Journal of MoneZary B:onomics 8 (19&i) 55-101. North-Holland Publishing Company

THE MARKET VALU+.: OF OUTSTANDING ~VERN~~N~r DkBT, 1919497S

John J. SEATER*

Sever81 no SC& on tl~ mtuket value: of outstanding government debt are reported and th.eir methods of ~nst~ction d ribed. The new series on Federat debt are compared with o*ner existing estimates and are shown to be markedly superior to them.

In this article, I report and describe thy: cor,,tiuctton of several new statistical series on the market value of outa*~nding government debt. The construction of these series was an early step in a larger project attempting to evaluate the extent to which govzrument bonds are treated as net wealth by the public. For such a purpose, the official statistics on par values of outstanding debt are useless. Althotigh the larger study on net wealth will not be completed for some time pf’::, the underlying series on government debt and their method of construction seem sufficiently important to be reported now.

The series are found in tables 1 and 2. Table 1 reports the total nominal market value of Federal, State, and Local debt outstanding. Table 2 reports the outstanding amounts of the :major components of the totals in table I. Amounts outstanding: are as of the end of the calendar year.

The method of construction is considerably more accurate than any used to data, es aral debt in the years 1941-1975. when market prices and par values outstandin are available for each individual issue.

ersl debt considered was that issued by the Treasury ncy debt was omitted. The reason for the :atter omission

has to do with the appro~~at~ kinds of debt to consider in irxvestigating the net weaIth issue that motivated construction of the series. In any event,

*I thank lIc,iucn E. Cuthrit and Leslie: A. Forster for excellent rest%. h assistance and an anonymous referee for helpful comments.

$02.50 ~(3 North-Holland

816 ,’ J. Seater, The nrarket value of outstanding gouetnmc nt debt, 1919-1975

agency debt is generally negligible compared to Treasury debt, and its inclusion would make little difference. Discussion is most easily conducted by ‘type of security.

Bonds

(1)

I.9

1941-1975. For these years, data on over-the-counter closing quotations on public marketable securities for the last trading day of the year were obtained from the ‘Treasury Bulletin. For a few years, data for December w,tre not reported; in such cases, the data for the first available trading day the following January were used. The Bulletin reports the market price and the outstanding amount (valued at par) of each security. These were multiplied together, divided by 100, and summed to give the market value nf bonds outstanding for each year.’ 1919-1940. The data for this period are not nearly as detailed as for subsequent years. The aggregate par value of all Treasury and Liberty bonds outstanding for December of each year was obtained from the Federal Reserve System’s Banking and Monetary Statistics, 3916-1941. These were multiplied by the December bond prices obtained from the same source.

Notes (1) 1941-1975. The same kind of price and volume data as for bonds was

used, from the same source.2 (2) 1928-1940. The aggregate par value of all Treasury notes outstanding

for December of each year was obiained from Banking and Monetary Statistics. Prices for individual issues outstanding were obtained from the Wzfl Weet Journal for the last trading day of the year. Because the amounts outstanding of each issue were not available, a simple average was taken of all the prices for each year and used to multiply the aggregate amount outstanding.

(3) 1921-1927. The same method was used as for 1928-1940, except that the prices were obtained from the Commercial and Financial Chronicle.

‘Occasionally an essential piece of data is not reported for an issue, such as the price or volume outstanding. In such a case, the issue was ignored.

*Occasionally, the price of an issue is not reported. In such caws, the market vnlue of the issue was estimated using the present value formula:

F(l+R! -p

V-(1+r)Jv~l+r(D/365)).

where: F !d the face value, R is the coupon rate, r is the market bid rate, N is the numbor of whole years left to maturity, and D is the number of days in the last fractional year to maturity. This formula ignores compoundicg of Interest payments; but most notes for which the formula was used had less than one year to maturity, so + he approximation is good.

J J. Seater, The market value qf outstanding governmrnt debt, 1919-1975 87

(4) 13’i9--1929. v 1 o ume outstanding was obtained from Banking and ni!.,:j :tary Statistics. Prices were unavailable, so the prices for bonds were L*,,‘l.ii

Ctc.-tifkxte of indebtedness

(1) (2)

(3) (41

(5)

(61

lJ67-1975. There were no certificates outstandi,ng. i 342-1966. Prices are not reported for certticates, so their value was computed from the present value formula

F(1 -c-R) /WV- (1 + r(Dj’365))’

where MV is market value, F is the cc value outstanding, R is the cozlpon rate, r is the market bid rate, and D is the number of days left to maturity. Data on all variables on the right-hand side were obtained from the II~~sury fur’ttriin. 1935-1941. There were no certificates outr+andi: 12. 1928-1934. Aggregate par value of aill ..zereL,Lates outstanding was obtained from Bunking and Monetmy ._ j &tics. Prices of individual issues were obtained from the WM Street Journat, averaged, and used to multiply the volume.3 1921-1927. The same method was used as for 1928-1934, except that prices were obtained fror, the Co,nmerical and Financial Chronicle. 1919- 1920. Volume outstanding was obtained from Bunking and Monetary Statistics. Prices were unavailable, so the prices for bonds were used.

