BBC News Online: Business: The Economy

US to buy back national debt

The news represents a transformation of the US budget position, after struggling with huge deficits for most of the last decade.

And it comes as a riposte to Republican plans to use the budget surplus to fund more tax cuts.

The last time the US tried to reduce its debt was in 1972.

It now says it will begin repurchasing Treasury bonds before they fall due, as early as next February, cutting back on the $3.6 trillion (£2.4 trillion) it owes to the public.

Treasury Secretary Lawrence Summers said that "reducing the supply of Treasury debt held by the public brings enormous benefits for our economy".

He argued that savings could be used instead for more productive investment in factories, while reducing the total amount of debt would help cut interest rates.

But the repurchase scheme will not begin until after a consultation to consider "a number of complex issues that will need to be worked out".

Surplus squabble

The proposal comes as Democrats and Republicans squabble over what to do with the growing US budget surplus.

Last year, the government had a surplus of $69.2 billion, a total which is likely to be exceeded this year. It is the first time since 1957 that the US has had two consecutive years of budget surplus.

Official projections suggest trillions of dollars in budget surpluses over the next 15 years, boosted by a strong economy and strict controls on spending.

But there is no agreement on what to do with the money.

The Republicans are proposing a $792bn tax cut, while President Clinton and the Democrats want to add funds to the social security retirement programme and Medicare, which provides health care for older people.

But in a change of tack last month, the Clinton administration indicated that it was also prepared to consider using some of the surplus to reduce the overall government debt.

Such a course of action has long been advocated by Alan Greenspan, the influential chairman of the US central bank, the Federal Reserve.

He argues that reducing government debt should take priority over tax cuts, as the move will free funds for private investment and lower government spending.

Less debt to sell

The government surplus means that it needs to sell fewer bonds to the public.

It is going to reduce the number of times it sells 30-year Treasury bonds, from three times a year to twice a year.

The government hopes that by making repurchases, rather than just selling less debt in the future, it can better manage its portfolio to save money.

By retiring longer term debt, while issuing more cheaper short-term bonds, it will keep the cost of the debt repayments lower.

Relevant Stories

Republicans set up Clinton showdown (04 Aug 99 | The Economy)
Exorcising the US national debt (30 Jun 99 | The Economy)
Clinton proposes Medicare reform (29 Jun 99 | The Economy)
The trillion dollar surplus (28 Jun 99 | The Economy)

Internet Links

US Treasury

The BBC is not responsible for the content of external internet sites.

In this section

Inquiry into energy provider loyalty
Brown considers IMF job
Chinese imports boost US trade gap
No longer Liffe as we know it
The growing threat of internet fraud
House passes US budget
Online share dealing triples
Rate fears as sales soar
Brown's bulging war-chest
Oil reaches nine-year high
UK unemployment falls again
Trade talks deadlocked
US inflation still subdued
Insolvent firms to get breathing space
Bank considered bigger rate rise
UK pay rising 'too fast'
Utilities face tough regulation
CBI's new chief named
US stocks hit highs after rate rise
US Fed raises rates
UK inflation creeps up
Row over the national shopping basket
Military airspace to be cut
TUC warns against following US
World growth accelerates
Union merger put in doubt
Japan's tentative economic recovery
EU fraud costs millions
CBI choice 'could wreck industrial relations'
WTO hails China deal
US business eyes Chinese market
Red tape task force
Websites and widgets
Guru predicts web surge
Malaysia's economy: The Sinatra Principle
Shell secures Iranian oil deal
Irish boom draws the Welsh
China deal to boost economy
US dream scenario continues
Japan's billion dollar spending spree