First off I am not an economist, nor a monetary expert, but have a common sense take on the current budget situation the US government finds itself in and wants to solve, without disturbing the world bond markets too much, without touching the debt ceiling limit.
The US Debt is around the $ 14.275 trillion. Here’s my idea for reducing this without causing too many jitters in the bond markets –
– Take the debt and convert it into a Treasury Paper with zero coupon rate for like amount.
– US government presents a budget with no more than 10% for contingency (deficit) and also makes a provision to pay down 15% of the debt each year going forward till the debt is eliminated or at the very least not more than 15% of the GDP
– The Treasury reduces the debt paper by the amount paid back to it every year by the US Government, and retires this (i.e. does not monetize this) debt.
Would this work? I am sure if it is desperate enough (i.e. the national debt goes over the ceiling), this measure could be adopted and might work. Granted the world’s bond markets will find itself in a bit of a turmoil and not know what to make of this, but it achieves at least two things – the extremist views (hawks and doves) on both sides is eliminated, and a conscious budget balancing policy along with growth (and reasonable taxation) is in place going forward.