(1) 1941-1975. Because bills are sold on a discount basis, prices are not reported. The following formula, used by the securities market, gives the price for a given issue:

X. B is the price, I) is the number of days to maturity, and r is the bid rate of interest. Prices obtained frrrm this formula then were rn~lti~l~~ by outstands volume to obtain market values of outstanding issues. These were su d to obtain totals for each year. All data are from the B~sury BuZEerin.

3Pr&s on the last trading day of the year were us& except far 1934, wt m the last certificates outstandiag were r of ~a~~~~~. For 1934, the last price available was used.

8i3 J.J. Seater, The market value of outstandi:rg government debt, 1919-1975

(2) 1930-1940. The aggregate par value of all bills outstanding was Dbtained from Banking and Monetary Stutistics. Yields for individual issues outstanding were obtained from the Wall Street Sournal for the last trading day of the year. From these, prices were obtained ifs for 1941-1975, averaged, and used to multiply the voiume.

(3) 1929. Bills were issued only in the last rnuklth or two of the year. Outstanding volu:me figures are unavailable, but it seems that the total amount was small. Consequently, the value was set at zero.

(4) 1919-1928. Bills did no! yet exist.

2.1. Summation and adjustments

For each year, the totals obtained for bonds, notes, certificates, and bills were added together to give the total market value of marketiible Federal debt outstanding for that year. This series is reported in table 1 under the name MVSUM.

One Tossible problem with the MVSUM series for the years after 1940 is that the 7keasury Bdbtin might not report every single outstanding issue. For example, issues not traded or quoted on the day being reported might be omitted (although there were instances when prices were not quoted but the issue still was listed, as mentioned in footnote 1). To check this po:;sibility, the par values of all issues reported were added together for each yzr to give the series PARSUM reported in table 3. This series then was compared with the Government’s own reported figures on the aggregate par value of marketable debt, obtained from Bankirtg and Monetnry Stariscics and the Annual Statistical Digest, 2971-1975, and reported in table 3 as PARGOV. Note that before 1941, when the 7Yeasury Bulletin did not report the individual issues, PARGOVwas used as the measure of the aggregate par value of outstanding debt, as explained above; this is why P.4 RG0V and PA.RSUM are identical before 1941.

The ratio of PARGOV to PARSUM is reported in table 4 as RATlOf. For most years, this ratio exceeds one, suggesting omissions from the ?Pti~~ry BuUetin. The few observations when RATIO2 is less than one are somcwholt puzzling. They may indicate omissions from the Government’s reported totAs, or they may indicate years when certain issues reported in the Treasury Bulletin should have been omitted. On the assumption that the Government’s reported totals are always correct, I have multiplied ~~‘~~~~ by RATIO1 to obtain the adjusted market value series MVSUIWA, rupt.,r.tcd in :able 1.

2.2. Holdings by federal institutiorrs

For many purposes, it is desirable to eliniinate the Federu

J..J. Seater, The market due of otctsfsnding government debt, 1919-1975 89

the Federal Reserve System. (For example, this debt implies r1o net taxes for the public.) This was done by multiplying the total market value fig,.rre A4WUMA by one minus thz fraction of total marketable Federal debt

valued at par, held by the Federal Reserve. This calculaiIon t the Federal Reserve’s holdings have the same composition as

the total marketable Federsll debt. The resulting figures are reported in tal:‘s I under the name MWRIVI. The par value of securities held by the Federal Reserve 1s reported in table 3 as FRSEC.

For other purposes, it also may be desirable to eliminate the Federal debt held al agencies and trust funds. This was done by multiplying the MVS ure by one minus the i:raction of total marketable Federal debt outst~~ding~ valued at par, held by the Federal Reserve and by the Federal

ncies and trust funds. For the years 1919-1935, data on agency and trust s were obtained by averaging the end-of-fiscal year figures for

the current and succeeding years as reported in Ranking and Monetary Statistics. For the years 1936-1975, data were obt dlr;ed from the Treasury Bulktin. As with the correction for Federal C :yer*dc ‘loldings, I have assumed in making this calculation that the agen:zy d. trust fund holdings have the same composition as the total marketable F&era1 debt. The resulting figures are tcpixt ir, table 1 under the name MVPRlV2. The par value of securities held by the agencies and trust funds is reported in table 3 as A TFSEC.

