National Debt Management

December 6, 1967

Report Outline
Complications of Deficit Financing
Characteristics of the National Debt
Credit Control and Debt Management
Special Focus

Complications of Deficit Financing

Money markets are being put to severe strain by government borrowing to finance the biggest federal budget deficit since World War II. All the skill and ingenuity of the government's debt managers will be needed to keep the strain of the borrowing, combined with mounting inflation and rising interest rates, from disrupting the entire economy. The difficulty of financing a deficit that will total at least $14 billion by next June 30, and might run close to $22.4 billion without a tax increase, was aggravated by the British government's decision on Nov. 18 to devalue the pound sterling. Until then, borrowing pressures had been felt mostly in the bond market. But the cost of business borrowing from American banks, already moving upward, surged ahead in direct consequence of London's action.

Devaluation of the British pound, from $2.80 to $2.40 in dollar terms, was accompanied by an increase in England's basic interest rate to a 53-year high of 8 per cent. To prevent a massive outflow of American investment funds to England, the Federal Reserve Board in Washington acted within hours to raise the “Fed's” basic rate on lending to commercial banks by half a percentage point, to 4.5 per cent. Some of the nation's leading banks, in turn, began pushing interest on their own new loans up to 6 per cent and more.

Britain's devaluation increased doubts as to the ability of the American economy to maintain world confidence in the dollar at a time of huge deficits in both the federal budget and the country's balance of international payments. President Johnson told a news conference, Nov. 17, that the federal budget deficit might reach $30 billion, even $35 billion, if Congress persisted in refusing to impose a 10 per cent income tax surcharge. But administration spokesmen on Nov. 29 revised this figure downward to $22.4 billion under close questioning before the House Ways and Means Committee.

ISSUE TRACKER for Related Reports
Federal Budget and National Debt
Sep. 01, 2017  National Debt
Jul. 12, 2013  Government Spending
May 15, 2012  State Capitalism
Mar. 18, 2011  National Debt
Nov. 14, 2008  The National Debt
Dec. 09, 2005  Budget Deficit
Apr. 13, 2001  Budget Surplus
Feb. 01, 1991  Recession's Regional Impact
Jan. 20, 1984  Federal Budget Deficit
Sep. 09, 1977  Federal Reorganization and Budget Reform
Nov. 24, 1972  Limits on Federal Spending
Jan. 08, 1969  Federal Budget Making
Dec. 06, 1967  National Debt Management
Aug. 01, 1962  Fiscal and Budget Policy
Nov. 27, 1957  National Debt Limit
Mar. 20, 1957  Spending Controls
Dec. 24, 1953  Public Debt Limit
Feb. 13, 1952  Tax and Debt Limitation
Nov. 30, 1949  Government Spending
Jan. 06, 1948  Legislative Budget-Making
May 23, 1944  The National Debt
Feb. 01, 1943  The Executive Budget and Appropriations by Congress
Dec. 27, 1939  Revision of the Federal Budget System
Oct. 10, 1938  The Outstanding Government Debt
Nov. 20, 1937  Budget Balancing vs. Pump Priming
May 02, 1936  The Deficit and the Public Debt
Oct. 19, 1934  The Federal Budget and the Public Debt
Feb. 10, 1933  Extraordinary Budgeting of Federal Finances
Dec. 01, 1932  Reduction of Federal Expenditures
Dec. 01, 1930  The National Budget System
Oct. 02, 1930  Federal Revenues and Expenditures
Nov. 02, 1927  The Public Debt and Foreign Loans
Nov. 15, 1926  Rising Cost of Government in the United States
Feb. 05, 1925  Four Years Under the Budget System
Budget and the Economy
Deficit, Federal Debt, and Balanced Budget