Speech

Department of the TREASURY 'WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE ON DELIVERY EXPECTED AT 9:00 a.m. April 16, 1980 STATEMENT OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT OF THE SENATE COMMITTEE ON FINANCE Mr. Chairman and Members of the Committee: My purpose here today is to advise you of the Treasury's financing needs through fiscal year 1981 and to request an increase in the authority to issue long-term securities in the market and removal of the statutory interest rate ceiling on savings bonds. Financing Requirements The present temporary debt limit of $879 billion will expire on May 31, 1980, 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 years 1980 and 1981 are shown in the attached table. The table indicates that the debt subject to limit will increase to $881 billion on September 30, 1980, and to $897 billion on September 30, 1981, assuming a $15 billion M-433 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 cash balance on these dates. These estimates are consistent with the Administration’s March revision in the budget estimates. The usual $3 billion margin for contingencies would raise these amounts to $884 billion in September 1980, and $900 billion in September 1981. Thus, the present debt limit of $879 billion should be increased by $5 billion to meet our financing require­ ments through the remainder of fiscal 1980 and by an additional $16 billion to meet the requirements through fiscal 1981. However, as indicated in the table, the debt subject to limit reaches a seasonal peak in May 1981 of $914 billion and then declines to $897 billion in September, assuming a constant $15 billion cash balance. Thus, we are requesting that the debt limit for FY 1981 be increased to $910 billion, which would get us by the temporary May 29 peak with an adequate cash balance of $11 billion on that date. For your convenience, the deficit and debt figures for each year over the past decade are shown in the final table attached to my statement. Let me emphasize the importance of timely Congressional action on the debt limit. In mid-May the Treasury expects to announce offerings of new note issues to refund obligations which mature on May 31 and perhaps to raise new cash. Since May 31 is a Saturday the obligations maturing on May 31 cannot be paid off or refunded until Monday, June 2, at which time the present debt limit authority will have expired. Moreover, we will also need to announce and auction Treasury bill issues in the third or fourth week Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 of May. These do not settle until the first week of June. Thus, without an increase in the debt limit by mid-May, we will be forced to postpone offerings because delivery of the securities in early June 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, would add 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. This Committee has made every effort in the past to assure timely action by Congress to increase the debt limit. Yet, the record of recent years has not been good. On three of the last five debt limit bills 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 could not pay the Government's bills unless it was authorized to borrow the funds needed to finance the spending programs previously enacted by Congress. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 It is essential that we do everything possible to maintain th confidence of the American people in their Government. Confidence in the management of the Government’s finances was seriously under mined 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 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 large amounts of new cash were raised in the bill market and in short-term coupon securities. Since that time, despite the continuing needs for cash of the Federal Government, Treasury has succeeded in lengthening the debt to 3 years, 10 months, currently. Debt extension has been accomplished primarily through continued offerings of long-term bonds in our mid-quarterly refundings as well as regular offerings of 15-year bonds in the first month of each quarter. By developing the long-term sector of the market we have broadened the market and increased Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 demand for Treasury securities. These longer-term security offerings have also contributed to a more balanced maturity structure of the debt, which will facilitate efficient debt management in the future. Moreover, these offerings have complemented anti-inflation efforts. 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 September 29, 1979, it was increased from $40 billion to the current level of $50 billion. To meet our requirements for the remainder of the fiscal year 1980, the limit should be increased to $54 billion; and to meet our requirements in the fiscal year 1981, the limit should be increased to $70 billion. The Treasury to date has used over $45 billion of the $50 billion authority, which leaves the amount of unused authority at less than $5 billion. While the timing and amounts of future bond issues will depend on prevailing market conditions, a $20 billion increase in the bond authority would permit the Treasury to con­ tinue its recent pattern of bond issues throughout fiscal year 1981. We are currently issuing long-term securities at an annualized rate of approximately $14 billion. