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

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.

What If We Paid Off The Debt? The Secret Government Report : Planet Money : NPR

the Clinton surplus myth is still going strong.

~brains...must eat brains.

ARealConservative said:

the Clinton surplus myth is still going strong.

~brains...must eat brains.

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Your trolling is still going strong. If you think that Clinton didn't leave with a surplus, how about actually providing proof?

The economy was flat on its back after 9-11. It's a testament to Bush that it came back.

Sure looks like Clinton balanced the budget and then took in more than was spent to me.

Mr. Invisible said:

Your trolling is still going strong. If you think that Clinton didn't leave with a surplus, how about actually providing proof?

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our total debt went up every year. I've been over the proof many times, I've come to understand zombies are all around me and want to believe what they want to believe.

I think this guy explains it in a manner everyone should get if they actually cared to see the truth.

The Myth of the Clinton Surplus

Interesting- thanks for posting this - this really shows how much of a bunch of incapable idiots were running the country under the Clinton Administration. Did you even READ that file? What an embarrassing mar on the Clinton Administration - so toxic were they!


This following part is something I bet Clinton doesn't want to have surface:
It is just FREAKING HILARIOUS considering all the tragedies that happened *since 2000* because of these EXACT Triple-A Plus bonds and Freddie/Fannie. Looks like they would have likely created the SAME problem we are experiencing right now but on a BIGGER SCALE!

Ironic.

The Fed, if granted authorization could use private securities to conduct monetary policy. Private institutions could provide a relatively sanitary solution to the Fed's problem of replacing Treasury securities in the conduct ofmonetary policy by creating new, very low-risk securities constructed from a pool of private debt securities. Such securities would be packaged in a way similar to mortgage-based securities currently issued by Government Sponsored Enterprises like Freddie Mac and Fannie Mae, but would not be as liquidity constrained and would be better diversified against certain market risks. To package the new instrument, a financial institution could buy a set of high-quality corporate bonds. It would then offer to sell a coupon bond called.

The Triple-A Plus bond that pays a fixed annual interest rate for the life of the bond. The Triple-A Plus Fund would put up its equity capital and take on the default risk ofthe underlying corporate bonds. Although not completely risk-free, bonds like the Triple-A Plus bond would entail very little credit risk and would be close substitutes for Treasury securities. With the advent of such an instrument, liquid and transparent markets should develop, given the value of just such a low-risk security to both private markets and the Fed.

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So - good thing that didn't happen.
Imagine if they actually DID pay off the national debt and put that SURPLUS in Fannie and Freddie - and those Triple-A Plus Bonds which have now been buried - they're so dead. But F and F weren't going to last that long, anyway . . . thankfully!

And this:

Of course it is possible to keep both the benchmark Treasury and allow fiscal surpluses to continue to pay down the national debt.

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The federal debt in it's entirety only increased under Clinton.
The only portion of the debt that decreased was public debt ONLY (just one portion) - and because that was paid down with SSA overflow which has to be paid back with interest - it made the intragovernment debt rise.

Smoke and mirrors - Clinton was in no way reducing the overall national debt.

So this entire plan was based on a lie - they never did reduce the NATIONAL DEBT.

But back to the Triple A bonds and Mortgage backed security funds . . .

One vehicle for investment that might be. appealing as an asset is the "Triple A" bond described above. Such a bond would be relatively risk free and be could be constructed in relative abundance. Mortgage backed securities are another option as well. The two largest Government Sponsored Enterprises, Freddie Mac and Falmie Mae together account for nearly half of all of the mortgages issued in the United States home mortgage market.

Any private instrument we consider will carry some risk. The housing market is unique; by providing substantial liquidity to a fundamentally supply constrained market, the housing market could experience substantial increases in demand and price. Sweden embarked on a similar course of action in the past with mixed results. In the 1960's the Swedish government purchased debt holdings of government-owned mortgage corporations. This subsidized the housing market with. Positive consequences for both home ownership rates and household wealth. . However, the financial system was very tightly regulated during this time.

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Well - we know what happend to the housing market: it folded in on itself - nevermind increases in demand and price. HAH!

This annotated text is very funny, though:

[This last sentence has to tone of suggesting that we're doing something stupid by running those darned surpluses.]

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Props, however - nearing page 21/22 for noting the dangers of Fannie and Freddie. A bit of wisdom - from Charles.

