James Bullard, Speech: A Two Tranche View of National Debt

This speech was previously presented on 6/16/22 and on 2/11/22.

“This paper argues that some fraction of observed federal debt for large economies with substantial macroeconomic policy credibility may be of the first-tranche, “interest-bearing money” type. This fraction is not backed by future taxes.”

“It does not cost anything, nor does it produce revenue.”

“It can be rolled over in perpetuity at market interest rates; this process is going on in the background much as the replacement of worn currency is going on in the background.”

“A second tranche of Barro-Ricardian debt could exist on top of the first tranche, and the marginal dollar of additional debt would then have to be backed by future primary surpluses.”

“This would help explain why taking on additional debt is often politically contentious, while at the same time seemingly high raw federal debt-to-output ratios remain sustainable for some countries.”