United States of America
| Pages | 250-257 |
Page 250
The U.S. Treasury enjoys several advantages over other countries in managing debt. Federal debt issuance is a relatively small percentage of total domestic debt issuance, so financial markets easily absorb changes in the government's borrowing needs. The depth of private markets also allows the government to borrow solely in domestic currency. The sophistication of domestic financial markets allows the government to rely on the private sector for a range of activities that increase the liquidity of treasury securities. The wide breadth of participation in treasury auctions makes uniform-price auctions feasible. Underlying these advantages is the additional advantage of a large, diverse economy that assures investors that debt will be repaid. Many of these advantages have become self-reinforcing: As market depth and breadth have increased, more market participants have been willing to rely more on treasury securities.1
The advantages enjoyed by the United States have influenced the development of the treasury market and U.S. debt management techniques. The result is a system that has unique characteristics and constraints. Consequently, the following outline of U.S. governance, strategy, and market development may have limited applicability to other countries.
The power of the U.S. government to borrow is authorized by the U.S. Constitution. Congress has delegated the secretary of the treasury the power to issue
- certificates of indebtedness and bills: debt obligations maturing not more than 1 year from the date of issue,
- notes: debt obligations maturing at least 1 year and not more than 10 years from the date of issue,
- bonds: debt obligations of more than 10 years,
- savings bonds: retail debt obligations maturing not more than 20 years from the date of issue, and
- savings certificates: retail debt obligations maturing not more than 10 years from the date of issue.
The secretary of the treasury is authorized to prescribe the terms and conditions of the debt obligations issued by the treasury and the conditions under which the debt obligations will be issued. For this and other duties, the secretary may delegate duties and powers to another officer or employee of the U.S. Department of the Treasury. In practice, this means that a political Page 251 appointee under the secretary generally makes debt management decisions with the advice of career staff. The Secretary of the treasury can invest in the treasury's own securities or in commercial bank deposits secured by a broad range of pledged collateral acceptable to the treasury, including obligations of the U.S. government and private issuers. As part of its cash management, the treasury maintains relationships with a large number of commercial banks that help to absorb its large seasonal swings in cash balances.
Congress sets a limit on the total face amount of debt obligations issued by the secretary of the treasury. This limit is changed periodically as provided by law, either through the congressional budget process or otherwise. Until late 1917, congressional approval was required every time the treasury needed to borrow. During World War I, this approach to debt issuance became unduly cumbersome, and congress gave the treasury the authority to borrow, while maintaining authority over the total amount of debt outstanding. This practice has allowed the treasury to issue debt for a period, often one or two years, without having to seek congressional approval.
The secretary of the treasury is required to submit to congress an annual report that includes certain statistics about the treasury's past and projected public debt activities. These reports are based on the administration's annual budget projections and increase the accountability of government debt managers. In addition, the government auditing agency may investigate the treasury department's debt management activities.
The department of the treasury is organized into two major components: the departmental offices and the operating bureaus. The departmental offices are primarily responsible for the formulation of policy and management of the treasury department as a whole, and the operating bureaus carry out the specific operations assigned to the department.
Within the departmental offices, the secretary of the treasury has primary responsibility for debt management activities of the federal government, is the principal economic adviser to the president, and plays a critical role in policymaking by bringing an economic and government financial policy perspective to issues facing the federal government. Departmental staff formulate and recommend domestic and international financial, economic, and tax policy. Debt management responsibilities include
- determining the treasury's financing needs, planning schedules of security issues and amounts needed, and analyzing alternative types of securities and sales techniques;
- soliciting private sector advice in carrying out treasury financing and debt management policy, and preparing reports containing such recommendations;
- analyzing current economic and securities market conditions and their potential effects on treasury financing on a regular basis;
- coordinating with the Federal Reserve Bank of New York, part of the central banking system, regarding its fiscal agent responsibilities;
- participating in an interagency market surveil- lance group; and
- coordinating and approving market borrowing of federal agencies and government-sponsored enterprises.
Debt administration is conducted by the bureau of the public debt (BPD), which reports to the treasury. Specific functions of the BPD include
- borrowing the money necessary to operate the federal government and accounting for the resulting public debt;
- issuing, keeping records of, and redeeming government securities; servicing registered accounts; and paying interest when due;
- maintaining accounting and audit control over public debt transactions and publishing statements;
- processing claims for physical securities that are lost, stolen, or destroyed; and
- promoting the sale and retention of retail instruments, U.S. savings bonds.
Cash is managed by the financial management service (FMS), which also reports to the treasury. The Page 252 FMS receives and disburses all public monies, maintains government accounts, and prepares daily and monthly reports on the status of government finances. The FMS is the government's primary disbursing agent, collections agent, accountant and reporter of financial information, and collector of delinquent...
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