back to 1835!

Doug Henwood dhenwood at
Tue Aug 3 15:22:58 PDT 1999

Max Sawicky wrote:

>If you think public debt benefits rich bondholders,
>you might like to answer the question of why the
>Administration is going ass-over-teakettle to
>eliminate public debt, with the tacit approval
>of a lot of Republicans. Don't feel bad if
>you don't know the answer. Nobody on PEN-L
>does either, including me.

Wall Street loves underwriting, trading, and repackaging Treasury paper. There was a little chat on CNBC earlier today about how the government is issuing more bonds than needed in its quarterly refunding in order to buy back old debt and provide new debt; traders like newer debt trading closer to 100 (i.e., not far away from 100, as market rates diverge from the coupon rates) with maturities close to round numbers.

But politically it's another story. You could probably summarize the political economy of your average Wall Streeter in a paragraph. The passage on debt would run: "Debt is inflationary. Reducing debt is good." Basically it's what Keynes denounced as the Treasury View. Though Wall Street made lots of money as U.S. debt tripled, they were clucking with moral disapproval throughout.

Plus, if the government buys back debt, existing bonds acquire scarcity value.


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