New US Economy Policy Message Board

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Strategies & Market Trends : New US Economy Policy

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To: Arthur Tang who wrote (11)	3/10/1997 1:06:00 PM
From: Arthur Tang	of 435

The new economy and the national debt. The national debt is now just over $5 trillion dollars. 30 years ago we only have $1+ trillion of debt. At 6.5% compound interest the 30 year bonds will generate 300% of present national debt by itself, even if federal deficit is overcomed today. When feds sell 30 year bonds they lock in 300% growth of future national debt. The long bonds also take out liquidity in the markets, otherwise could be used for investments in the near future. Short term bonds commit the government for less fixed deficits; and we can in time perhaps reduce the principals by surplus in our yearly budget. The feds must reconsider the way they discharge national debts. First by offering step ladder type instruments. Bond funds generally buy bonds based on step ladder principle. 1/10th of the holdings always mature to have adequate liquidity for their operation. Feds can provide liquidity each year to the length of time the step ladder operates. And that liquidity is exactly the supply side economical growth. $5 trillion dollars of debt will provide about 300 billion dollars of supply side trickle down from interest payments alone, if interest payments are paid out each year. Knowing this basic principle, Feds will then offer each week, t-bonds, notes, bills of equal amounts (or uneven amount depending on demands) for step ladder investments. The action may reduce the need for repo. This action may also attract more bid for treasury instruments. Although with such action, banks can also resell their owned treasury instruments. The extra commission, banks may get, is not as attractive as buying directly from the Feds. If our economy continue to grow beyond $8 trillion, will our tax surplus reduce our "debt pile up" by compound interest alone. I am going to look at that solution.

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