TREASURY INVESTMENT FUNDS AND OPEN-MARKET OPERATIONS*

Abstract

TREASURY INVESTMENT FUNDS now amount to about $39 billion, compared with less than $7 billion in I940. Securities held for these funds account for I 5 to 20 per cent of the total federal debt. Holdings for such funds are more than twice as great as the combined holdings of the Federal Reserve Banks. For purposes of this paper it is not necessary to estimate precisely the future rate of increase in these funds. It will suffice to point out tliat, barring statutory changes, further increases may be anticipated.' Although there is a large number of trust funds handled by the Treasury, a few of them account for the bulk of the total. Among the larger of the funds are the Federal Old Age and Survivors Insurance Trust Fund, the Unemployment Trust Fund, the National Service Life Insurance Fund, and the Railroad Retirement Account. The purpose of this paper is to indicate the powers and the limits on the powers of the Treasury to invest trust account funds in marketable government securities, to indicate the way in which these powers have been used, and to raise the question about future policy with respect to Treasury use of investment funds for open market operations. Efforts by the Secretary of the Treasury to influence the market for government securities are not new. As far back as I 790 a special board was established to buy in the open market any federal debt issues that fell below par.2 Although the purpose of such operations has varied from time to time, Treasury efforts to support the government credit and the government security market have been a more or less continuous part of our financial machinery.'