A New Structure for U.S. Federal Debt

Abstract

I propose a new structure for U.S. Federal debt. All debt should be perpetual, paying coupons forever with no principal. The debt should be composed of the following: 1) Fixed-value, floating-rate, electronically transferable debt. Such debt looks like a money-market fund, or reserves at the Fed, to an investor. 2) Nominal perpetuities. This debt pays a coupon of $1 per bond, forever. 3) Indexed perpetuities. This debt pays a coupon of $1 times the current consumer price index (CPI). 4) Debt should be sold in a form that is free of all income, estate, capital gains, and other taxes. 5) Variable coupons. The government should have the right to temporarily reduce or eliminate coupons without triggering legal default. 6) Swaps. The Treasury transact in simple swap contracts between these securities.

This structure will help to achieve the goals of debt management, macroeconomic, and financial stability.

Keywords: Debt, maturity structure, electronic money

JEL Classification: E50,H63