Thursday, August 27, 2009
Treasury sales will eventually decline
With Fed now paying interest on reserves the sale of Treasuries will eventually decline because public debt sales will not be needed for rate setting anymore.
The Treasury will still need to sell debt, however, because it is precluded from running an overdraft in its account at the Fed, even though operationally there is nothing stopping it from doing so.
Month-to-date (August) public debt sales are running below the same period in July.
Personally, I think the Treasury should stop selling Treasuries altogether because that would finally end one gigantic fallacy--that the gov't needs to sell debt to "fund" the deficit. The gov't spends by crediting bank accounts and the sale of debt has functioned only to sustain an interest rate and/or to meet an artificially imposed constraint on overdrafts.