You are financial advisor to the U.S. Secretary of the Treasury.
Explain the underlying economic framework for the demand and supply for Treasury securities. This framework should reflect the global nature of the capital markets. Be sure to include dynamic and geographic elements in your model.
Change: Foreign investors have expressed concern on the policy mix in the United States of large fiscal deficits and quantitative easing by the central bank. They are preparing to pursue a policy of greater diversification away from Treasury debt.
Explain your expected feedback from such a change and your expectations on interest rates to the Treasury Secretary. Recall that the United States is going to have a consistent and large budget deficit that will require financing over the long term. How might the Treasury Secretary structure his financing along the maturity spectrum, given your expectations for interest rates?