2.3. Suvings bonds, speciul issues, unJ r,tiscellaneous isslles

Savings bonds and special issues are non-mark&ab:c issues that can be redeemed only by the original purchaser. Savings bonds are sold to the public; speeistl issum are sold to Federal Government agencies and trust funds. nds and special issues constitute a significant fraction of the total bt. Unfortunately, because they arc not traded on the market, there are no prices quoted on them, so that it seems impossible to

ly what their mark value would be if they were traded. ble proxy of the ould-be market \‘a;ue of these issues is

simply their par value, reported in table 3 under the names SA Z/BOND and The dratn on savi b~us are from the ‘7kusnry Btjtllletin for 1942.-

and fram ~u~~~ing ~~cj~~ta~y Stutistics for 1919”-1941. The data on s are from ~~~~~~~ and Ma,wt Statistics for 1919-1969 and tufistieut Dig& for 197~197~. he amounts outstanding are as

Another reasonable ~r~~~ for the woul -be market value is obtained by the par valves of these issues by the ratJpr of MVWM’ to

Tab

le 1

(mil

lions o

f dollar

s).”

Date

M

VSV

M

MV

SV

MA

M

VPR

IVJ

MV

k :I

V2

M V

PR

I V

3

M V

PR

I V

4

MV

TO

TG

I M

VT

OT

G2

1919

21457

21457

21187

21018

1920

l88ll

18811

18567

18322

1921

20944

20944

20718

20335

1922

20298

20298

19874

19460

1923

19787

19787

19657

19262

1924

19514

I9514

18971

18554

!925

19133

19137

18754

18300

1926

18345

18345

18015

17567

1927

17705

17705

17036

16607

$928

16334

16334

16096

15730

2929

15866

15866

15312

15016

1930

163 13

16113

15287

I5053

1931

16176

16176

15368

15137

1932

17630

17630

15936

15634

1933

18305

18305

16301

15721

1934

2fE

44

20244

l&58

17575

L935

18976

18976

1 i3

50

I6343

1936

24632

24632

22759

21649

1937

25002

25002

w

58

21782

1938

28521

28521

26358

24777

1939

32158

32158

29845

27941

1940

34959

34959

32805

30838

44312

73335

Ii7401

158688

500451

41360

38977

45432

72119

69154

84591

105716

101858

129764

14u240

134997

174647

179203

172018

221490

177937

1643

21018

18322

20335

19460

19262

18554

18300

17567

16607

15730

15016

15053

15137

15634

15721

17575

16444

22015

22512

25994

21187

27196

27366

18567

24666

24911

20718

28065

28448

19874

283O

Q

28715

19657

28640

29035

18971

29277

,29694

18842

29865

30407

18220

30035

30687

17374

30276

31044

16577

29261

30109

15940

28814

29738

16068

30258

31273

15761

30136

30759

16287

31628

32281

16672

30250

31x@

19016

34200

35640

18188

34058

35801

339w

23757

40970

42712

26016

40250

43754

30731

44878

49615

36133

49729

55864

41326

55348

62686

157468

151002

202148

233664

144w

o

139601

192257

227131

65992

104208

149020

193482

240614

220824

211565

75357

116055

1656130

215037

267812

252340

246439

1948

15

323

1359

k ? 3

0381

18

6156

22

4048

4

245%

6 14

9717

13

6577

13

1236

18

8093

22

8738

2

2S40

16

1Yst

) 1~

24~

1281

17

1871

37

2275

88

2173

65

2578

16

1351

14

1535

11

1691

16

8854

2t

24T

3 24

4S49

14

7232

12

2847

11

6162

/ 7

3608

21

6525

20

7690

2S

15

4379

12

8564

12

1454

17

9110

22

21

7023

26

5361

13

3217

12

6156

18

3980

23

22

9429

27

9112

13

62W

12

8536

18

5493

23

7076

2W

A

2856

SB

1301

40

1 17

6179

22

9 22

4500

27

3161

13

8272

t

1808

47

234

2333

07

28tU

94

1431

74

1 18

3170

23

7W7

2376

44

2915

71

17-m

%

1771

45

: 520

74

1425

74

1878

75

2416

98

2452

70

3 852

33

1”“2

50

1487

67

1352

35

?‘C

“$6

2627

36

1965

. 36

2940

15

2326

i9

8598

25

2720

27

3Oto

32

7133

19

62

1 L

O18

2 15

8334

20

5317

2

2932

88

3481

78

1 16

9987

E

2617

7 20

3876

29

7662

35

5170

t

1717

85

I”77

261

2064

18

2670

57

3109

67

37f6

06

1 16

7564

15

2611

20

1120

26

1739

30

6942

36

756t

1946

2t

2ot

5 t 6

8624

t 5

2422

20

1696

26

9888

33

2329

19

67

2141

45

1687

77

1509

r5

2@w

62

2749

44

3097

62

1968

22

4502

17

4314

15

9711

21

’“’

