What If We Paid Off The Debt? The Secret Government Report | WAMU 88.5 - American University Radio
Filed Under:

What If We Paid Off The Debt? The Secret Government Report

Play associated audio

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.

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.

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.

NPR

Can NBC's New Tiger Lily Overcome The Character's History?

Alanna Saunders, the actress cast to play Tiger Lily in NBC's forthcoming production of PeterPan, has Native American ancestry, one of many points of contention in previous castings.
NPR

California Cracks Down On Farmers' Market Cheaters

Did your local farmer really grow that heirloom apple he just sold you? California wants to know, so it's sending more inspectors out to make sure the produce sold at markets is really local.
NPR

Top Spending PAC Aims To Keep The Senate In Democratic Hands

Senate Majority PAC, run by allies of Senate Majority Leader Reid, is the top-spending superPAC in the midterm election season. Its donors are essentially a compilation of the party's big-donor base.
NPR

Tech Firms Chip Away At Credit Cards' Share Of Transactions

Companies including PayPal and Apple are competing to convince merchants and consumers to use their swipe-and-go mobile payment systems. Credit card breaches may speed up the use of digital wallets.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.