Financial Market Implications of the Federal Debt Paydown

Michael J. Fleming

MJF

Michael J. Fleming Federal Reserve Bank of New York

Discussants: Benjamin M. Friedman and

BMF

Benjamin M. Friedman Harvard University

Mark Gertler

Mark Gertler Henry and Lucy Moses Professor of Economics - New York University

THE UNITED STATES achieved its third consecutive federal budget surplus—
a record $237 billion—in fiscal 2000.1 This string of surpluses has
allowed the Treasury Department to begin to pay off the national debt.
After more than tripling from the early 1980s to the mid-1990s, outstanding
marketable U.S. Treasury securities fell from just under $3.5 trillion in
March 1998 to $3.0 trillion in July 2000. The Office of Management and
Budget (OMB) projects that the surpluses will continue, causing the debt
held by the public to be fully redeemed by 2012.