I 28

3010

32

2661

39

6740

19

69

2171

90

1495

67

1910

2i

2835

11

2925

20

3790

04

1970

24

0737

16

3734

21

4; 1

6 30

9240

33

5013

43

0137

t97t

25

9396

25

9397

t 8

9886

17

1628

22

535b

32

9891

36

4801

46

9336

19

72

2683

203

2639

17

1954

61

1765

03

2328

87

3473

28

3909

74

5054

15

1973

26

1046

26

1397

18

5446

16

5169

22

3516

35

1938

39

3391

S2

1813

19

74

2782

95

2749

39

I967

02

1759

13

2374

8 1

3761

89

3842

25

5229

33

137s

35

9701

35

7731

27

1119

25

2014

31

8463

45

4436

47

389:

60

9869

-

-_.

z MVS

UM

is

the

mar

ket

valu

e of

all

mar

keta

ble

issu

es of

Tre

asur

y de

bt.

MV

SU

MA

is

MV

SUM

ad

just

ed

for

erro

rs

and

omis

sion

s in

the

7+

e6ls

ury

&&

tin.

MV

PR

ZV

J is

M

VSU

MA

le

ss

the

estim

ated

m

arke

t va

lue

of h

oldi

ngs

by

the

Fede

ral

Res

erve

Sys

tem

. M

VP

RZ

VZ

is

MV

PR

ZV

J le

ss t

he

estim

ated

m

arke

t vs

tue

of h

oLd.

di.lg

s by F

eder

al a

genc

ies

and

trus

t fu

nds.

M

VP

RZ

V3

is M

VP

RZ

’n

plus

th

e ~

stim

atcd

m

arke

t va

lue

of L

!.S.

savi

ngs

bond

s ou

tsta

ndin

g,

A4V

SA V

B,

repo

rted

in

tab

le

2. I

t is

the

mar

ket

valu

e of

Tre

asur

y de

bt

not

held

by

any

Fede

ral

entit

y.

MV

fRZ

V4

is M

VP

RZ

VJ

plus

MV

SAV

B

plus

the

est

imat

ed

mar

ket

valu

es o

f sp

ecia

l is

sues

out

stan

ding

, M

VSP

EC

, re

port

ed

in t

able

2.

It

is t

he m

arke

t va

lue

of a

l1 T

reas

ury

debt

ou

tsta

ndin

g ex

cept

th

at

held

by

the

Fede

ral

Res

erve

Sy

stem

. M

VT

OT

GJ

is M

VPR

IV3

plus

the

mar

ket

valu

e of

Sta

te

and

Loc

al

debt

, M

VSL

, re

port

ed

in t

able

2.

MC

’TO

TG

Z i

s M

VP

RZ

W

plus

MV

SL.

Tab

le 2

(mil

lions o

f dollar

s).”

Dat

e M

VB

ON

DS

MV

NO

TE

S

M W

ILLS

MV

CI

M V

SA

VB

M

VSPE

C

MV

SL

1919

14186

1920

13008

i92i

1922

1323

1924

1925

. .-

n.

i44ui

15181

1 A7

07

L-.

,1.

