Look here for example:
http://www.treasurydirect.gov/RI/OFNtebnd
They almost always aim for debt issuance at par (instead of discount or premium).
I was thinking, if I controlled the money supply, I would always issue debt at premium and increase the money supply even more than expected. (get 1XX now at the expense of larger coupons which are eroded by inflation, instead of getting XX now at the favor of paying smaller coupons in the future).
Am I wrong?
Would anyone aid me with approaching Geithner and selling this idea to him for a nifty profit? :-)
Thanks,
Gilad
The treasury says it wants to sell debt at par probably for political reasons, even though they have an agenda to sell it at premium. In a "typical" macroeconomic setting, the treasury doesn't want to sell bonds at premium because then that means people aren't investing their money in the private sector. And they definately don't want to sell bonds at a discount because than that raises their borrowing costs. They still are able to get it at premium with the help of the Fed.The treasury is able to sell its bonds at premium during auctions when the Fed does open market operations. If bond dealers know that the Fed is going to buy their bonds (the Fed doesn't usually directly buy bonds from the Treasury) they will increase their demand for bonds and raise their prices, driving them above par (hence premium), which gives the Treasury a nice deal, because they are borrowing at a lower yield.
The problem with your idea is that there is a potential for inflation to get out of hand. People will realize the money supply is increasing more than expected, and so raise their inflationary expectations, which raises interest rates, which makes it harder to borrow, and then you would have to increase the money supply more to erode that, and then and then .... :)