Mr. Invisible said:

Your trolling is still going strong. If you think that Clinton didn't leave with a surplus, how about actually providing proof?

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Moderator's Warning:

If you feel some one is trolling, use the report post button, don't accuse them inthread.

ARealConservative said:

the Clinton surplus myth is still going strong.

~brains...must eat brains.

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Frolicking Dinosaurs said:

View attachment 67117062
Sure looks like Clinton balanced the budget and then took in more than was spent to me.

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It's book keeping. If you look at total expenditures vs total revenue there was no surplus. To get the surplussed claimed, they IIRC did not count SS. Either way, it was under Clinton that we came the closest to a balanced budget.

Reg said:

The economy was flat on its back after 9-11. It's a testament to Bush that it came back.

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"Go out and go shopping"

Thanks W. That was a great plan.

What if...? said:

"Go out and go shopping"

Thanks W. That was a great plan.

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Well - read the PDF that accompanies the OP and you'll see that the democrat's potential plan for future 'surplus' wasn't very wise at all - invest in Fannie, Freddi and Mortgage backed securities and Triple-A bonds. . .haha. Yeah - that would have saved us :roll:

Reg said:

The economy was flat on its back after 9-11. It's a testament to Bush that it came back.

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With a jobless recovery (similar to now)? Spending and tax cuts that drove up the deficit (similar to now)? Massive defense spending?

Interesting that you basically refuse to give Obama the same level of tolerance that you give Bush, yet Obama had a far, far, far worse economic crisis.

Can we spell partisan hack?

ARealConservative said:

our total debt went up every year. I've been over the proof many times, I've come to understand zombies are all around me and want to believe what they want to believe.
I think this guy explains it in a manner everyone should get if they actually cared to see the truth.
The Myth of the Clinton Surplus

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I may be wrong, but, iirc, budget deficit ≠ the debt.

the budget deficit is a year to year thing and the debt is a running total that has accumulated.

Reg said:

The economy was flat on its back after 9-11. It's a testament to Bush that it came back.

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We received a stimulus package and were told to go shopping

Simon W. Moon said:

We received a stimulus package and were told to go shopping

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LOL

Oh yes - Obama's fixed all of our problems.

In fact: this country's worse off than it was before.

obvious Child said:

With a jobless recovery (similar to now)?

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that's funny.



looking at the chart it doesn't look that terribly similar - except somewhat in length, as the original 2001 Bush response was to depend heavily on tax credits which operate economically like a transfer payment; didn't work for him then, didn't work for him in 2008, didn't work for Obama in 2009, and doesn't seem to have worked for him in 2010 or 2011.

Spending and tax cuts that drove up the deficit (similar to now)?

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in 2003 Bush actually shifted to emphasize tax rate reductions rather than the gimmicks



looks like revenue did alright after that. though you are correct that the man spent way too much money.

Massive defense spending?

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which according to Keynesian economic theory should have been a massive boost, so hey, what are you complaining about?

Can we spell partisan hack?

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yes. i spell it p-b-r-a-u....

Simon W. Moon said:

I may be wrong, but, iirc, budget deficit ≠ the debt.

the budget deficit is a year to year thing and the debt is a running total that has accumulated.

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Shhhh.... FoxNews doesn't want that info getting out. Also, they don't want it to get out that even with SS, Clinton was still running a small surplus. Clinton cut spending, raised taxes on the rich and balanced the budget. Economically, he is the greatest prez we've had in the last 50 years.

Really? I thought that the capital gains tax was the main tax that the really wealthy paid, and that Clinton cut it?

The successful Clinton economy was based on tax cuts. No, really.

...Reasonable people of all political persuasions will acknowledge that tax cuts worked for Democratic President John Kennedy and Republican President Ronald Reagan. Presidents Kennedy and Reagan oversaw significant reductions of confiscatory tax rates on high earners and taxpayers generally. In both cases, records show that Treasury revenues increased with the rate of investment of the freed assets.

Often overlooked in the debate over tax policy is the success of the Clinton-era tax reductions -- reductions that, though fairly recent, are unknown to most Americans. That may be no accident.

The Clinton years provide lessons on the effects of tax increases and decreases... The effects of increasing taxes on Treasury receipts can be seen in the Clinton and Democrat-controlled congressional tax increase of 1993, one of the largest in history. Despite a more robust job market following a recession, the 1993 tax increase didn't accomplish what Democrats expected. The tax increases added very little to treasury receipts despite their magnitude. Reports from the Congressional Budget Office, the Office of Management and Budget, and the Internal Revenue Service all agree.

