Follow the link for the full summary: https://markusacademy.substack.com/p/us-treasury-yields
Link to sign up for the webinar series: https://markusacademy.substack.com/
Watch on Youtube: https://youtu.be/SAUrOFLlK-kLink to
LIsten to part 2: https://open.spotify.com/episode/4aexS87sDsu6x2Fj8diXuM?si=kqTUF8zDQ-CzuTdOyCfyhw
Bill Dudley and Jonathan Payne joined Markus’ Academy for a two-part conversation on US Treasury yields. This part covered the history of American debt starting in minute 21:09. Before then it started with a refresher on basic concepts to study yield curves.
Dudley is a Senior Advisor to Princeton’s Griswold Center and a former President of the Federal Reserve Bank of New York. Payne is an Assistant Professor at Princeton.
A summary in three bullets:
● There is no Phillips-style curve between debt-to-GDP ratios (safe asset scarcity) and the government funding advantage. The simple relationship disappears when adjusting our prior measures of the funding advantage for the tax treatment of the government’s long-term debt during the Great Inflation
● The US government’s funding advantage was largest in the 19th century during the national banking era, not after WWII or Bretton Woods.
● Governments face financing trilemma, having to pick two among: (1) a large funding advantage, (2) a solvent banking sector, (3) a regime that inflates the debt away. The funding advantage is a reward for prudence
Timestamps:
[00:00] Today’s yields are not high by historical standards
[11:52] Fiscal-monetary interactions
[22:38] The history of America’s debt
[34:30] The national banking era was a stablecoin regime
[41:15] The funding advantage is a reward for prudence
The views expressed by Jonathan's coauthors in the papers discussed are those of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System.
