Speech

Department of the TREASURY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 I FOR RELEASE ON DELIVERY EXPECTED AT 10:00 A.M. September 11, 1979 STATEMENT OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS Mr. Chairman and Members of the Committee: My purpose here today is to advise you of the need for an increase in the public debt limit, and to request an increase in the authority to issue long-term Treasury securities in the market. After discussing these specific debt management requirements, I would like to comment on the need to strengthen the process by which Congress establishes the debt limit. Debt Limit With regard to the debt limit, the present temporary limit of $330 billion will expire at the end of September, and the debt limit will then revert to the permanent ceiling of $400 billion. Prompt enactment of legislation is necessary to permit the Treasury to borrow to refund maturing securities and to pay the Government’s other legal obligations. Our current estimates of the amounts of debt subject to limit at the end of each month through the fiscal year 1980 are shown in the attached table. According to the table, the debt subject to limit will increase to $883 billion at the end of September 1980, assuming a $15 billion cash balance on that date. This estimate is consistent with the budget M-45 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 estimates in the July 12 Mid-Session Review of the 1980 Budget and later revisions. The usual $3 billion margin for contingencies would raise this amount to $836 billion. Thus, the present debt limit of $830 billion should be increased by $56 billion to meet our financing requirements in fiscal 1980. The amount of the debt subject to limit approved by Congress in the May 1979 Budget Resolution is $887 billion for the fiscal year ending September 30, 1980. Yet, since the Budget Resolution does not have the force of law, it will be necessary for Congress to enact a new debt limit bill before the Treasury can borrow the funds needed to finance the programs approved by Congress last May. Early next week, the Treasury will announce offerings of 2-year and 4-year notes to refund $5.9 billion of obligations which mature on September 30 and perhaps to raise new cash. These new offerings will be scheduled to occur on or about September 25 and 26. Since September 30 is a Sunday the obligations maturing on September 30 cannot be paid off or refunded until Monday, October 1, at which time the present debt limit authority will have expired. Thus, without Congressional action on legislation to raise the temporary debt limit by September 24, we will be forced to postpone the 2-year and 4-year note offerings as delivery of the securities on October 1 could not be assured. Failure to offer these securities as scheduled could be disruptive of the Government securities market and costly to the Treasury Investors as well as dealers in Government securities base their day-to-day investment and market strategies on the expectation that the Treasury will offer and issue the new securities on schedule. Delayed action by Congress on the debt limit, therefore, adds to market uncertainties, and any such additional risk to investors is generally reflected in lower bids in the Treasury’s auctions and consequently in higher costs to the taxpayer. To avoid this needless increase in the interest costs of financing the public debt, I strongly urge that Congressional action on the debt limit be completed as soon as possible. I know that this Committee has made every effort in the past to assure timely action by Congress on the debt limit. Yet, the record of the past two years has not been good. During this period debt limit legislation was considered by Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 Congress four times. On three occasions action was not taken before the expiration date, and the Treasury was unable to borrow until the Congress acted two or three days later. Significant costs were incurred by the Treasury, and extraordinary measures were required to prevent the Government from going into default. The Treasury was required to suspend the sale of United States savings bonds, and people who depend upon social security checks and other Government payments suddenly realized that the Treasury simply cannot pay the Government's bills unless it is authorized to borrow the funds needed to . finance the spending programs previously enacted by Congress. You would agree, I trust, that it is essential that we do everything possible to restore the confidence of the American people in their government. Unfortunately, this objective has not been served by our recent experiences with debt limit legislation. Confidence in the management of the Government's finances was seriously undermined each time the debt limit was allowed to lapse and we must all work to avoid that outcome in this instance. Bond Authority I would like to turn now to our need for an increase in the Treasury's authority to issue long-term securities in the market without regard to the 4-1/4 percent statutory interest rate ceiling. Under this Administration, the Treasury has emphasized debt extension as a primary objective of debt management, a policy which we believe to be fundamentally sound. This policy has caused a significant increase in the average maturity of the debt, reversing a prolonged slide which extended over more than 10 years. In mid-1965, the average maturity of the privately-held marketable debt was 5 years, 9 months. By January 1976, it had declined to 2 years, 5 months, because huge amounts of new cash were raised in the bill market and in short-term coupon securities. Since that timer despite the continuing large cash needs of the Federal Government, Treasury has succeeded in lengthening the debt to 3 years, 3 months currently. