The Man Who Sells America’s I.O.U.’s
The brightly illuminated room looks like mission control for a space flight. Seven people, wearing headphones, stare intently at computer screens. Three minutes before the deadline, a disembodied voice exclaims, “We have coverage.”
This is no shuttle launch. It is an auction of United States Treasury securities, and $32 billion has just been sold in a blink. It was another successful operation for Van Zeck, the commissioner of the public debt, who has the world’s biggest credit card.
Mr. Zeck has worked for the federal government for 38 of his 60 years. He is a very busy man these days because the government is floating on a sea of red ink, as it borrows more and more money to stimulate the economy, bail out banks, shore up auto companies, aid struggling homeowners and fight foreign wars.
In a city full of pompous politicians and bombastic bureaucrats, Mr. Zeck quietly runs one of the government’s truly indispensable operations. He is not a policy maker. He does not decide how much to borrow. He just makes sure the money is borrowed, in a regular and predictable way, at the lowest possible cost to the government over time.
“We are the back office, the plumbing,” Mr. Zeck said. “We are borrowing a ton of money. It has to be done right.”
Public attention will focus on the debt this week because the White House and the Congressional Budget Office plan to issue dueling estimates of federal spending and revenue for the next 10 years. In a preview, the White House said Friday that it saw the cumulative total of deficits over the next 10 years adding up to $9 trillion, or $2 trillion more than it anticipated in February. That means much more government borrowing.
Last year alone, Mr. Zeck auctioned off $5.5 trillion of Treasury securities, to replace maturing debt and to meet new borrowing needs. Wall Street dealers expect the figure to exceed $8 trillion this year — an average of more than $253,000 every second.
In the first eight months of the current fiscal year, the government issued more Treasury bills, notes and bonds than in all of last year. Mr. Zeck expects to conduct more than 280 auctions this year, up from 263 last year and about 220 a year from 2004 to 2007.
Mr. Zeck and his colleagues have a passion for precision. They keep track of federal debt to the penny.
Debt held by the public stood at $3.4 trillion when President George W. Bush took office in 2001. When President Obama was inaugurated in January, the debt was $6.3 trillion. Since then, it has grown by $1 trillion, to $7.3 trillion.
When Mr. Zeck tells people he works at the Bureau of the Public Debt, he said, they often quip, “You will have work forever.”
Even when the economy begins to expand, the bureau will still have plenty to do, as tax receipts typically lag in a recovery. Moreover, the government will need to borrow money to help finance entitlement programs for baby boomers.
Mr. Obama’s budget predicts that debt held by the public will soar, exceeding 60 percent of the gross domestic product in a few years. The share has never exceeded 50 percent in the last 50 years.
“Debt as a percentage of G.D.P. is rising and nearing a postwar high,” the Treasury said this month.
Treasury auctions are an arcane business, and Mr. Zeck runs them so smoothly that Treasury secretaries and Congress rarely interfere. Mr. Zeck said he had not been called to testify before Congress in about 15 years.
Other agencies have lost track of large sums because their financial records were a mess. “That’s just not acceptable to us,” Mr. Zeck said.
Referring to the accountants who keep a daily tally of the federal debt, Mr. Zeck said: “These are people who reconcile their checkbooks. The idea of missing a penny would drive them crazy.”
Treasury auctions have become larger and more frequent. The auction calendar is extremely crowded. On almost every work day, the Treasury is announcing, conducting or settling auctions.
“Historically,” Mr. Zeck said, “we did not do auctions on Fridays. But now we are doing some.”
In February, the Treasury announced it was bringing back the seven-year note, for the first time since 1993, and it doubled the number of 30-year bond auctions, to eight a year. Just three months later, it announced a further increase in the frequency of 30-year bond auctions, to 12 a year.
On Aug. 5, the Treasury told investors they “should expect auction sizes to continue to rise in a gradual manner over the medium term.”
"I got captured by it."
When Treasury officials plan these auctions, they try to keep the size and mix of securities predictable for investors and prevent any surprises that could disrupt the market and thereby increase borrowing costs.
Mr. Zeck, who received the government’s highest civil service award 10 years ago, borrows huge sums from big investors on Wall Street and around the world. But he is also mindful of small investors who entrust their retirement savings to the government.
“We have a fiduciary responsibility to individuals who have invested $1,000 or $5,000 or $10,000 in savings bonds and other Treasury securities,” Mr. Zeck said.
The Treasury installed a completely automated electronic auction system in April 2008, just in time for the surge in borrowing.
“From an operational standpoint,” Mr. Zeck said, “it’s just about as easy to sell $30 billion as $20 billion” of government securities.
Federal officials have been pleasantly surprised to see the demand for Treasury securities keep pace with the growing supply. Invariably, they get “coverage,” meaning that the bids exceed the amount of securities being offered — a great relief to federal money managers. When the government auctioned $32 billion of four-week Treasury bills last week, the bids totaled $114 billion.
Foreign investors have generally shown a strong appetite for federal debt. China, the largest foreign holder of Treasury securities, sent a chill through credit markets in March when its prime minister said he was “a little bit worried” about China’s investments in the United States. The Treasury secretary, Timothy F. Geithner, quickly assured the Chinese that their assets were “very safe” here.
The federal government enjoys economies of scale, and it is borrowing on a scale never seen before, so the cost per auction has gone down slightly. The cost of running a Treasury auction — an average of $237,636 per auction — is tiny compared with the amounts borrowed. The cost includes safety precautions to make sure auctions are not disrupted by power failures, terrorism, cyberattacks, natural disasters or pandemic illness.
When Mr. Zeck began working for the Bureau of the Public Debt in 1971, he never expected to be there 38 years later.
“I love the organization,” Mr. Zeck said. “Somewhere along the way, I got captured by it, captured by the mission and the customer service we were able to provide, and I realized that I was an operations guy. That’s what I really enjoyed.”
Even when the government runs a surplus, as it did from 1998 to 2001, it still has to auction Treasury securities to replace maturing debt.
Mr. Zeck’s hobbies include computers. “My favorite new toy,” he said, “is the Amazon Kindle, which brings together my love of technology and my enjoyment of reading.” He favors fiction, including mysteries, and books about organizational culture.
The bureau has an annual budget of $187 million and nearly 2,000 employees. Only 65 work in Washington. The rest are at an operations center in Parkersburg, W.Va.
Besides borrowing money from the public, Mr. Zeck manages more than $4 trillion of investments for more than 240 federal trust funds that finance Medicare, Social Security, highway construction and other programs. Assets of these trust funds are invested in special-issue government securities not available to the public.
Outside his office, Mr. Zeck has a collection of government securities dating to the 1770s. Colonists borrowed money to fight the Revolution, and one of the first major decisions of the new national government was to assume debts incurred by the states.
“No pecuniary consideration is more urgent than the regular redemption and discharge of the public debt,” George Washington told Congress in 1793. Mr. Zeck lives by that motto.