Lesson+11--Financing+the+Federal+Government

Lesson+11--Financing+the+Federal+Government - Lesson...

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Lesson 11--Financing the Federal Government
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When Federal Government Runs a Deficit, the Shortfall Has to be Borrowed—Notice Deficits Tend to Enlarge in Recessions, Why?
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The Cumulative Effect of Deficits Is a Swelling of Federal (Treasury Debt Outstanding)
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Other Things Equal An Increase In Treasury Debt Outstanding Would Make Bond Prices Fall, Interest Rates Rise
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But, Other Things Are Not Always Equal Budget Deficits enlarge in recessions, a time when private credit demands typically ease In recessions investors have a preference for “risk-free” securities, favoring Treasuries In recessions Fed policy is easier causing short-term rates to be lower
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Some Interesting Treasury Debt Details : http://www.treasurydirect.gov/govt/reports/pd/pd.htm
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Even if the deficit were to fall to zero, the Treasury would have to issue new debt to redeem maturing debt. The FRBNY serves as fiscal agent for the
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Lesson+11--Financing+the+Federal+Government - Lesson...

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