Premium
THE PUBLIC DEBT: HINDRANCE OR ADVANTAGE TO CREDIT CONTROL?
Author(s) -
McCracken Paul W.
Publication year - 1953
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1953.tb01153.x
Subject(s) - debt , citation , control (management) , table (database) , library science , computer science , management , economics , finance , database
WE PROBABLY CAN SAY, without provoking serious controversy, that broadly speaking there are two schools of thought on this question. One view is that a large public debt immobilizes the usefulness of monetary and credit policy. The other view is that the public debt has made monetary and credit policy more effective and more useful than ever. This paper will be confined to three questions. What is the nature of the case for each of these two points of view? What are the conditions necessary if credit policy is to be effective, given a large public debt? How can debt policy fit into a general program of economic stabilization? I A considerable tonnage of literature has emerged during the last six years dealing with how a large public debt impedes the proper exercise of credit policy. These issues are by now generally understood, and no useful purpose would be served in any extensive reexploration of this material. It will only be necessary here, therefore, to sort out the principal reasons given for concluding that the emergence of the debt hinders the operation of credit policy. 1. The inevitably large bank holdings of governments imposed by a large public debt tends to immunize the commercial banking system from the effects of Federal Reserve policy. This point is obvious. Their bulging portfolio of government securities provides the banks with a ready means of relaxing constraints on their inclination to expand credit otherwise imposed by a tightening reserve position. Securities can readily be sold in the market. If the market is congested, securities can be allowed to mature into cash, since most bank portfolios contain securities maturing every week. 2. For most banks the Treasury, not businesses or other private borrowers, is the residual borrower. Private borrowers are the bank’s depositors. Competitive pressures, therefore, require that a bank accommodate those on whom it depends for its own existence. Consequently, the bank’s response to a tight reserve position is apt to