15866

1926

16705

1927

14545

1928

12121

x929

12235

1930

12439

1931

11638

1932

12432

1933

13346

1934

14895

1935

14175

1936

1937

1938

1939

1940

1941

1942

1943

1944

1945

1946

1947

1031

1920

2275

2327

2354

2323

2394

2332

2402

2399

2376

2370

2394

2398

2390

5633

0 3222

0 0

6179

0 2207

0 0

6344

0 22Q

2

0 0

7730

0 1089

0 0

8841

n 920

0 0

9378

0 543

0 0

10723

0 783

0 88

11565

0 609

0 205

1246a

0 1240

0 338

13669

0 1938

0 481

13532

0 1305

0 628

13798

127

1193

0 781

15205

572

1643

0 393

t499a

642

2162

0 351

15994

1002

1625

0 371

14529

1953

994

0 558

16625

2402

0

102

728

17613

2201

0

366

632

18955

1951

0

731

2227

i7738

1306

0

1217

3156

lags

a 1455

0

2057

4231

19731

1310

0

3151

5370

21360

2w

0

4454

6674

10566

15437

1306

7 22958

27906

16421

30554

39650

17029

38338

49472

6982

aa82

12721

i6312

2@

560

19517

19256

18834

19124

17030

26791

51146

25050

18676

15115

ia1a2

52656

29574

19309

1 1 1950

1952

19

53

1954

It

955

~9~6

I9

57

8958

19

59

f 1 1536

2 1 1 1 1 !%

? 19

68

1959

19

70

1971

19

72

1973

19

74

1975

1220

3 24

080

5577

5 32

343

1230

2 24

110

56fB

g 35

303

1360

2 0

5211

919

3500

4

fIR

I53

2164

3 19

476

1947

9 22

237

2577

B

4324

2 52

219

25O

f32

?9Q

!4

2674

8 34

720

2642

3 36

277

3916

8 19

642

3920

9 18

516

71$3

9 43

578

5512

46

271

4350

9 74

413

5418

1 47

910

2275

5 46

983

4304

3 87

970

5w?7

48

9;3

1093

3 47

699

4369

7 93

787

5882

0 55

835

0 48

693

4657

8 ttM

549

4979

4 59

358

0 48

509

4566

6 10

5822

4831

5 64

246

6058

0 67

461

7485

5 72

015

8113

4 77

017

1032

77

8460

9

4559

8 11

7347

96

451

3947

2 12

0015

10

0716

32

541

1234

00

1051

04

2838

9 13

0551

11

9554

34

247

1703

4a

1551

06

2933

6 ‘1

6936

26

520

2 f 572

5

Sc)F

0 0 0 0 0 0 0 0 0

5716

3 57

446

576%

57

824

5407

2 51

&?0

49

167

4530

1

4562

8 4&

323

4582

1 52

460

4431

6 54

475

4432

3 57

395

4432

7 67

500

4926

4 52

alO

11

0643

49

077

5709

0 w

9699

‘3

221

5947

5 11

3730

47

4661

71

481

9549

3 50

382

7851

3 12

0897

; i?

S 86

277

1394

45

S63?

4 95

482

f580

86

5834

7 10

8146

16

9875

61

568

1179

19

1467

44

6645

0 11

6868

15

5432

3722

7 39

232

4122

P 42

62 1

43

914

2191

8 25

278

3022

8

3223

6

_.. _

- _

aMV

BQ

ND

S is

the

m

arke

t va

lue

of

all

Tre

asur

y bo

nds

outs

tand

ing.

M

VN

OT

ES

is t

hz

mar

ket

vaiu

e of

al

l T

reas

ury

note

s ou

tsta

ndin

g.

MV

BlZ

J_,S

is

the

mar

ket

vahr

e of

al

l T

reas

ury

bills

ou

tsta

ndin

g.

MV

CI

is

the

ma&

r va

lue

of

all

Tre

asur

y ce

rtif

icat

es

of i

ndeb

xdne

ss

outs

tand

ing.

M

I/SA

W

is t

he

mar

ket

valu

e of

all

U.S

. sa

ving

s bo

nde

outs

tand

ing.

M

VSP

EC

is t

he

mar

ke:

v&e

-t

111 F

~+~r

nl

spec

ial

issu

es o

utst

andi

ng.

MV

SL i

s th

e m

arke

t va

lue

of a

11 ne

t St

ate

and

Loc

al d

ebt

auts

tand

tng.

V

. -1.

. _

_ _.I_

_

94 J.J. Sea&r, T/w market value of outstmding govemrnent debt, 1919-l ~7.5

Table 3

(millions of dollars).”

YCXU PARSUhf PARGOV FRSEC AFTSEC SAVBOND SPEC

?:I19 23815 23815 300 188 0 i?20 22105 22105 287 288 0

1921 21653 21653 234 396 1922 20867 20867 436 426 1923 20380 20380 134 407 1924 19413 19413 540 415 1925 18749 18749 375 445

1926 17496 17496 315 427 0 1927 16336 16336 617 3?6 0 1928 15646 15646 228 351 0 1929 14630 14630 511 273 0 1930 14219 14219 729 206 0

1931 16354 16354 817 233 0 1932 19301 19301 1855 330 0 1933 22258 22258 2437 705 0 1934 27536 27536 2430 1200 0 1935 28514 28.514 2431 1526 153

1936 31944 31944 2430 1439 475 1931 32975 32975 2564 1684 964 1938 33807 33507 2564 1874 1442 1939 34539 34539 2484 2045 2209 1940 33448 35448 2184 1995 3195

1’941 42154 41600 2254 2267 6140 1’962 7637 1 76500 6189 2891 15050 19G3 115115 115200 11543 3783 27363 1944 161533 161600 18846 5337 40361 1945 195228 198800 24262 7002 48183

1946 173171 176600 23350 6293 49776 19417 162502 165800 22559 5239 52053 19~18 151240 157500 23333 5477 55051 1949 149320 155100 16885 5327 56707 1950 146968 152400 20778 5364 58019

1951 1421385 142700 23801 6379 57587 1952 148498 148600 24697 6742 579449 1953 154523 154600 25916 7116 57710 1954 157748 157800 24932 7043 57672 1955 163200 163300 24785 7798 57924

19% 160326 160400 24915 8363 56293 1957 164142 164200 24238 9319 52474 1958 172338 175600 26347 9498 51192 1959 188186 188300 26648 10098 48154 1960 188963 189000 27384 10639 47159

1961 197627 196000 28881 10886 47458 1962 203012 ?03OOQ 30820 11987 47535 1963 205468 i!O76OO 33593 ll4137 48827 1964 215451 Y2500 37044 143Gl 49734 1965 214600 214600 40768 15512 50324