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 Debt extension has been accomplished primarily through continued and enlarged offerings of long-term bonds in our mid-quarterly refundings as well as routine offerings of 15-year bonds in the first month of each quarter. These longer-term security offerings have contributed to a more balanced maturity structure of the debt, which will facilitate efficient debt management in the future. Also, these offerings have complemented the Administration’s program to restrain inflation. By meeting some of the Government's new cash requirements in the bond market rather than the bill market, we have avoided adding to the liquidity of the economy at a time when excessive liquidity is being transmitted into increasing prices. Congress has increased the Treasury's authority to issue long-term securities without regard to the 4-1/4 percent ceiling a number of times in recent years, and in the debt limit act of April 2, 1979, it was increased from $32 billion to the current level of $40 billion. To meet our requirements over the next 12 months, the limit should be increased to $55 billion. While the timing and amounts of future bond issues will depend on prevailing market conditions, a $15 billion increase in the bond authority would permit the Treasury to continue its recent pattern of bond issues throughout fiscal year 1980. Debt Limit Process Mr. Chairman, I would now like to comment on the process by which the public debt limit is established. It is well recognized that the present statutory debt limit is not an effective way for Congress to control the debt. In fact, the present debt limit process may actually divert public attention from the real issue — control over the Federal budget. The increase in the debt each year is simply the result of earlier decisions by Congress on the amounts of Federal spending and taxation. Consequently, the only way to control the debt is through firm control over the Federal budget. In this regard, the Congressional Budget Act of 1974 greatly improved Congressional budget procedures and provided a more effective means of controlling the debt. That Act requires concurrent resolutions of Congress on the appropriate levels of budget outlays, receipts, and public debt. This new budget process thus assures that Congress will face up each year to the public debt consequences of its decisions on taxes and expenditures. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Moreover, as I indicated earlier in my statement, the statutory limitation on the public debt occasionally has interfered with the efficient financings of the Federal Government and has actually resulted in increased costs to the taxpayer. Accordingly, the public debt would be more effectively controlled and more efficiently managed by tying the debt limit to the new Congressional budget process. I hope that we can work together to devise an acceptable way to do this. I understand that considerable progress has been made in recent months by members of Congress who have dedicated considerable time and effort to this purpose I applaud these efforts and I pledge my full support to secure enactment of this important reform in the manage­ ment of our nation's finances. OoO Attachment Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis estimated PUBLIC DE3T SUBJECT TO LIMITATION FISCAL YEAR 1980 Based on: Budget Receipts of »» »lUl ' Budget Outlays of Unified Budget Deficit of $29 3^ ' n^-nnHaet Outlays of $12 Billion ($ Billions) With $3 Billion Public Debt Operating Margin for Subject to Cash Contingencies Rs1anrp Limit 1979 826 823 September 28 15 836 *1 c 833 October 31 10 846 843 lo November 30 847 844 15 December 31 1980 843 840 15 January 31 858 8 oo 15 February 29 865 862 15 March 31 864 861 15 April 30 879 876 15 May 30 863 860 15 June 30 872 869 15 July 31 880 877 15 August 29 8 8 6 883 September 30 15 PREPARED 9/5/79 OFAS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Department of theYR[/lSU RY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE ON DELIVERY EXPECTED AT 10:00 A.M. September 11, 1979 STATEMENT OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS Mr. Chairman and Members of the Committee: My purpose here today is to advise you of the need for an increase in the public debt limit, and to request an increase in the authority to issue long-term Treasury securities in the market. After discussing these specific debt management requirements, I would like to comment on the need to strengthen the process by which Congress establishes the debt limit. Debt Limit With regard to the debt limit, the present temporary limit of $330 billion will expire at the end of September, and the debt limit will then revert to the permanent ceiling of $400 billion. Prompt enactment of legislation is necessary to permit the Treasury to borrow to refund maturing securities and to pay the Government's other legal obligations. Our current estimates of the amounts of debt subject to limit at the end of each month through the fiscal year 1980 are shown in the attached table. According to the table, the debt subject to limit will increase to $883 billion at the end of September 1980, assuming a $15 billion cash balance on that date. This estimate is consistent with the budget M-45 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 estimates in the July 12 Mid-Session Review of.the 1980 Budget and later revisions. The usual $3 billion margin for contingencies