Tags: Yale | Shiller | T-Bills | Trills

Yale’s Shiller: Replace T-Bills With ‘Trills,’ or 'Shares' in Economy

Thursday, 23 February 2012 12:42 PM

Yale economist Robert Shiller says countries should replace much of their existing national debt by giving people shares of the “earnings” of their economies.

"This would allow them to better manage their financial obligations and could help prevent future financial crises," Shiller writes in the Harvard Review. "It might even lower countries’ borrowing costs in the long run."

National shares would function much like corporate shares traded on stock exchanges, Shiller explains. "They would pay dividends regularly," he says.

"Ideally, they’d be perpetual, although a country could always buy its shares back on the open market."

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The price of a share would fluctuate from day to day as new information about a country’s economy came out, says Shiller, and the opportunity to participate in the uncertain economic growth of the issuer might well excite, rather than scare off, investors — just as it does in the stock market.

Mark Kamstra of York University and Shiller say these new national shares could work.

“We propose that they pay a quarterly dividend equal to exactly one-trillionth of a country’s quarterly gross domestic product, the simplest measure of national earnings,” says Shiller.

“We could call these shares ‘Trills.’”

A Trill issued by the U.S. government, for instance, would have paid $13.22 in 2010, in four quarterly installments, Shiller says. The payoff in future years would vary, of course. If the economy surprised us on the upside, dividends would go up; if it slumped, dividends would fall.

According to Shiller, the market would determine the price of a Trill, which would be volatile.

“It would depend not only on the most recent dividend but also on investors’ expectations for the future, which can change minute to minute,” Shiller says. “There’s some evidence that a Trill might often be expensive relative to the dividend, which would be good for the government issuer.”

After all, Shiller notes, shares of many U.S. corporations and 10-year U.S. Treasury notes now sell for over 50 times their annual dividend.

“Since the growth rate of real U.S. GDP has been higher than that of real S&P 500 earnings in the past (3.1 percent annual GDP growth versus 2.5 percent annual S&P 500 growth over the past half century), Trills might very well sell for a multiple higher than 50, too,” Shiller says.

The Wall Street Journal reports that recent demand for corporate bonds reduced their spread, or extra yield over Treasurys, to 1.907 percentage points, the lowest since August 12, 2011, according to the Barclays Capital Corporate Investment-Grade Index.

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