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 Savings Bonds v In recent years, Treasury has recommended frequently that Congress repeal the ceiling on the rate of interest that the Treasury may pay on U.S. Savings Bonds. In the debt limit Act of April 2, 1979, Congress increased the statutory ceiling from 6 percent to 7 percent. The Treasury increased the savings bond rate to 6-1/2 percent effective June 1, 1979. Then, in December 1979, the Treasury announced that the interest rate on the new 11-year series EE bonds, which went on sale on January 1, 1980, would be 7 percent for bonds held to maturity and that the rate on outstanding E bonds would also be increased to 7 percent for bonds held an additional 11 years. Legislation is necessary to provide for further increases beyond the present 7 percent statutory ceiling. Mr. Chairman, we are concerned that the present requirement for legislation to cover each increase in the savings bond rate does not provide sufficient flexibility to adjust the rate in response to changing market conditions. The delays encountered in the legislative process could result in serious inequities to savings bond purchasers and holders as interest rates rise on competing forms of savings. The Treasury relies on the savings bond program as an important and relatively stable source of long-term funds. On that basis, we are concerned that participants in the payroll savings plans and other savings bond purchasers might drop out of the program if the interest rate were not maintained at a level reasonably competitive with comparable forms of savings. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 While the savings bond rate has increased relative to the 5-1/2 percent regulatory ceiling on passbook savings in Federally- insured thrift institutions, the much greater increase in market interest rates over the past year has had a substantial adverse impact on the savings bond program. Sales of savings bonds in 1978 reached $8 billion, a peacetime record; but in 1979, as market interest rates increased, savings bonds sales fell to $7 billion. In the first three months of 1980 sales were only $1.4 billion, 26 percent below the first quarter in 1979 and 34 percent lower than sales in the first quarter of 1978. The major problem, however, has been on the redemption side. In 1979 savings bonds redemptions were $12.3 billion, compared to $8.2 billion in 1978, an increase of 50 percent. Redemptions in the first quarter of 1980 were $6.4 billion, double the amount in the first three months of 1979 and more than three times the redemptions in the first quarter of 1978. Consequently, the cash loss to the Treasury from the excess of redemptions over sales in the savings bond program was $5.3 billion in 1979, and was $5.0 billion in just the first three months of 1980. These cash losses to the Treasury must be made up by increasing the amounts the Treasury borrows in the market, and the Treasury is currently paying significantly higher interest rates on its market borrowings. If this situation continues, it will be essential to increase the savings bond interest rate Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8 promptly in order to avoid further substantial cash drains to the Treasury and permanent damage to the savings bond program. The amount of any necessary rate increase will depend on current market conditions and on the other terms and conditions offered to savings bonds investors. We are currently reviewing the savings bonds program to determine what changes need to be made. Thus, we are requesting that the present ceiling on the savings bond interest rate be repealed as soon as possible. Any increase in the savings bond interest rate by the Treasury would continue to be subject to the provision in existing law which requires approval of the President. Also, the Treasury would, of course, give very careful consideration to the effect of any increase in the savings bond interest rate on the flow of savings to banks and thrift institutions. Debt Limit Process I would now like to comment on the process by which the public debt limit is established. Separate legislation for a statutory debt limit has not been an effective way for Congress to control the debt. 