would raise this amount to $886 billion. Thus, the present debt limit of $830 billion should be increased by $56 billion to meet our financing requirements in fiscal 1980. The amount of the debt subject to limit approved by Congress in the May 1979 Budget Resolution is $887 billion for the fiscal year ending September 30, 1980. Yet, since the Budget Resolution does not have the force of law, it will be necessary for Congress to enact a new debt limit bill before the Treasury can borrow the funds needed to finance the programs approved by Congress last May. Early next week, the Treasury will announce offerings of 2-year and 4-year notes to refund $5.9 billion of obligations which mature on September 30 and perhaps to raise new cash. These new offerings will be scheduled to occur on or about September 25 and 26. Since September 30 is a Sunday the obligations maturing on September 30 cannot be paid off or refunded until Monday, October 1, at which time the present debt limit authority will have expired. Thus, without Congressional action on legislation to raise the temporary debt limit by September 24, we will be forced to postpone the 2-year and 4-year note offerings as delivery of the securities on October 1 could not be assured. Failure to offer these securities as scheduled could be disruptive of the Government securities market and costly to the Treasury Investors as well as dealers in Government securities base their day-to-day investment and market strategies on the expectation that the Treasury will offer and issue the new securities on schedule. Delayed action by Congress on the debt limit, therefore, adds to market uncertainties, and any such additional risk to investors is generally reflected in lower bids in the Treasury’s auctions and consequently in higher costs to the taxpayer. To avoid this needless increase in the interest costs of financing the public debt, I strongly urge that Congressional action on the debt limit be completed as soon as possible. I know that this Committee has made every effort in the past to assure timely action by Congress on the debt limit. Yet, the record of the past two years has not been good. During this period debt limit legislation was considered by Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 Congress four times. On three occasions action was not taken before the expiration date, and the Treasury was unable to borrow until the Congress acted two or three days later. Significant costs were incurred by the Treasury, and extraordinary measures were required to prevent the Government from going into default. The Treasury was required to suspend the sale of United States savings bonds, and people who depend upon social security checks and other Government payments suddenly realized that the Treasury simply cannot pay the Government's bills unless it is authorized to borrow the funds needed to finance the spending programs previously enacted by Congress. You would agree, I trust, that it is essential that we do everything possible to restore the confidence of the American people in their government. Unfortunately, this objective has not been served by our recent experiences with debt limit legislation. Confidence in the management of the Government's finances was seriously undermined each time the debt limit was allowed to lapse and we must all work to avoid that outcome in this instance. Bond Authority I would like to turn now to our need for an increase in the Treasury's authority to issue long-term securities in the market without regard to the 4-1/4 percent statutory interest rate ceiling. Under this Administration, the Treasury has emphasized debt extension as a primary objective of debt management, a policy which we believe to be fundamentally sound. This policy has caused a significant increase in the average maturity of the debt, reversing a prolonged slide which extended over more than 10 years. In mid-1965, the average maturity of the privately-held marketable debt was 5 years, 9 months. By January 1976, it had declined to 2 years, 5 months, because huge amounts of new cash were raised in the bill market and in short-term coupon securities. Since that time, despite the continuing large cash needs of the Federal Government, Treasury has succeeded in lengthening the debt to 3 years, 3 months currently. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 Debt extension has been accomplished primarily through continued and enlarged offerings of long-term bonds in our mid-quarterly refundings as well as routine offerings of 15-year bonds in the first month of each quarter. These longer-term security offerings have contributed to a more balanced maturity structure of the debt, which will facilitate efficient debt management in the future. Also, these offerings have complemented the Administration’s program to restrain inflation. By meeting some of the Government’s new cash requirements in the bond market rather than the bill market, we have avoided adding to the liquidity of the economy at a time when excessive liquidity is being transmitted into increasing prices. Congress has increased the Treasury's authority to issue long-term securities without regard to the 4-1/4 percent ceiling a number of times in recent years, and in the debt limit act of April 2, 1979, it was increased from $32 billion to the current level of $40 billion. To meet our requirements over the next 12 months, the limit should be increased to $55 billion. While the timing and amounts of future bond issues will depend on prevailing market conditions, a $15 billion increase in the bond authority would permit the Treasury to continue its recent pattern