"U.S. Set To Outline Debt Buyback Plan"

http://abcnews.go.com/sections/business/DailyNews/treasury_buyback990804.html

-- Linkmeister (link@librarian.edu), August 04, 1999

Answers

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Buying Back the Debt

Clinton, Summers Expected to Outline Debt Buyback Plan

W A S H I N G T O N, Aug. 4  Treasury Secretary Lawrence Summers is expected to announce today that the cash-rich United States plans to take the unusual step of buying back its own debt.

Late on Tuesday, Treasury said Summers would join a scheduled press briefing this morning about upcoming auctions but refused to say why he was making a relatively rare appearance at the quarterly event.

Summers addition to the press conference heightened anticipation that Treasury, its coffers brimming with cash, was preparing an announcement on how to proceed with debt buybacks against a context of shrinking government borrowing needs.

President Clinton is scheduled to make an economic announcement this morning, although the White House would not comment on the nature of it.

Big Cash Flow Next April

But U.S. officials, who spoke on condition of anonymity, said they expected Clinton to address the debt buyback issue during the Rose Garden event.

Analysts said that with the vibrant economy steaming toward its longest expansion in history and tax revenues swelling, Treasury is under some pressure to spell out how it intends to proceed in financial markets.

Treasury is set to detail today its plans for selling five- and 10- year notes and 30-year bonds next week as part of quarterly refunding auctions.

While Treasury debt managers were unlikely to initiate any action until well into the future, they may want to detail plans well ahead of next years expected cash surge when the mid-April tax filing deadline rolls around.

The Treasury appears to be putting the final touches on regulations for an open-market buyback program, and might publish a draft version along with the refunding details on August 4, economist Lou Crandall of R.H. Wrightson and Associates in New York wrote in his weekly commentary.

Expect More Surpluses

A Treasury official declined to comment on whether debt buybacks would be discussed at todays press conference. Debt buybacks are rare among major industrialized countries. The U.S. exchanged short for longer term debts in the 1960s, seeking to extend the terms of the public debt.

Treasury already has been remaking its borrowing since the first budget surplus appeared in 29 years during fiscal 1998 that ended last Sept. 30.

That $69.4-billion surplus is forecast to be handily superseded by a surplus as large as $120 billion in the current fiscal year, according to Congressional Budget Office estimates. Surpluses are expected to continue for about a decade.

So far, Treasury has scrapped sales of three-year notes and said it will consider reducing the frequency of auctions of monthly two-year notes and three-times-a-year 30-year bonds.

But those were trimming operations by comparison with the pruning that would occur if Treasury began buying back existing securities now in investors hands.

Time to Think

The government has accumulated debts of $5.5 trillion. Of that total, about $3.2 trillion is held in the form of publicly traded U.S. Treasury bills, notes and bonds that are sold to investors and that potentially could be bought back.

A private-sector panel made up of members of the Bond Market Association who offer a market perspective as advisers were pressing Treasury last May to set up rules for debt buybacks. Treasury Undersecretary Gary Gensler said then that Treasury was not ready to make a decision but added, We take their recommendation seriously.

Steve Ricchiuto, chief economist for ABN/AMRO Bank in Chicago, said financial markets want to know Treasurys thinking about buybacks because of concerns about liquidity, or ample supply so that trades can be easily handled.

I expect basically a proposal that will give people some time to think about this issue, Ricchiuto said, likely in the form of proposed regulations with an extended period for comment from interested parties before they were implemented.

Any buyback plan, possibly through reverse auctions in which Treasury would bid a premium price for investors to turn in their securities, likely would be voluntary. Most of Treasurys outstanding debt is not callable, so it cannot be redeemed before maturity unless an investor surrenders it.

Copyright 1999 Reuters. All rights reserved.

-- Linkmeister (link@librarian.edu), August 04, 1999.

Hmmm...maybe babelfish.Decker can translate this story into English for us. In the meantime, feast your eyes on this chart showing the progression of the US debt, now growing by almost a billion dollars a day:

Keep in mind this is money owed BY the US government TO the US taxpayer.

-- a (a@a.a), August 04, 1999.

Easy. If the taxpayers die you don't have to pay them, right? BWAHAHAHAHahahahaha

-- easier when dead (toasted taxpayers@2000.bye), August 04, 1999.

It's supposed to happen next April when taxes are paid? Very funny. I thought this was a real news event. Thanks.

-- Mara Wayne (MaraWAyne@aol.com), August 04, 1999.