Source: CBO and OMB (Debt held by the public)
Credit: Alyson Hurt and Jess Jiang / NPR
Posted on 10/20/2011 3:00:29 PM PDT by FritzG
Planet Money has obtained a secret government report outlining what once looked like a potential crisis: The possibility that the U.S. government might pay off its entire debt.
It sounds ridiculous today. But not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system.
We recently obtained the report through a Freedom of Information Act Request. You can read the whole thing here. (It's a PDF.)
The report is called "Life After Debt". It was written in the year 2000, when the U.S. was running a budget surplus, taking in more than it was spending every year. Economists were projecting that the entire national debt could be paid off by 2012.
Source: CBO and OMB (Debt held by the public)
Credit: Alyson Hurt and Jess Jiang / NPR
This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.
"It was a huge issue.. for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration.
The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.
But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.
Banks buy hundreds of billions of dollars' worth, because they're a safe place to park money.
Mortgage rates are tied to the interest rate on U.S. treasury bonds.
The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.
If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?
"I probably thought about this piece easily 16 hours a day, and it took me a long time to even start writing it," says Jason Seligman, the economist who wrote most of the report.
It was a strange, science-fictiony question.
"What would it look like to be in a United States without debt?" Seligman says. "What would life look like in those United States?"
Yes, there were ways for the world to adjust. But certain things got really tricky.
For example: What do you do with the money that comes out of people's paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?
In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.
"There's such a thing as too much debt," he says. "But also such a thing, perhaps, as too little."
The copy of Life After Debt we obtained reads "PRELIMINARY AND CLOSE HOLD OFFICIAL USE ONLY."
The report was intended to be included in the official "Economic Report of the President" — the final one of the Clinton administration. But in the end, people above Jason Seligman decided it was too speculative, too politically sensitive. So it was never published.
The danger that we would pay off our debt by 2012 has clearly passed. There are plenty of Treasury bonds around these days. U.S. debt held by the public is now over $10 trillion.
Only an effing administration economist or a grant-hunting academician could have such a warped and twist mind so full of dissembling sh!t. I’d treat the same as if I saw a mouth-frothing dog careening down the street headlong for a group of schoolchildren. Blam....full mag of 45s
Only an effing administration economist or a grant-hunting academician could have such a warped and twist mind so full of dissembling sh!t. I’d treat the same as if I saw a mouth-frothing dog careening down the street headlong for a group of schoolchildren. Blam....full mag of 45s
The government should not be an investment.
Government borrowing only allows politicians to spend more than is collected in tax revenue.
Just think if all those trillions were invested in the private sector.
The government can not pay back the principal (reduce the level of debt) without enormous cuts to spending.
Our regulatory environment has made new business and capital formation inside the U.S. a difficult proposition to say the least, so private sector expansion will move at a snail’s pace.
Inflation is held in check as much as it is because people are tapped out.
Thank you. After reading this vile article, I was beyond the ability to form coherent thoughts. Your post solved that problem perfectly.
I get the point of a need to carry a small amount of debt to allow continuance of programs so nothing hits a wall.
The problem is that nobody wants to make adjustments in those programs to keep them viable. They want to keep smoothing over the programs with debt to keep them going.
No not really. The government was lying then, it is lying now. They knew full well there was no way the Debt was going to be paid off.
Non-interest bearing Treasury bonds.
Did it ever occur to these geniuses that perhaps that once the National Debt is paid off, taxes might be lowered to meet current revenue requirements?
“It was written in the year 2000, when the U.S. was running a budget surplus”
Also total BS. Usually put forth by liberals trying to make clintoon out as some kind of successful president, rather than the lying POS he was(is).
Yeah, I thought that surplus was just a projection and never actually materialized.
“taking in more than it was spending every year”
NOT TRUE. CHECK THE DAMN NUMBERS.
Government debt is not an investment for U.S. tax payers. It is an effort to get some of their taxes BACK.
If government debt disappeared, the money would flow into corporate bonds and better investments.
It would be a nice benefit to stable American companies if their bonds became the new gold standard instead of the Treasury. People would be looking to lend companies money, who would then generate more wealth and the pie would grow. Instead, the Treasury sucks all the air out of the bond market, then wastes the money. Sad.
“For example: What do you do with the money that comes out of people’s paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in?”
INSANE. SO THE US GOVERNMENT SHOULD GIVE MONEY AWAY BECAUSE YOU CAN’T FUGURE OUT WHAT TO INVEST IN????
what were they going to pay it off with???
Can’t use the monopoly money that the Fed Res prints..
did this report cost the taxpayers hundreds of thousands of dollars??
What a lie. For we could have floated bonds for purposes like infrastucture upgrades. and other things wonderful.
I’d rather have that problem then the one we have now.
But that would require the Dems to admit that SocSec is not an "investment" plan but a Ponzi scheme which taxes current workers to pay the benefits of current retirees. The "Treasury Bond investment scam" allows them to continue the fiction that somehow your current SocSec is being invested for your future retirement. What if all Americans understood (as they are beginning to) that that's all a crock?
>> “For example: What do you do with the money that comes out of people’s paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in?” <<
.
If you’re going to tel a lie, it might as well be a whopper!
The payroll tax has never been ‘invested.’ It has been spent on benefits, and on sh!t-headed leftist schemes.
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