of bond issues throughout fiscal year 1980. Debt Limit Process Mr. Chairman, I would now like to comment on the process by which the public debt limit is established. It is well recognized that the present statutory debt limit is not an effective way for Congress to control the debt. In fact, the present debt limit process may actually divert public attention from the real issue — control over the Federal budget. The increase in the debt each year is simply the result of earlier decisions by Congress on the amounts of Federal spending and taxation. Consequently, the only way to control the debt is through firm control over the Federal budget. In this regard, the Congressional Budget Act of 1974 greatly improved Congressional budget procedures and provided a more effective means of controlling the debt. That Act requires concurrent resolutions of Congress on the appropriate levels of budget outlays, receipts, and public debt. This new budget process thus assures that Congress will face up each year to the public debt consequences of its decisions on taxes and expenditures. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Moreover, as I indicated earlier in ray statement, the statutory limitation on the public debt occasionally has interfered with the efficient financings of the Federal Government and has actually resulted in increased costs to the taxpayer. Accordingly, the public debt would be more effectively controlled and more efficiently managed by tying the debt limit to the new Congressional budget process. I hope that we can work together to devise an acceptable way to do this. I understand that considerable progress has been made in recent months by members of Congress who have dedicated considerable time and effort to this purpose I applaud these efforts and I pledge my full support to secure enactment of this important reform in the manage­ ment of our nation's finances. OoO Attachment Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ESTIMATED PUBLIC DEBT SUBJECT TO LIMITATION FISCAL YEAR 1980 Based o»: «•= = «« •<e"11"” Budget Outlays of 5 = J34q atllion unified Budget Deficit ”9 Blllio , ^_D,,^rrot Dntlavs of $12 Billion ($ Billions) With $3 Billion Public Debt 1Operating Margin for Subject to Cash Contincencies Pa 1annp Limit 1979 826 823 September 28 15 836 833 15 October 31 846 843 15 November 30 847 844 15 December 31 1980 843 840 15 January 31 858 855 15 February 29 865 862 15 March 31 864 861 15 April 30 879 876 15 May 30 863 860 15 June 30 872 869 Julv 31 10 880 877 15 August 29 88 6 883 15 September 30 PREPARED 9/5/79 OFAS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis OepartmentoftheTREASURY | WASHINGTON, D.C. 20220 TELEPHONE 566-2041 ] J FOR RELEASE ON DELIVERY EXPECTED AT 10:00 A.M. September 11, 1979 STATEMENT OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS Mr. Chairman and Members of the Committee: My purpose here today is to advise you of the need for an increase in the public debt limit, and to request an increase in the authority to issue long-term Treasury securities in the market. After discussing these specific debt management requirements, I would like to comment on the need to strengthen the process by which Congress establishes the debt limit. Debt Limit With regard to the debt limit, the present temporary limit of $330 billion will expire at the end of September, and the debt limit will then revert to the permanent ceiling of $400 billion. Prompt enactment of legislation is necessary to permit the Treasury to borrow to refund maturing securities and to pay the Government's other legal obligations. Our current estimates of the amounts of debt subject to limit at the end of each month through the fiscal year 1980 are shown in the attached table. According to the table, the debt subject to limit will increase to $883 billion at the end of September 1980, assuming a $15 billion cash balance on that date. This estimate is consistent with the budget M-45 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 estimates in the July 12 Mid-Session Review of the 1980 Budget and later revisions. The usual $3 billion margin for contingencies would raise this amount to $886 billion. Thus, the present debt limit of $330 billion should be increased by $56 billion to meet our financing requirements in fiscal 1980. The amount of the debt subject to limit approved by Congress in the May 1979 Budget Resolution is $887 billion for the fiscal year ending September 30, 1980. Yet, since the Budget Resolution does not have the force of law, it will be necessary for Congress to enact a new debt limit bill before the Treasury can borrow the funds needed to finance the programs approved by Congress last May. Early next week, the Treasury will announce offerings of 2-year and 4-year notes to refund $5.9 billion of obligations which mature on September 30 and perhaps to raise new cash. These new offerings will be scheduled to occur on or about September 25 and 26. Since September 30 is a Sunday the obligations maturing on September 30 cannot be paid off or refunded until Monday, October 1, at which time the present debt limit authority will have expired. Thus, without Congressional action on legislation to raise the temporary debt limit by September 24, we will be forced to postpone the 2-year and 4-year note offerings as delivery of the securities on October 1 could not be assured. Failure to offer these securities as scheduled could be disruptive of the Government securities market and costly to the Treasury Investors as well as dealers in Government securities base their day-to-day investment and market strategies on the expectation that the