Policy Seminar on A New Structure for U.S. Federal Debt

PARTICIPANTS
John Cochrane, David Brady, John Gunn, Bob Hall, Cosmin Ilut, Doug Irwin, Chad Jones, Pete Klenow, Stephen Langlois, David Mauler, Ken Scott, John Shoven, Alp Simsek, Chris Tonetti, John Taylor

ISSUES DISCUSSED
John Cochrane, senior fellow at the Hoover Institution and the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business, discussed his work on “A New Structure for U.S. Federal Debt” (see http://faculty.chicagobooth.edu/john.cochrane/research/papers/Cochrane_US_Federal_Debt.pdf.) Cochrane began by reviewing the goals of the U.S. Treasury. He argued that the Treasury could more effectively achieve these goals if its toolbox was restructured. Cochrane spelled out and explained seven main points comprising his proposal for restructuring U.S. debt.

1. All debt will be perpetual
2. Issue fixed value, floating-rate electronically transferable debt
3. Issue nominal perpetuities
4. Issue indexed perpetuities
5. Issue tax-free debt—no corporate and personal income, estate, capital gains taxes
6. Issue variable coupon debt—the government has the right to temporarily reduce coupons
7. Introduce swaps—the Treasury transacts in swap contracts between these securities