In yesterday's Washington Post we saw one of the first signs of realization that indeed the national debt is really an asset after all. Next Tuesday is the last sale of new one-year Treasury bills. Lots of contracts are indexed on that bill and now it is going to disappear. Talk is that the 30-year long bond will be the next to go.
Greenspan recognizes that there is a problem for the financial markets in the "disappearance of these clear price markers." But, he declares that paying down the national debt is so important, that "we're prepared to deal with this." Freddie Mac bonds and promissory notes by financial institutions may take their place. Of course, most financial derivatives depend on a riskless measure of the interest rate which has always been such securities, although maybe the fed funds rate will have to do.
So, to slow down this potentially destabilizing effect is a strong argument for a tax cut. What is needed is to make sure that it is not so heavily tilted to the upper end of the income distribution as the current proposals coming from the president. Barkley Rosser