Treasury will offer and issue the new securities on schedule. Delayed action by Congress on the debt limit, therefore, adds to market uncertainties, and any such additional risk to investors is generally reflected in lower bids in the Treasury's auctions and consequently in higher costs to the taxpayer. To avoid this needless increase in the interest costs of financing the public debt, I strongly urge that Congressional action on the debt limit be completed as soon as possible. I know that this Committee has made every effort in the past to assure timely action by Congress on the debt limit. Yet, the record of the past two years has not been good. During this period debt limit legislation was considered by Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 Congress four times. On three occasions action was not taken before the expiration date, and the Treasury was unable to borrow until the Congress acted two or three days later. Significant costs were incurred by the Treasury, and extraordinary measures were required to prevent the Government from going into default. The Treasury was required to suspend the sale of United States savings bonds, and people who depend upon social security checks and other Government payments suddenly realized that the Treasury simply cannot pay the Government's bills unless it is authorized to borrow the funds needed to finance the spending programs previously enacted by Congress. You would agree, I trust, that it is essential that we do everything possible to restore the confidence of the American people in their government. Unfortunately, this objective has not been served by our recent experiences with debt limit legislation. Confidence in the management of the Government's finances was seriously undermined each time the debt limit was allowed to lapse and we must all work to avoid that outcome in this instance. Bond Authority I would like to turn now to our need for an increase in the Treasury's authority to issue long-term securities in the market without regard to the 4-1/4 percent statutory interest rate ceiling. Under this Administration, the Treasury has emphasized debt extension as a primary objective of debt management, a policy which we believe to be fundamentally sound. This policy has caused a significant increase in the average maturity of the debt, reversing a prolonged slide which extended over more than 10 years. In mid-1965, the average maturity of the privately-held marketable debt was 5 years, 9 months. By January 1976, it had declined to 2 years, 5 months, because huge amounts of new cash were raised in the bill market and in short-term coupon securities. Since that time/ despite the continuing large cash needs of the Federal Government, Treasury has succeeded in lengthening the debt to 3 years, 3 months currently. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 Debt extension has been accomplished primarily through continued and enlarged offerings of long-term bonds in our mid-quarterly refundings as well as routine offerings of 15-year bonds in the first month of each quarter. These longer-term security offerings have contributed to a more balanced maturity structure of the debt, which will facilitate efficient debt management in the future. Also, these offerings have complemented the Administration’s program to restrain inflation. By meeting some of the Government's new cash requirements in the bond market rather than the bill market, we have avoided adding to the liquidity of the economy at a time when excessive liquidity is being transmitted into increasing prices. Congress has increased the Treasury's authority to issue long-term securities without regard to the 4-1/4 percent ceiling a number of times in recent years, and in the debt limit act of April 2, 1979, it was increased from $32 billion to the current level of $40 billion. To meet our requirements over the next 12 months, the limit should be increased to $55 billion. While the timing and amounts of future bond issues will depend on prevailing market conditions, a $15 billion increase in the bond authority would permit the Treasury to continue its recent pattern of bond issues throughout fiscal year 1980. Debt Limit Process Mr. Chairman, I would now like to comment on the process by which the public debt limit is established. It is well recognized that the present statutory debt limit is not an effective way for Congress to control the debt. In fact, the present debt limit process may actually divert public attention from the real issue — control over the Federal budget. The increase in the debt each year is simply the result of earlier decisions by Congress on the amounts of Federal spending and taxation. Consequently, the only way to control the debt is through firm control over the Federal budget. In this regard, the Congressional Budget Act of 1974 greatly improved Congressional budget procedures and provided a more effective means of controlling the debt. That Act requires concurrent resolutions of Congress on the appropriate levels of budget outlays, receipts, and public debt. This new budget process thus assures that Congress will face up each year to the public debt consequences of its decisions on taxes and expenditures. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Moreover, as I indicated earlier in my statement, the statutory limitation on the public debt occasionally has interfered with the efficient financings of the Federal Government and has actually resulted in increased costs to the taxpayer. Accordingly, the public debt would be more effectively controlled and more efficiently managed by tying the debt limit to the new Congressional budget process. I hope that we can work together to devise an acceptable way to do this. I understand that considerable progress has been made in recent months by members of Congress who have dedicated considerable time and effort to this purpose. I applaud these efforts and I pledge my full support to secure enactment of this important reform in the manage­ ment of our nation’s finances. OoO Attachment Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 estimated PU3LIC DE3T SUBJECT TO LIMITATION FISCAL YEAR 1980 Based on: Budget Receipts of $51-1 Bill- Budget Outlays of s’J3e^*^llion Unified Budget Deficit °f *3 ®Uion ' n^-Rnrtaet Outlays of $12 Billio.. ($ Billions) With $3 Billion Public Debt Operating Margin for Subject to Cash Continoencies Pa 1 a n c p Limit 1979 826 823 September 28 15 836 833 15 October 31 846 843 15 November 30 847 844 15 December 31 1980 843 840 15 January 31 858 8 o o 15 February 29 865 862 15 March 31 864 861 15 Aoril 30 879 876 15 May 30 863 860 15 June 30 872 869 10 July 31 880 877 15 August 29 886 883 15 SeDtember 30 PREPARED 9/5/79 OFAS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Department of the TREASURY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 J FOR RELEASE ON DELIVERY EXPECTED AT 10:00 A.M. September 11, 1979 STATEMENT OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS Mr. Chairman and Members of the Committee: My purpose here today is to advise you of the need for an increase in the public debt limit, and to request an increase in the authority to issue long-term Treasury securities in the market. After discussing these specific debt management requirements, I would like to comment on the need to strengthen the process by which Congress establishes the debt limit. Debt Limit With regard to the debt limit, the present temporary limit of $830 billion will expire at the end of September, and the debt limit will then revert to the permanent ceiling of $400 billion. Prompt enactment of legislation is necessary to permit the Treasury to borrow to refund maturing securities and to pay the Government’s other legal obligations. Our current estimates of the amounts of debt subject to limit at the end of each month through the fiscal year 1980 are shown in the attached table. According to the table, the debt subject to limit will increase to $883 billion at the end of September 1980, assuming a $15 billion cash balance on that date. This estimate is consistent with the budget Digitized for FRASER M-45 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 estimates in the July 12 Mid-Session Review of.the 1980 Budget and later revisions. The usual $3 billion margin forcontingencies would raise this amount to $886 billion. Thus, the present debt limit of $830 billion should be increased by $56 billion to meet our financing requirements in fiscal 1980. The amount of the debt subject to limit approved by Congress in the May 1979 Budget Resolution is $887 billion for the fiscal year ending September 30, 1980. Yet, since the Budget Resolution does not have the force of law, it will be necessary for Congress to enact a new debt limit bill before the Treasury can borrow the funds needed to finance the programs approved by Congress last May. Early next week, the Treasury will announce offerings of 2-year and 4-year notes to refund $5.9 billion of obligations which mature on September 30 and perhaps to raise new cash. These new offerings will be scheduled to occur on or about September 25 and 26. Since September 30 is a Sunday the obligations maturing on September 30 cannot be paid off or refunded until Monday, October 1, at which time the present debt limit authority will have expired. Thus, without Congressional action on legislation to raise the temporary debt limit by September 24, we will be forced to postpone the 2-year and 4-year note offerings as delivery of the securities on October 1 could not be assured. Failure to offer these securities as scheduled could be disruptive of the Government securities market and costly to the Treasury Investors as well as dealers in Government securities base their day-to-day investment and market strategies on the expectation that the Treasury will offer and issue the new securities on schedule. Delayed action by Congress on the debt limit, therefore, adds to market uncertainties, and any such additional risk to investors is generally reflected in lower bids in the Treasury’s auctions and consequently in higher costs to the taxpayer. To avoid this needless increase in the interest costs of financing the public debt, I strongly urge that Congressional action on the debt limit be completed as soon as possible. I know that this Committee has made every effort in the past to assure timely action by Congress on the debt limit. Yet, the record of the past two years has not been good. During this period debt limit legislation was considered by Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 Congress four times. On three occasions action was not taken before the expiration date, and the Treasury was unable to borrow until the Congress acted two or three days later. Significant costs were incurred by the Treasury, and extraordinary measures were required to prevent the Government from going into default. The Treasury was required to suspend the sale of United States savings bonds, and people who depend upon social security checks and other Government payments suddenly realized that the Treasury simply cannot pay the Government's bills unless it is authorized to borrow the funds needed to finance the spending programs previously enacted by Congress. You would agree, I trust, that it is