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When Having the US Debt Paid Off Was a Problem
Hugh Pickens writes "NPR reports that 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. As recently as 2000, the U.S. was running a budget surplus, taking in more than it was spending every year — and economists were projecting that the entire national debt could be paid off by 2012. So the government commissioned a secret report outlining the possible harmful consequences of retiring the debt completely. For one thing, paying off the national debt would mean the end of Treasury bonds, a pillar of the global economy. Treasury securities are crucially important to the world financial system in a number of ways: banks buy them as low-risk assets, the Fed uses them for executing monetary policy, and mortgage interest rates vary based on Treasury rates. '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. In the end, Jason Seligman, the economist who wrote most of the report titled 'Life After Debt (PDF),' 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,' says Seligman. 'But also such a thing, perhaps, as too little.'"
Public debt ensures that all tax paying citizens are on the hook. Even someone who is responsible and is able to manage their personal money suddenly become beholden to whoever holds the debt. What better way to hijack an entire country?
Palm trees and 8
If there is no US debt, implying no need for Treasury bonds, that means there's nothing as clearly stable as Treasury bonds for people to invest in?
There FTFY. Suddenly if you actually read it the article doesn't seem as stupid as if you completely misrepresent it.
We are clearly going to get a big bunch of amateur economists commenting on this one. Lots of people who understand nothing of economics (and thus would be perfectly qualified to teach economics in most universities, it often seems). Given that this is a tech site and not an economics maybe let's at least try to read the article and then the Wikipedia article about whatever we are posting about and at least attempt to flame those that don't. Nobody up for that?
If we look at this a bit further, the obvious alternative to US treasuries would have been AAA rated securities, such as the collateralized debt obligations which more or less caused the current economic crisis. That makes this paper pretty foresighted.
=~ s,(.*),<sarcasm>$1</sarcasm>,g if any_point_you_wish();
I never liked Clinton either but I'm starting to revise my opinion based on the last two clowns that replaced him. He looks better everyday.
There can never come a day when the US government cannot pay it's debts, because no matter how bad things get they always have the Option of Last Resort: Print as much money as they need. The resulting inflation would be so severe it'd erode trust in the currency and initiate the hyperinflation death spiral and lead to the most serious global economic crisis of all time... which is why it hasn't even been considered as a serious option. But it's there. Should the situation ever become so desperate that economic suicide is the only way out.
... logical thing for me to do might be to borrow lots of money and invest it into projects ... The bad decision was to borrow a shitload of money and have a huge party of wasteful spending
Absolutely correct.
Businesses have the concept of capital expenditures (generally plant, property, and equipment) and operational expenditures (labor, utilities, rent). For a family, capital expenditures are buying a house; operational expenditures are going out to dinner. Borrowing for capital expenditures when interest rates are low is an intelligent maneuver. Borrowing to cover operational costs is unsustainable.
(Yes, I know, you can use your credit card to buy dinner [operational cost] and pay it off at the end of the month ... you're not incurring long term debt. However, using the credit card for dinning out all the time and then only paying the monthly minimum, you're heading for trouble.)
This resulted in putting men on the moon and spurred the computer age and caused 20 years of growth.
Give credit where it is due, and don't forget the spoils of war -- the German rocket technology and science, which propelled the US space science into the late 70s. The rest of the world was paying their war time debts up until the 80s.