0 0

0 0 0 0

88

205 338 481 628 781

393 351 371 558 728

632 2227 3156 4231 5390

6982

12700 16300 2

24#0 29000 31700 33900 33700

350[) 39200 4120 42600 43900

456uO 458W

JI. Seutcr, The market whe of ouwandmg government debt, 1919-1975

Table 3 -Continued

95

YtW PARSUM PARCOV FKSEC AWSEC SAVBOND SPEC

1966 218ooo 44282 16692 50752 52000 1867 226$OO 49112 18699 51581 57208 1968 235206 236800 52937 15403 51917 59100 1969 234151 235900 57154 16295 51549 71000 1970 245611 247713 62142 17092 51842 7793 1

1971 262037 262038 7C218 18444 54275 85545 1972 265717 269509 69906 19360 57579 95482 1973 269861 210224 78516 20961 60317 106624 1974 286344 28289 I 80500 21390 63349 117761 1975 365191 363191 87934 19397 67464 118294

is the par value of ali marketable issues of Treasury debt outstanding, obtained by et for each year the par values of the individual issues outstanding as reported in

the ?)casuty Bulletin. PARGOV is the par value of all markc;&ie issues of Treasury debt outstanding as reported by the Federal Government itc?l:lf in “: wking a~ld Morwtary Statistics and the AwwuJ Sratistical Digest. FRSEC is the par vii iiI- of E- sketable issues of Treasury debt held by the Federal Reserve System. ATFSEC is the t value of marketable issues of Treast ry debt held by Federal agencies and trust funds. SbiVlrc ‘b D is the par value of all U.S. savirq:s bonds outstanding. SPEC is the par value of all Federal special issues outstanding.

RATI02. A necessary condition for this proxy to be good is that the maturity structure of savings bonds and special issues be similar tq that of marketable securities: The proxies yielded by this method are reported .n table 2 as MVSAVB and MVWEC.

Neither af these proxies is perfect. Obviously, changes in interest rates ~~11. cause par values and would-be market values to differ. However, savixqs tmds and special issues can be redeemed for fixed values at any time by the holder. Savings borrds can be redeemed at any time before maturity (except far a brief period immediately after purchase) according to a predetermined schedule, which includes a penalty for early redemption. Special issues can be r med on demand. In such circumstances, the par value is a better measure of the securities’ value to their holders when market interest rates hava risen above the securities’ coupon rate, and the M V&IF/B and

C vozlues are better rn~~sur~s when interest rates are below coupon rates.

Finally, thcrc are a small nu,mber of misce’llaneous issues such as foreign- d~~o~nat~ issues and convertible bonds whose peculiarities render a rna~k~t valuation virtually impossible. Because of this and because of their small a ate volume, they wer:: i

A problem arises if one wants to know the market value of Treasur: debt

J.J. Seater, The market value of outstanding government debt, 1919-1975

Table 4

Year RATIOI” RAT102 Year FIATIOta R A TIQ2B

1919 1 0.901 1920 1 0.851

1921 1 0.96726 1922 1 0.97273 1923 1 0.9709 1924 I 1.0052 1925 1 1.0207

1926 1 1.0485 1927 1 1.0838 1928. 1 1.044 1929 1 1.0845 1930 1 1.1332

1931 1 0.98912 1932 1 0.91342 1933 i 0.8224 1934 1 0.73518 1935 1 0.6655

1936 1 0.77111 1937 1 0.75823 1938 1 0.84365 1939 1 0.93107 1940 1 0.9862

lY41 0.98686 1.0512 1942 1.0017 1.0257 1943 1. sm7 1.0199 1944 l.OOO4 0.98239 1945 1.0183 1.0268

1946 1.0198 1.0275 1947 1.0203 1.0116 1948 1.0414 1.0131 1949 1.0387 1 JO27 1950 1.037 1.0155

1951 1.0008 0.99264 1952 1 mO7 0.99148 1953 1 .OOO5 0.999#7 1954 1 .OOO3 1 .OO26 1955 1.0006 0 98331

1956 l.ooOS 0.96055 1957 1.0004 0.98793 1958 1.0189 0.95927 1959 1.0006 0.94075 1960 1 SW02 0.98536

1961 0.99177 0.975 1962 0.99994 0.98839 1963 1.0104 0.9769 1964 0.9863 0.97903 1965 1 0.96394

1966 0.99808 0.9706% 1967 1.0063 0.95145 1368 1.0068 0.94806 1969 1.0075 0.92069 1970 1.0086 0.97184

1971 1972 1973 1974 1975

Lo143 1.0013 0.98794 0.99452

0.98992 0.97925 0.96733 0.97189 0.98497

“RATIO1 is the ratio of PARGOV to PARSUM, both of which GCC report bRATlOZ is the ratio of MVSVM, :dported in table 1, to PARSUM, reported in tirble 3.

