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Wright Patman's Proposal to Fund Government Debt at Zero Interest Rates: Lessons for the Current Debate on the US Debt Limit

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  • Jan Kregel

Abstract

In 1943, Congress faced unpredictably large war expenditures exceeding the prevailing debt limit. Congressional debates from that time contain an insightful discussion of how the increased expenditures could be financed, dealing with practical and theoretical issues that seem to be missing from current debates. In the '43 debate, Representative Wright Patman proposed that the Treasury should create a nonnegotiable zero interest bond that would be placed directly with the Federal Reserve Banks. As the deadline for raising the US federal government debt limit approaches, Senior Scholar Jan Kregel examines the implications of Patman's proposal. Among the lessons: that the debt can be financed at any rate the government desires without losing control over interest rates as a tool of monetary policy. The problem of financing the debt is not the issue. The question is whether the size of the deficit to be financed is compatible with the stable expansion of the economy.

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  • Jan Kregel, 2014. "Wright Patman's Proposal to Fund Government Debt at Zero Interest Rates: Lessons for the Current Debate on the US Debt Limit," Economics Policy Note Archive 14-2, Levy Economics Institute.
    • Handle: RePEc:lev:levypn:14-2
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    Cited by:

    1. Mario Tonveronachi, 2015. "Revising the European Central Bank’s fiscal rules to support growth and employment," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 38(4), pages 495-508, November.
    2. Mario Tonveronachi, 2015. "The ECB, the Single Financial Market, and a Revision of the Euro Area Fiscal Rules," Economics Public Policy Brief Archive ppb_140, Levy Economics Institute.

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