Hal S. Scott
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780262034371
- eISBN:
- 9780262332156
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262034371.003.0021
- Subject:
- Economics and Finance, Economic History
It has been suggested that the government should increase the effective supply of public short-term debt in order to meet the demand by institutional cash managers for safe short-term debt. If the ...
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It has been suggested that the government should increase the effective supply of public short-term debt in order to meet the demand by institutional cash managers for safe short-term debt. If the government eliminated private issuance of short-term debt by issuing enough public short-term debt to satisfy this demand, then there could be no runs and no contagion. The same result could be achieved if the remaining short-term debt of the financial system was so small that runs would not be significant. These policies can be characterized as “crowding out” private short-term debt. This chapter discusses crowding out by the Treasury and the Federal Reserve. The Treasury could crowd out runnable private short-term debt by replacing a certain amount of long-term Treasury debt issuance with shorter term Treasury debt. Investors that would otherwise buy and hold private short-term debt would instead buy Treasuries. The Federal Reserve could “crowd out” private short-term debt, using its new tools of monetary policy—interest on excess reserves (IOER) and reverse repurchase agreements (RRPs).Less
It has been suggested that the government should increase the effective supply of public short-term debt in order to meet the demand by institutional cash managers for safe short-term debt. If the government eliminated private issuance of short-term debt by issuing enough public short-term debt to satisfy this demand, then there could be no runs and no contagion. The same result could be achieved if the remaining short-term debt of the financial system was so small that runs would not be significant. These policies can be characterized as “crowding out” private short-term debt. This chapter discusses crowding out by the Treasury and the Federal Reserve. The Treasury could crowd out runnable private short-term debt by replacing a certain amount of long-term Treasury debt issuance with shorter term Treasury debt. Investors that would otherwise buy and hold private short-term debt would instead buy Treasuries. The Federal Reserve could “crowd out” private short-term debt, using its new tools of monetary policy—interest on excess reserves (IOER) and reverse repurchase agreements (RRPs).