held by the public The problem is in defining the term ‘public’. In the narrowest sense, this term can mean any non-Federal entity. in this case, on would add together M’VPRIV2, which is the market value: of marketable issues not held by any Federal government en , and the market value of savings bonds (presuming measure of this value). The result is reported in table 1 as

3.J. Seam, Th.? market oalue of outstanding gocemmenc debt, 1919-l 975 97

However, many Federal agencies, such as the Postal Service, are Federally owned but off the Federal budget. They may compete with private industry to provide theii services; they generate their revenue in whole or in part by their own operations without taxes. Any interest. income they earn on their

debt to reducing the price they charge for their Hold y such agencies of Treasury debt should not

be treated as government holdings for many purposes. Unfortunately, it would take an enormous amount of effert to sort out which agencies’ holdings shouid not treated as Government hcrldings and how much of such holdings there are. An upper bound, then, oh debt held by the public can be found simply by tre ting all agency and trust fund debt as if it were not held by the ~5v~~~rn~~t. This is done by adding together MVPRIVI, which is the market value of marketable debt not held by the Federal Reserve, and MVSff VB and MVSPEC. The result is reported in table 1 as MVPRlV4.

3, State and Local debt

e par value of net State and Local debt outstanding was m the Statistical Abstract qf tht~ C:nit& States, various issues.

This value is net of government holdings. Prices were obtained from the Federal Reserve System’s Annual Statistical Digest, 1971-1975, .Banking and Monetary Stertisties, 1943-3970, and Banking and Monetary Statistics, 1914- 1941. The first two references report prices for State and LocaJ issues; the third reference reports prices for high Igrade municipals. These prices are f ‘r Kkccmber, whereas the volumes outstanding are for June (the end of the fist;11 year). The volumes were converte- -i to December figures by averaging w: .h the succeeding ar’s volume. The market value series for State and LOI 11 debt is rqxxt in table 2 under the name MIN.. Adding MVSL to ~VP~~V~ gives one total for the market value of all government debt, report4 or MWOTGl in table I. Adding MVSL to MVPRIV4 gives. another total, reported as MV’IIIN’G? i&l table 1.

Ta~~cr (1979) uses a d~ffc~c~t method to estimate tlrp: market value of the ~~~tstandjng stock of ~~d~~al debt in the hands of the public for the years 1946- ~9~~. !-ie uses the formula

e ma~kct v~~~~ of the government debt in year t, IP is the

98 J.J. Seater, The market value of outstclnding government debt, 19194975

interest payment to the public in year t (assumed to remain at the same level until the debt is retired), PV is the par value of the debt in the hands of the public, r is the interest rate in year t of government bonds, and ~)t is the average length of maturity of the de& Because interer;& payments to the public are not separated out from total interest approximated by multiplying the total figure by the debt held bf the public. The resulting G/J&B series

paymats, they were share of the par ~fue is reported in table 5.

Table 5

(billions d do%rs).

Date ._

GDEB’ DA;:8 GDELT

1946 217.8 1961 200.5 1947 211.2 1962 207.7 i948 198.4 1963 210.9 1949 208.0 1964 209.3 1950 203.7 1965 207.7

1951 193.7 1966 198.4 1952 190.8 1967 195.2 1953 191.3 1968 207.7 1954 199.3 1969 198.3 1955 196.4 1970 204.0

1956 187.7 1971 223.8 1957 185.9 1972 237.9 1958 B1.6 1973 249.6 1959 189.9 1974 246.8 1960 196.2

‘GDEB is Tanner’s (1979) measure of the market value of Federal debt not held by any Federal entity.

The MVPRIV3 series in table 1 is the most like GDE.B in the kind of included, and a comparison between it and GBEB r differences. First, the MVPRIV3 series is lower than except 1968. Second, the two series show different overall temporal The MVPRI V3 series falls from $202 billion in 1946 to $169 bilhon in 1951, a drop of 16 percent, and then rPses to $237 billion in 1974, an incrc?; percent. The GDEB series falls from $218 billion in 1946 to $191 billion in 1952, a drop of 12 percent, and then rises to $247 billion in 1974, an increase of 29 percent. Third, the year-to-year changes in the two series are different, as can be seen from table 6. The GDEB series show

very

changes that differ in sign from the corresponding than

.f.J. Srater, The marker oahe of outstnding goturnmenr d&r. 1919-1975 99

Table 6

(change from preceding year; millions of dQUarSf*

Year ~~P~Z~~~~ GDEflCb mu.-

1947 -9891 -6600 1 -6fOl - 12800 1 1938 9600 1958 -957 -4300

1951 - 18282 -1Borx) 1952 4754 -2900 1953 5502 500 IOU 4869 8@x) loss 15!4 - 2900

1956 -9314 - 8730 1957 4667 -18iM lQb8 2323 5700 I959 470s - 1760 lQ60 7361 ’ wo

l%l 3362 F 100 1962 6719 i ‘00

1%3 -I#1 ?1W 1964 2542 --- 1600 l%S - 5297 - 1 SO

1966 565 - 9300 1967 - 1623 -3200 1968 8869 1250 1%9 -1lQo4 -9400 1910 17080 5700

1971 11240 19800 1972 7531 14100 1973 - 9372 11700 1974 13965 - 2800

SS.Y -~_

*MYPRIV3C ir the change in MVPRllr3, reported in table 1, from the previaw yew.

