What If We Paid Off The Debt? The Secret Government Report
by David Kestenbaum
NPR
October 20, 2011
http://www.npr.org/blogs/money/2011/10/21/141510617/what-if-we-paid-off-the-debt-the-secret-government-report

[moderator: NPR also has the full report here -
http://media.npr.org/assets/img/2011/10/20/LifeAfterDebt.pdf]

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. 

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.

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