In early 2020, the United States government had more than $23 trillion in debt (approximately $80,000 for every U.S. citizen) outstanding in the form of Treasury bills, notes, and bonds. That number is now growing due to the current coronavirus situation to over $30 trillion. From time to time, the Treasury changes the mix of securities that it issues to finance government debt, issuing more bills than bonds or vice versa.
With short-term interest rates near 0 percent right now in the middle of 2020, and still very very low, historically today, suppose the Treasury decided to replace maturing notes and bonds by issuing new Treasury bills, thus greatly shortening the average maturity of U.S. debt outstanding. Discuss the pros and cons of this strategy.
Introduction of DQ3
This is a very real-life question that our Government has been facing since the financial crisis of 2007-2008 and again now with the coronavirus in 2020. With interest rates falling after both crises to historical lows, which they are still by and large at today but will begin rising slowly again, the Government has a tough decision, especially with regards to the old debt it issued at higher interest rates to finance the Government. Refinance that debt? If so, for how long of a period of time and at what rate of interest are buyers willing to go out when buying the new Government T-bills, bonds, etc.?
Reminder: Depth and Breadth of Your Responses
I find that Google searches are a great place to find a reference(s) for postings in addition to the course textbook.
In addition to the course textbook, it is sometimes a good idea to get another angle on a DQ like this one.
A reminder that your DQ postings should have some depth, breadth, and length to them, especially those made on Sunday nights before the DQ responses end. Well-written DQ postings are also very much appreciated.
