I propose a new structure for U. S. Federal debt. All debt should be perpetual, paying coupons forever with no principal payment. The debt should be composed of the following:
- Fixed-value, floating-rate debt: Short-term debt has a fixed value of $1.00, and pays a floating rate. It is electronically transferable, and sold in arbitrary denominations. Such debt looks to an investor like a money-market fund, or reserves at the Fed.
- Nominal perpetuities: This debt pays a coupon of $1 per bond, forever.
- Indexed perpetuities: This debt pays a coupon of $1 times the current consumer price index (CPI).
- Tax free: Debt should be sold in a version that is free of all income, estate, capital gains, and other taxes. Ideally, all debt should be tax free.
- Variable coupon: Some if not all long-term debt should allow the government to vary the coupon rate without triggering legal default.
- Swaps: The Treasury should manage the maturity structure of the debt, and the interest rate and inflation exposure of the Federal budget, by transacting in simple swaps among these securities.