Conspiracy talk: Is Treasury Department Manipulating Markets, US Economy?

A white paper is accusing the Treasury Department of overreliance on bills has sparked debate on Wall Street and in Washington. The paper claims that the Treasury Department’s decision to continue financing an outsize chunk of US debt with short-term Treasury bills is tantamount to deliberate manipulation of the economy.

The Treasury has a target of having 15% to 20% of its outstanding debt in the form of bills, as requested by the Treasury Borrowing Advisory Committee. Critics argue that there is no direct evidence that the Treasury is trying to manipulate rates to get Democrats elected, and that the Treasury has explained its modus operandi as keeping the size of those issuances relatively stable and predictable to keep debt buyers happy.

The Treasury has explained its modus operandi as being consistent with its goal to obtain the best possible funding for the taxpayer and is not in any way a sinister plot to ‘ease’ monetary policy.

Critics do have one valid point: Treasury issues so much debt to keep the federal government operating that its decisions about issuance patterns really can have macroeconomic effects. However, it is up to the Fed to counter them if the Treasury’s issuance pattern has any unintended ill effects.

Yellen is also accused of becoming overtly political in a way that is unbecoming of a Treasury secretary. The Treasury’s issuance of debt is supposed to be strictly nonpartisan, but critics haven’t made their case.