Sinking funds as credible commitments: Two centuries of US national-debt experience

Sylla, Richard; Wilson, Jack W.

doi:10.1016/s0922-1425(99)00011-0

Cited by 7 publications

(4 citation statements)

References 11 publications

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“…14. There are two additional reasons: a greater proportion of a given parliament was composed of rightleaning, creditor-oriented interests before World War I (Oatley 2004, 269-70); and sinking funds-creditors accept lower rates on government debt so the savings are used to honor principal payments-had fallen out of favor and practice (see Sylla and Wilson 1999;and Bordo and White 1991).…”

Section: Credibility Problems In Sovereign Financementioning

confidence: 99%

Central Banks at War

Poast¹

2014

Int Org

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War is expensive—troops must be equipped and weapons must be procured. When the enormous borrowing requirements of war make the sovereigns' credibility problem more difficult, central banks enhance a government's ability to borrow. By being the sole direct purchaser of government debt, the central bank increases the effective punishment that can be imposed on the government for defaulting on the marginal lender. This increases lenders' confidence that the government will be punished in case of default, making lenders willing to purchase the debt at a lower rate of interest. The sovereign, dependent on the low borrowing costs offered by the central bank, has an incentive to retain the bank. Data covering the nineteenth and early twentieth centuries reveal that possessing a central bank lowers the sovereign's borrowing costs, particularly during times of war.

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Section: Credibility Problems In Sovereign Financementioning

confidence: 99%

Central Banks at War

Poast¹

2014

Int Org

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“…Two other instruments were included in Hamilton's restructuring, the 6s of 1790, and the Deferred 6s of 1790. Hamilton and Congress established a "sinking fund" for gradual repayment of this debt, with provisions to buy back in the open market two percent per annum of the 6 percent debt outstanding (Sylla and Wilson, 1999). The 3s, being less of an interest burden on the government, continued to be considered "redeemable at the pleasure of the government", and were outstanding until repaid in 1832.…”

Section: Threes Of 1790mentioning

confidence: 99%

Integration of Trans-Atlantic Capital Markets, 1790–1845*

2006

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During the 1790s, European investors began to purchase substantial quantities of US government and corporate securities. A number of these securities were traded in markets on both sides of the Atlantic. Based on market price quotations we compiled for the same securities in London and New York markets, we ask if these early trans-Atlantic securities markets were integrated, and, if so, when they became integrated. We find little evidence of market integration before 1816, and substantial evidence of it thereafter. Financial globalization - the convergence of financial asset prices in markets on different continents - began earlier than most have suspected. Copyright Oxford University Press Science+Business Media, LLC 2006

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“…212 By 1790, the overall amount of debt was so large that "the country could not have redeemed debt" with current levels of revenue, and "it was dicey whether the United States could cover even the interest on its debt." 213 Con-gress asked Hamilton to "devise a plan to repay the nation's debts," 214 and he submitted a Report Relative to a Provision for the Support of Public Credit. 215 This Report outlined an extensive plan for refinancing state and federal debts and issuing new U.S. securities to meet current obligations to pay interest on existing debt.…”

Section: A Secretary Hamilton's Proposalmentioning

confidence: 99%

Is the Federal Reserve Constitutional? An Originalist Argument for Independent Agencies

Chabot

2019

SSRN Journal

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Originalists have written off the Federal Reserve's independent monetary policy decisions as an unconstitutional novelty. This Article demonstrates that the independent structure of the Federal Reserve dates back to a Founding-era agency known as the Sinking Fund Commission. Like the Federal Reserve, the Commission conducted open market purchases of U.S. securities with substantial independence from the President. The Commission's independent structure was proposed by Alexander Hamilton, passed by the First Congress, and signed into law by President George Washington. Their decisions to create an independent Commission with multiple members to check the President and one another-and to include the Vice President and Chief Justice as Commissioners who could not be replaced or removed by the President-belie the notion that such independence violated the newly minted Constitution. The Sinking Fund Commission establishes that the Federal Reserve's independent structure has an impeccable originalist provenance and does not violate the Constitution.

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Sinking funds as credible commitments: Two centuries of US national-debt experience

Cited by 7 publications

References 11 publications

Central Banks at War

Central Banks at War

Integration of Trans-Atlantic Capital Markets, 1790–1845*

Is the Federal Reserve Constitutional? An Originalist Argument for Independent Agencies

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