Government Asset and Liability Management in an Era of Vanishing Public Debt
The paper examines alternative options for managing public debt and public assets in a government balance sheet framework that includes the Treasury, the Federal Reserve, and social security. Even after September 11, U.S. fiscal policy is on a trajectory to accumulate substantial “uncommitted funds.” The paper examines how such funds should be invested. I conclude that high-quality fixed-income securities are the best benchmark and that social security is the most appropriate government asset manager. The analysis of policy alternatives reveals a trilemma between maintaining a liquid Treasury market, minimizing rent-seeking, and facilitating intergenerational risk sharing.