Originally Posted by
devil21
Actually, @
econ4every1 completely missed the point of my question and never answered it.
I asked how Treasury debt is created. Not how Treasury debt finds it's way to a holder, like a bank. That part is at the very end of the process. I asked how the debt issue itself is created. IOW, how does the Treasury create a bond that it auctions off. What is that process?
I didn't miss your point I simply didn't understand what you are asking. Thank you for clarifying the question.
Can't say I remembered all of this off the top of my head...So, this is what I've come up with after a little reading.
When it's anticipating a new federal bond issue, the central bank in coordination with the US Treasury first conducts an informal survey about current market conditions and the type of issue investors might prefer. These informal discussions are held with investment dealers, banks and other market participants who have experience with bond issues of the size and type being considered.
Before the details of the new bond issue are decided, several important questions have to be answered. Most importantly, the federal government must determine the precise purpose of the issue. It can be to "pay for" (offset) military spending, to refund prior securities or to sell new Treasuries at a more favorable interest rate.
There must be a legal precedent that outlines the conditions under which the bond issue can be undertaken. Such a legal precedent relates to the issue's purpose. For example, when its purpose is to fund a capital project, there must be legal precedents to determine that the issuance serves national taxpayers and the greater good of federal constituents. In the case of the refund of a prior debt issue, the question is whether or not the debt is refundable under federal tax rules.
Then the government chooses an underwriter for the debt, often it's an investment firm the government has a pre-existing relationship with which it can choose to underwrite bond issuance. If the Amount is large, the Treasury can choose more than one firm.
In the last phase, the so-called "marketing phase" the details are hammered out and official statements (disclosure docs) are prepared and reviewed where after a short period is given to potential purchasers to review.
Am I on the right track, or were you looking for something different?
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