essential that we do everything possible to restore the confidence of the American people in their government. Unfortunately, this objective has not been served by our recent experiences with debt limit legislation. Confidence in the management of the Government's finances was seriously undermined each time the debt limit was allowed to lapse and we must all work to avoid that outcome in this instance. Bond Authority I would like to turn now to our need for an increase in the Treasury's authority to issue long-term securities in the market without regard to the 4-1/4 percent statutory interest rate ceiling. Under this Administration, the Treasury has emphasized debt extension as a primary objective of debt management, a policy which we believe to be fundamentally sound. This policy has caused a significant increase in the average maturity of the debt, reversing a prolonged slide which extended over more than 10 years. In mid-1965, the average maturity of the privately-held marketable debt was 5 years, 9 months. By January 1976, it had declined to 2 years, 5 months, because huge amounts of new cash were raised in the bill market and in short-term coupon securities. Since that time, despite the continuing large cash needs of the Federal Government, Treasury has succeeded in lengthening the debt to 3 years, 3 months currently. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 Debt extension has been accomplished primarily through continued and enlarged offerings of long-term bonds in our mid-quarterly refundings as well as routine offerings of 15-year bonds in the first month of each quarter. These longer-term security offerings have contributed to a more balanced maturity structure of the debt, which will facilitate efficient debt management in the future. Also, these offerings have complemented the Administration’s program to restrain inflation. By meeting some of the Government’s new cash requirements in the bond market rather than the bill market, we have avoided adding to the liquidity of the economy at a time when excessive liquidity is being transmitted into increasing prices. Congress has increased the Treasury's authority to issue long-term securities without regard to the 4-1/4 percent ceiling a number of times in recent years, and in the debt limit act of April 2, 1979, it was increased from $32 billion to the current level of $40 billion. To meet our requirements over the next 12 months, the limit should be increased to $55 billion. While the timing and amounts of future bond issues will depend on prevailing market conditions, a $15 billion increase in the bond authority would permit the Treasury to continue its recent pattern of bond issues throughout fiscal year 1980. Debt Limit Process Mr. Chairman, I would now like to comment on the process by which the public debt limit is established. It is well recognized that the present statutory debt limit is not an effective way for Congress to control the debt. In fact, the present debt limit process may actually divert public attention from the real issue — control over the Federal budget. The increase in the debt each year is simply the result of earlier decisions by Congress on the amounts of Federal spending and taxation. Consequently, the only way to control the debt is through firm control over the Federal budget. In this regard, the Congressional Budget Act of 1974 greatly improved Congressional budget procedures and provided a more effective means of controlling the debt. That Act requires concurrent resolutions of Congress on the appropriate levels of budget outlays, receipts, and public debt. This new budget process thus assures that Congress will face up each year to the public debt consequences of its decisions on taxes and expenditures. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Moreover, as I indicated earlier in my statement, the statutory limitation on the public debt occasionally has interfered with the efficient financings of the Federal Government and has actually resulted in increased costs to the taxpayer. Accordingly, the public debt would be more effectively controlled and more efficiently managed by tying the debt limit to the new Congressional budget process. I hope that we can work together to devise an acceptable way to do this. I understand that considerable progress has been made in recent months by members of Congress who have dedicated considerable time and effort to this purpose I applaud these efforts and I pledge my full support to secure enactment of this important reform in the manage­ ment of our nation's finances. OoO Attachment Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis estimated PUBLIC DEBT SUBJECT TO LIMITATION FISCAL YEAR 1980 Based on: Budget Receipts of $514 Billion, Budget Outlays of 5543 Billion, Unified Budget Deficit °f J29 Billion, Outlays of $12 Billion ($ Billions) With $3 Billion Public Debt Operating Margin for Subject to * Cash Cor.tincrencies 1 sriCP Limit 1979 826 823 September 28 15 836 833 15 October 31 846 843 15 November 30 847 844 15 December 31 1980 843 840 15 January 31 858 855 15 February 29 865 862 15 March 31 864 861 15 April 30 879 876 15 Mav 30 863 860 15 June 30 872 869 15 July 31 880 877 15 August 29 886 883 September 30 15 PREPARED 9/5/79 OFAS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

G. William Miller (1979, September 10). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19790911_miller_2

@misc{wtfs_speech_19790911_miller_2,
  author = {G. William Miller},
  title = {Speech},
  year = {1979},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19790911_miller_2},
  note = {Retrieved via When the Fed Speaks corpus}
}