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 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 » and provided a more effective means of controlling the debt. That Act requires Congressional concurrent resolutions 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. The debt limit act of September 29, 1979, which established the current limit of $879 billion, also amended the rules of the House of Representatives to tie the establishment of the debt limit to the Congressional budget process. Under the new House rules, the Treasury still presents its debt limit requests in testimony before the House Ways and Means Committee, and that Committee makes its debt limit recommendations to the House Budget Committee. Yet, the vote by which the House adopts a budget reso­ lution will be deemed to be a vote in favor of a joint resolution changing the statutory debt limit to the amount specified in the budget resolution. The joint resolution on the debt limit will then be transmitted to the Senate for further legislative action. No comparable procedure exists in the Senate. The Senate must still vote twice on the debt limit figure, in the budget resolution and in the separate debt limit bill. Thus, it is essential that your Committee act promptly to assure timely action by Congress on the debt limit. Attachments oOo 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 $532 Billion, Budget Outlays of $569 Billion, Unified Budget Deficit of $37 Billion, Off-Budget Outlays of $15 Billion ($ Billions) Operating Public Debt With $3 Billion Cash Subject to Margin for Balance Limit Contingencies 1979 ACTUAL September 28 $24.2 $828 October 31 10.5 828 November 30 5.6 835 December 31 15.9 846 1980 January 31 16.6 849 February 29 10.7 856 March 31 8.2 865 ESTIMATED April 30 15.0 872 875 May 30 15.0 885 888 June 30 15.0 874 877 July 31 15.0 879 881 August 29 15.0 885 888 September 30 15.0 881 884 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I ESTIMATED PUBLIC DEBT < SUBJECT TO LIMITATION FISCAL YEAR 1981 Based on: Budget Receipts of $628 Billion, Budget Outlays of $612 Billion, Unified Budget Surplus of $16 Billion, Off-Budget Outlays of $19 Billion ($ Billions) Operating Public Debt With $3 Billion Cash Subject to Margin for Balance Limit Contingencies 1980 October 31 $15 $891 $894 November 30 15 898 901 December 31 15 898 901 1981 January 30 15 894 897 February 27 15 902 905 March 31 15 911 914 April 30 15 912 915 May 29 15 914 917 June 30 15 907 910 July 31 15 903 906 August 31 15 904 907 September 30 15 897 900 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Federal Deficits and Debt, 1970-81 (in billions of dollars) Fiscal Years 1970 1971 1972 1973 1974 1975 1976 TQ 1977 19*78 1979 1980a I981e Federal funds deficit 13.1 29.9 29.3 25.6 18.7 52.5 68.9 11.0 54.5 61.5 46.1 50.1 -2.4 Less i Trust fund surplus (-) or deficit -10.3 -6.8 -5.9 -10.7 -14.0 -7.4 -2.4 2.0 -9.5 -12.7 -18.3 -13.6 -14.1 Equalsx Total unified budget deficit 2.8 23.0 23.4 14.8 4.7 45.2 66.4 13.0 45.0 48.8 27.7 36.5 -16.5 Plus X Deficit of off-budget Federal entities 1/ — .1 1.4 8.1 7.3 1.8 8.7 10.3 12.4 15.0 18.7 Equalst Total deficit 2.8 23.0 23.4 14.9 6.1 53.1 73.7 14.7 53.7 59.2 40.2 51.5 2.2 Less > Nonborrowing means of financing 2/ 2.6 -3.6 -3.9 4.4 -3.1 -2.4 9.2 3.3 -.1 -.1 -6.5 -12.2 -.7 Equals: Total borrowing 5.4 19.4 19.4 19.3 3.0 50.9 82.9 18.0 53.5 59.H 33.6 39.3 1.5 from the public Plus X Change In debt held by Government agencies J/ 10.1 7.4 8.4 11.8 14.8 7.0 4.3 -3.5 9.2 12.2 19.7 13.6 14.1 Equalsi Change In gross Fedexal debt 15.5 26.9 27.9 31.1 17.8 57.9 87.3 14.5 62.7 71.3 53.3 52.9 15.6 Less x Change in Federal agency debt 1.7 .3 1.3 -.2 -.9 1.1 - -.2 1.4 1.4 1.6 .5 .6 Equals x Change in gross public debt 17.2 27.2 29.1 30.9 16.9 59.0 87.2 14.3 64.1 72.7 54.9 53.4 16.2 Plus X Change In other debt subject to limit 4/ -.7 -1.2 -.4 .1 .1 — - - - Equalsi Change In debt subject to limit 16.5 26.0 29.1 30.5 16.9 59.0 87.3 14.3 64.1 72.7 54.9 53.4 16.1 BQbl.9ut-gUndlnq.gnj al FY Qross Federal debt 5t/ 382.6 409.5 437.3 468.4 486.2 544.1 631.9 646.4 709.1 780.4 833.8 886.6 902.3 Lesa x Federal agency debt 5/ 12.5 12.2 10.9 11.1 12.0 10.9 11.4 11.7 10.3 8.9 7.2 6.7 6.1 Equalsi Gross public debt 370.1 397.3 426.4 457.3 474.2 533.2 620.4 634.7 698.8 771.5 826.5 880.0 896.1 Plus 1 Other debt subject to limit 1/ 2.5 1.3 1.3 .9 .9 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.0 Equals x Debt subject 372.6 398.6 427.8 458.3 475.2 534.2 621.6 635.8 700.0 772.7 827.6 881.0 897.1 to limit Office of the Secretary of the Treasury, Office of Government Financing April 15, 1980 1/ Consists laraely of Federal Financing Bank borrowings to finance off-budget programs. 