WXXE is the change in GDEB, ~~~~t~ in tublc 5, from the previous yi%W.

s. The: ~~~~~~ti~n n thr: two sets of changes is only 0.57. This ~658 is for many purpsse~ the most important

n tha M VpRt V3 and ~~~~ series becz use it implies that at e series d~~~iay~ ~o~sid~rabl~ inaccurate variation. Given that

ries is ~~~r~rn~ly a~~urate for the post-11941 year!:, these YPR IV3 arid GD series strongly suggests that

Part :A) sf table 7 and several of the ma&et value series lists in table 1. The series froa table 1 arc highly

Tab

le

7”

. -

(A)

Cor

rela

tion

of

mar

ket

valu

e je

rks,

19

46-1

974

M V

SUM

M

VSU

MA

M

VZ

’RI

VI

MV

PR

IV2

MV

PZ

UV

3 M

VP

RIV

4 G

DE

B

MV

SUM

m

OO

X

VSU

MA

0.

998

MV

PR

IVI

0.97

2 1.

000

MV

PR

ZV

2 0.

950

0.95

3 0.

995

1.00

0 M

VP

RiV

3 0.

%2

0.96

7 0.

966

0.96

6 !.

@09

M

VP

RZ

V4

0.97

1

0.97

2 0.

912

0.88

8 0.

953

Loo

0 G

DE

B

0.77

9 0.

788

0.73

6 0.

737

0.86

3 0.

852

1.00

0

(B)

Cor

rela

tion

of

ann

d ch

ange

s in

ma&

t m

zlue

ser

ies,

19

47-1

974

MV

SUM

C

MV

SUM

AC

M

VZ

wV

lC

MW

ZuV

2C

MV

PR

ZV

3C

MV

PZ

UV

4C

GD

EB

C

MV

SUM

C

1 M

VSU

MA

C

0.%

5 L

OI)

V

PR

ZV

fC

8.88

8 0.

942

1.00

0 It

f V

PR

I W

C

0.86

5 0.

319

0.99

2 1.

Om

M

VP

RZ

v3c

0.86

9 0.

924

0.96

7 0.

972

1.00

M

VP

RZ

V4C

0.

848

fi&Q

0.

843

0.82

1 0.

904

1.00

0 G

DE

BC

0.

509

d-54

8 0.

515

0.52

2 0.

570

0.53

6 km

0

“The

var

iabl

es

in p

art

9)

are

the

chan

ges

from

th

e pr

eced

hq

year

for

the

var

iabl

es

in p

art

(A).

.J.f. Seater. The market cake oj outstanding gosernment debt, 3919-1975 101

correlated among themselves and less highly correlated with GDEB. Part (B) of table 7 reports the correlation matrix for the annual changes in the same

for the table 1 series are highly correlated among t~~~~lves and not highly correlated with the GDEB changes. It seems that

1 is preferable to GDE& Yaw&z and buys (1976) use still a different method for constructing a

market value for F era1 debt, but they do not report their series. son of it with the series constructed in t!Cs per is

s their method is related to Tanner’s, so there some that it, too, produces unreliable estimates,

and somewhat surprising that the par value of Federal a better proxy for the market value than does Tanner’s

GDEB (or, presumably, Yawitz and Meyer’s series). For example, the correlation between the par value of those same securities included in MVPRIV3 and the market va&te MVPRlV3 itself is 0.974 for 1947-1974, compared to 0.863 between MVPRIV3 and GDEB The correlatiou between annual changes in par values and in the Mtl,‘SZV.’ ialues is 0.871 for 1947- 1974, compared to 0.570 between change.> !-i M VPRIV3 and in GDEB. Similar results hok: for the other market value series reported in table 1 and their correspondins par value series.

5. Summary

In this paper I have reported several new series on the market value of outstanding government debt. The underlying data are very accurate, especially for Federal debt after 1041, leading to very accurate market value estimates. A comparison with other series constructed by other methods shows that the series reported hi:re arc a considerable improvement over previous estimates.

Tannw, J. Emeat, 1979, An empiricA investigation of tax discounting, Journal of Money, Credit, and BWing 11, May, 214-218.

Yt%witz, JS;M S, and Lawrencc W. Meyer, 1976. A!> empirical test of the extent of tax discounting, Jsumrl d Money, Crtxlit, and Banking 8, May. 247 254.