to time, in between tax collections, the government will still have to borrow money short-term to tide itself over until the money rolls in. Just like in a business. If you’ve ever attempted to run any kind of business, you quickly find out that you always need credit, no matter how well you’re doing.
But aren’t savings bonds long term debt? I can understand the Gov’t selling bonds to replace bonds that are cashed in, but how does it balance that with creating new debt? As far as I’m aware, it doesn’t; when you go to buy a savings bond, when’s the last time the Gov’t said it didn’t want your money? I know they don’t exactly balance the books like a business would, but how does this work?
The government is gradually reducing the level of debt outstanding, but it does this in two ways; firstly there is a concentration of UST issues into large, benchmark bonds and a move away from issuing smalle, off-the-run paper, so the total level of new issuance is decreasing, secondly the state is buying back outstanding paper which has become illiquid. The reason for doing this rather than just not issuing any new paper are, as has been pointed out, to maintain the stability of the financial system and to help bridge short term financing gaps. Theoretically there could come a day when the goverment really doesn’t have any bonds outstanding, and as long as it is managed sensibly it won’t mean the collapse of civilisation or anything, but lets face it, borrowing is a really easy way for the government to fund projects which curry favour with the electorate now whilst only having to be paid for by the next administration.
In addition to the comments above, you have to realize that the savings bond program is very popular. They are safe, they pay a not-horrible rate of interest, and they are easy to deal with without having to stick them in street name in a brokerage account.
As a portion of the total debt outstanding, savings bonds are fairly trivial (see here. So at this point, issuing them is more a service to the investing public than it is a real financing method.
Thanks, Manny. That’s a helpful link. It’d be even more helpful if I took the time to understand what all those financial instruments were.
The national debt gets run down as long as the sum of
the Treasury bonds, bills and notes that come due (eg 30 year Treasuries issued in 1970 coming due in 2000)
plus
the Treasury bonds, bills and notes that are bought back at auction
exceeds
the new Treasuries that are issued, including savings bonds.
Incidentally, savings bonds are a small portion of the total --only about $180 billion of the $5.7 trillion dollar total debt.