2/ Largely reflects changes in the Treasury cash balance. Sourcei Special Analysis E J/ Consists largely of trust fund surplus or deficit. U.S. Budget 1/ Net of certain public debt not subject to limit. i/ Fiscal year 1976 figure includes reclassification of $471 million of Export-Import Bank certificates of beneficial Interest from asset sales to debt. e ■ estimate Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Department of the TREASURY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE ON DELIVERY EXPECTED AT 9:00 a.m. April 16, 1980 STATEMENT OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT OF THE SENATE COMMITTEE ON FINANCE Mr. Chairman and Members of the Committee: My purpose here today is to advise you of the Treasury’s financing needs through fiscal year 1981 and to request an increase in the authority to issue long-term securities in the market and removal of the statutory interest rate ceiling on savings bonds. Financing Requirements The present temporary debt limit of $879 billion will expire on May 31, 1980, 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 years 1980 and 1981 are shown in the attached table. The table indicates that the debt subject to limit will increase to $881 billion on September 30, 1980, and to $897 billion on September 30, 1981, assuming a $15 billion M-433 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 cash balance on these dates. These estimates are consistent with the Administration's March revision in the budget estimates. The usual $3 billion margin for contingencies would raise these amounts to $884 billion in September 1980, and $900 billion in September 1981. Thus, the present debt limit of $879 billion should be increased by $5 billion to meet our financing require­ ments through the remainder of fiscal 1980 and by an additional $16 billion to meet the requirements through fiscal 1981. However, as indicated in the table, the debt subject to limit reaches a seasonal peak in May 1981 of $914 billion and then declines to $897 billion in September, assuming a constant $15 billion cash balance. Thus, we are requesting that the debt limit for FY 1981 be increased to $910 billion, which would get us by the temporary May 29 peak with an adequate cash balance of $11 billion on that date. For your convenience, the deficit and debt figures for each year over the past decade are shown in the final table attached to my statement. Let me emphasize the importance of timely Congressional action on the debt limit. In mid-May the Treasury expects to announce offerings of new note issues to refund obligations which mature on May 31 and perhaps to raise new cash. Since May 31 is a Saturday the obligations maturing on May 31 cannot be paid off or refunded until Monday, June 2, at which time the present debt limit authority will have expired. Moreover, we will also need to announce and auction Treasury bill issues in the third or fourth week Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 of May. These do not settle until the first week of June. Thus, without an increase in the debt limit by mid-May, we will be forced to postpone offerings because delivery of the securities in early June 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, would add 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. This Committee has made every effort in the past to assure timely action by Congress to increase the debt limit. Yet, the record of recent years has not been good. On three of the last five debt limit bills 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 could not pay the Government's bills unless it was authorized to borrow the funds needed to finance the spending programs previously enacted by Congress. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 It is essential that we do everything possible to maintain the confidence of the American people in their Government. Confidence in the management of the Government's finances was seriously under­ mined 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 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 large amounts of new cash were raised in the bill market and in short-term coupon securities. Since that time, despite the continuing needs for cash of the Federal Government, Treasury has succeeded in lengthening the debt to 3 years, 10 months, currently. Debt extension has been accomplished primarily through continued offerings of long-term bonds in our mid-quarterly refundings as well as regular offerings of 15-year bonds in the first month of each quarter. By developing the long-term sector of the market we have broadened the market and increased Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 demand for Treasury securities. These longer-term security offerings have also contributed to a more balanced maturity structure of the debt, which will facilitate efficient debt management in the future. Moreover, these offerings have complemented anti-inflation efforts. 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 September 29, 1979, it was increased from $40 billion to the current level of $50 billion. To meet our requirements for the remainder of the fiscal year 1980, the limit should be increased to $54 billion; and to meet our requirements in the fiscal year 1981, the limit should be increased to $70 billion. The Treasury to date has used over $45 billion of the $50 billion authority, which leaves the amount of unused authority at less than $5 billion. While the timing and amounts of future bond issues will depend on prevailing market conditions, a $20 billion increase in the bond authority would permit the Treasury to con­ tinue its recent pattern of bond issues throughout fiscal year 1981. We are currently issuing long-term securities at an annualized rate of approximately $14 billion. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 Savings Bonds In recent years, Treasury has recommended frequently that Congress repeal the ceiling on the rate of interest that the Treasury may pay on U.S. Savings Bonds. In the debt limit Act of April 2, 1979, Congress increased the statutory ceiling from 6 percent to 7 percent. The Treasury increased the savings bond rate to 6-1/2 percent effective June 1, 1979. Then, in December 1979, the Treasury announced that the interest rate on the new 11-year series EE bonds, which went on sale on January 1, 1980, would be 7 percent for bonds held to maturity and that the rate on outstanding E bonds would also be increased to 7 percent for bonds held an additional 11 years. Legislation is necessary to provide for further increases beyond the present 7 percent statutory ceiling. Mr. Chairman, we are concerned that the present requirement for legislation to cover each increase in the savings bond rate does not provide sufficient flexibility to adjust the rate in response to changing market conditions. The delays encountered in the legislative process could result in serious inequities to savings bond purchasers and holders as interest rates rise on competing forms of savings. The Treasury relies on the savings bond program as an important and relatively stable source of long-term funds. On that basis, we are concerned that participants in the payroll savings plans and other savings bond purchasers might drop out of the program if the interest rate were not maintained at a level reasonably competitive with comparable forms of savings. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 While the savings bond rate has increased relative to the 5-1/2 percent regulatory ceiling on passbook savings in Federally- insured thrift institutions, the much greater increase in market interest rates over the past year has had a substantial adverse impact on the savings bond program. Sales of savings bonds in 1978 reached $8 billion, a peacetime record; but in 1979, as market interest rates increased, savings bonds sales fell to $7 billion. In the first three months of 1980 sales were only $1.4 billion, 26 percent below the first quarter in 1979 and 34 percent lower than sales in the first quarter of 1978. The major problem, however, has been on the redemption side. In 1979 savings bonds redemptions were $12.3 billion, compared to $8.2 billion in 1978, an increase of 50 percent. Redemptions in the first quarter of 1980 were $6.4 billion, double the amount in the first three months of 1979 and more than three times the redemptions in the first quarter of 1978. Consequently, the cash loss to the Treasury from the excess of redemptions over sales in the savings bond program was $5.3 billion in 1979, and was $5.0 billion in just the first three months of 1980. These cash losses to the Treasury must be made up by increasing the amounts the Treasury borrows in the market, and the Treasury is currently paying significantly higher interest rates on its market borrowings. If this situation continues, it will be essential to increase the savings bond interest rate Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8 promptly in order to avoid further substantial cash drains to the Treasury and permanent damage to the savings bond program. The amount of any necessary rate increase will depend on current market conditions and on the other terms and conditions offered to savings bonds investors. We are currently reviewing the savings bonds program to determine what changes need to be made. Thus, we are requesting that the present ceiling on the savings bond interest rate be repealed as soon as possible. Any increase in the savings bond interest rate by the Treasury would continue to be subject to the provision in existing law which requires approval of the President. Also, the Treasury would, of course, give very careful consideration to the effect of any increase in the savings bond interest rate on the flow of savings to banks and thrift institutions. Debt Limit Process I would now like to comment on the process by which the public debt limit is established. Separate legislation for a statutory debt limit has not been an effective way for Congress to control the debt. 