Friday, May 5, 2023

Peter Pan to the rescue

 I'm more and more convinced that the simplest way out of the debt-ceiling morass would be to start issuing perpetual bonds or consols (sometimes dubbed "Peter-Pan" bonds, since they never mature or grow up )which simply offer a fixed payment every year, with no face value. This would seem to be immune to court challenges -- unlike the constitutional gambit or the platinum coin.  The Republicans in the House are manifestly crazy, so there's no hope there.

One question is how much bigger the term premium would be to borrow longer term in this way.


Anonymous said...

"One question is how much bigger the term premium would be to borrow longer term in this way."

British Consol debt was remarkably rater stable for decades, only losing ground as the Pound began to seriously falter:

January 4, 2017

Consol (Long-term bond) yields in United Kingdom, 1855-2016

Anonymous said...

May 5, 2023

Wonking out: In defense of debt gimmicks
A clever dodge of the debt limit won’t break anything that matters
By Paul Krugman

The possibility that the federal government will soon be unable to finance its normal operations has become very real. As I wrote in my last column, * this won’t be because investors view U.S. debt as excessive; America in 2023 isn’t Greece in 2009. If it happens, it will be because Republicans in the House are trying to use the debt ceiling to extort policy concessions they would have no chance of enacting through the normal legislative process....


Anonymous said...

One other way out of the debt ceiling problem is to recognize that Republicans have control of the house and act accordingly. That's the traditional way, but I guess these days we have non-traditional leftist fanatics running the government who refuse to recognize that an opposition party that controls one branch of the legislature has a legitimate right to contribute to the government. I know! Right? I wish we could all come together as one people and overcome all this polarization so we could enact the left wing agenda!

kevin quinn said...

Anon 2

Biden is not refusing too negotiate over a budget. But the House is not proposing to negotiate over the debt ceiling: they are attempting to extort something. In a negotiation, both sides offer something which will make the other side better off. In an extortion, one side threatens to make the other worse off unless they are given something -- your money or your life is not a proposal to negotiate!

Anonymous said...

Mr. Quinn, your post and comment are important much appreciated. Please continue.

Anonymous said...

May 8, 2023

The Cowardice of the Deficit Scolds
By Paul Krugman

Financial markets are finally taking notice of the possibility that the United States may soon default on its debts. Interest rates on short-term debt and the cost of insuring against default have spiked, reflecting fears that U.S. debt won’t be repaid on time....

Anonymous said...

What evidently bothers Republicans or conservatives is not the deficit as such, but, as precisely described here, "green industrial policy":

May 9, 2023

How to think about green industrial policy
An over-budget, trade-disrupting, huge legislative success
By Paul Krugman

Anonymous said...

I now assume that the budget conflict will be resolved in "compromise" in a matter of a day. What then will be the broader meaning of this political-economic episode?

Anonymous said...

The Republicans in the House are manifestly crazy, so there's no hope there....

[ This was simply incorrect. Republicans will evidently gain just the civilian spending limits they wanted. ]