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 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I 9 « and provided a more effective means of controlling the debt. That Act requires Congressional concurrent resolutions 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. The debt limit act of September 29, 1979, which established the current limit of $879 billion, also amended the rules of the House of Representatives to tie the establishment of the debt limit to the Congressional budget process. Under the new House rules, the Treasury still presents its debt limit requests in testimony before the House Ways and Means Committee, and that Committee makes its debt limit recommendations to the House Budget Committee. Yet, the vote by which the House adopts a budget reso­ lution will be deemed to be a vote in favor of a joint resolution changing the statutory debt limit to the amount specified in the budget resolution. The joint resolution on the debt limit will then be transmitted to the Senate for further legislative action. No comparable procedure exists in the Senate. The Senate must still vote twice on the debt limit figure, in the budget resolution and in the separate debt limit bill. Thus, it is essential that your Committee act promptly to assure timely action by Congress on the debt limit. Attachments oOo Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I ESTIMATED PUBLIC DEBT SUBJECT TO LIMITATION FISCAL YEAR 1980 Based on: Budget Receipts of $532 Billion, Budget Outlays of $569 Billion, Unified Budget Deficit of $37 Billion, Off-Budget Outlays of $15 Billion ($ Billions) Operating Public Debt With $3 Billion Cash Subject to Margin for Balance Limit Contingencies 1979 ACTUAL September 28 $24.2 $828 October 31 10.5 828 November 30 5.6 835 December 31 15.9 846 1980 January 31 16.6 849 February 29 10.7 856 March 31 8.2 865 ESTIMATED April 30 15.0 872 875 May 30 15.0 885 888 June 30 15.0 874 877 July 31 15.0 879 881 August 29 15.0 885 888 September 30 15.0 881 884 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I ESTIMATED PUBLIC DEBT SUBJECT TO LIMITATION FISCAL YEAR 1981 Based on: Budget Receipts of $628 Billion, Budget Outlays of $612 Billion, Unified Budget Surplus of $16 Billion, Off-Budget Outlays of $19 Billion ($ Billions) Operating Public Debt With $3 Billion Cash Subject to Margin for Balance Limit Contingencies 1980 October 31 $15 $891 $894 November 30 15 898 901 December 31 15 898 901 1981 January 30 15 894 897 February 27 15 902 905 March 31 15 911 914 April 30 15 912 915 May 29 15 914 917 June 30 15 907 910 July 31 15 903 906 August 31 15 904 907 September 30 15 897 900 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Federal Deficits and Debt, 1970-81 (in billions of dollars) Fiscal Years 1970 1971 1972 1973 1974 1975 1976 TQ 1977 19*78 1979 1980* I981e Federal funds deficit 13.1 29.9 29.3 25.6 18.7 52.5 68.9 11.0 54.5 61.5 46.1 50.1 -2.4 Less i Trust fund surplus (-) or deficit -10.3 -6.8 -5.9 -10.7 -14.0 -7.4 -2.4 2.0 -9.5 -12.7 -18.3 -13.6 -14.1 Equals t Total unified budget deficit 2.8 23.0 23.4 14.8 4.7 45.2 66.4 13.0 45.0 48.8 27.7 36.5 -16.5 Plus t Deficit of off-budget Federal entitles 1/ — .1 1.4 8.1 7.3 1.8 8.7 10.3 12.4 15.0 18,7 Equalsi Total deflclt 2.8 23.0 23.4 14.9 6.1 53.1 73.7 14.7 53.7 59.2 40.2 51.5 2.2 Less» Nonborrowing means of financing 2/ 2.6 -3.6 -3.9 4.4 -3.1 -2.4 9.2 3.3 -.1 -.1 -6.5 -12.2 -.7 Equalsi Total borrowing 5.4 19.4 19.4 19.3 3.0 50.9 82.9 18.0 53.5 59.H 33.6 39.3 1.5 from the public Plus I Change In debt held by Government agencies J/ 10.1 7.4 8.4 11.8 14.8 7.0 4.3 -3.5 9.2 12.2 19.7 13.6 14.1 Equalsi Change In gross Federal debt 15.5 26.9 27.9 31.1 17.8 57.9 87.3 14.5 62.7 71.3 53.3 52.9 15.6 Less: Change In Federal agency debt 1.7 .3 1.3 -.2 -.9 1.1 - -.2 1.4 1.4 1.6 .5 .6 Equalsi Change In gross public debt 17.2 27.2 29.1 30.9 16.9 59.0 87.2 14.3 64.1 72.7 54.9 53.4 16.2 Plus» Change in other debt subject to limit 4/ -.7 -1.2 -.4 .1 .1 - - - Equalsi Change In debt subject to limit 16.5 26.0 29.1 30.5 16.9 59.0 87.3 14.3 64.1 72.7 54.9 53.4 16.1 PBfeL.QuUUndlPfl 9P0 Ql FY Qross Federal debt i/ 382.6 409.5 437.3 468.4 486.2 544.1 631.9 646.4 709.1 780.4 833.8 886.6 902.3 Less t Federal agency debt 5/ 12.5 12.2 10.9 11.1 12.0 10.9 11.4 11.7 10.3 8.9 7.2 6.7 6.1 Equals t Gross public debt 370.1 397.3 426.4 457.3 474.2 533.2 620.4 634.7 698.8 771.5 826.5 880.0 896.1 Plus 1 Other debt subject to limit 2.5 1.3 1.3 .9 .9 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.0 Equalsi Debt subject 372.6 398.6 427.8 458.3 475.2 534.2 621.6 635.8 700.0 772.7 827.6 881.0 897.1 to limit Office of the Secretary of the Treasury, Office of Government Financing April 15, 1980 1/ Consist* largely of Federal Financing Bank borrowings to finance off-budget programs. 2/ Largely reflects changes in the Treasury cash balance. Sourcei Special Analysis E, 2/ Consists largely of trust fund surplus or deficit. U.S. Budget 4/ Net of certain public debt not subject to limit. 2/ Fiscal year 1976 figure Includes reclassification of $471 million of Export-Import Bank certificates of beneficial Interest from asset sales to debt. e ■ estimate Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

G. William Miller (1980, April 15). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19800416_miller

@misc{wtfs_speech_19800416_miller,
  author = {G. William Miller},
  title = {Speech},
  year = {1980},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19800416_miller},
  note = {Retrieved via When the Fed Speaks corpus}
}