In fact, the balanced budgets of the Clinton years didn't occur until after a Republican Congress passed and the president reluctantly signed a 1997 tax bill that lowered the capital gains rate from 28% to 20%, added a child tax credit, and established higher limits on tax exclusion for IRAs and estates...

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I also found this portion interesting:

...To find a pure, easily illustrated example of tax decreases boosting the economy and Treasury receipts, one need only look at the current rates on capital gains and dividends. When Congress passed the 15-percent tax rate on capital gains in 2003, and again following the 2006 extension, Democrats protested that large deficits would result...

For anyone willing to read it, the January 2007 Congressional Budget Office annual report settles any debate. Citing the original CBO forecasts of capital gains tax revenue of $42 billion in 2003, $46 billion in 2004, $52 billion in 2005, and $57 billion in 2006, Democrats who opposed the rate reduction in 2003 claimed that the capital gains tax cut would "cost" the federal treasury $5.4 billion in fiscal years 2003-2006.

Those forecasts were embarrassingly wrong. The 2007 CBO report revealed that capital gains and dividends tax collections were actually $51 billion in 2003, $72 billion in 2004, $97 billion in 2005, and $110 billion in 2006, the last two years nearly doubling initial forecasts...

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I also could have sworn that Constitutionally Budgets come out of the House of Representatives.....

Simon W. Moon said:

I may be wrong, but, iirc, budget deficit ≠ the debt.

the budget deficit is a year to year thing and the debt is a running total that has accumulated.

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a budget deficit adds to the debt, a budget surplus would lower the accumulated debt

Our total debt went up every year, so no real surplus could of existed.

ARealConservative said:

a budget deficit adds to the debt, a budget surplus would lower the accumulated debt

Our total debt went up every year, so no real surplus could of existed.

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The Nation Debt consists of many parts: public debt, intra-governmental debt (and so on).

What happened with the Clinton Surplus is that Social Security overflow went up (among a few other means of monetary inflow to the gov cauffers) - so they then took that money from SSA and paid down the public portion of the debt.

When the government uses SSA overflow for any reason it has to pay it back. This is calculated as an increase in intra-governmental debt as it is merely borrowing this money from us right now and later it will pay it back.

So Clinton's 'surplus' netted an increasing debt which the government would (will) have to pay back later.

Per the National Debt in it's entirety - that never decreased during his presidency. It slowed a little - but it did not decrease.

If Clinton's plan kept going it would have continued to rise the Intra-gov debt while using SSA funds (etc) to decrease the Public debt. They, then, would have had to pay down those Intra-gov debts and all the other debts that comprise our government.

Since all parties in government have since then pushed for numerous spending bills, agency kicks and other such things that have made our debt continuously increase I don't see how anyone would have been able to stop and reverse this ongoing trend of 'spend spend spend' - even Clinton's 'surplus' depended on raising debt in order to pay down debt . . . like pulling out a loan in order to pay off a loan.

Government must CHANGE it's approach to raking up debt and borrowing money from other countries FIRST. It must also end it's dependence on SS overflow.

Aunt Spiker said:

The Nation Debt consists of many parts: public debt, intra-governmental debt (and so on).

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the link I provided explained this pretty well

wouldn't that be a nice problem to have?
this was a prescient passage (too bad it wasn't heeded):

Like many nations at present the US faces a demographic shift that precipitates a pension
finance shortfall. For this reason we intuitively believe that "Fiscal policy should avoid
optimistic assessments about the room for future tax cuts or spending increases in order to avoid
undue stimulus to the economy in the near term and the need for large reversals later on, as the
population ages . "How the Nation will accomplish financing this future shortfall remains to be
seen, but is worthy to consider in the current period of surplus.

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[emphasis added by bubba]

but to answer your question, i don't see a legitimate problem
given the liquidity of bonds, they could still be held instead of repurchasing them
the interest paid would be a small expense to preserve the dominance of the dollar as the internationally accepted currency of preference

Imagine what the Social Security Trust fund would use as an accumulation vehicle instead of U.S. Treasury securities?

Anyone?

Goldenboy219 said:

Imagine what the Social Security Trust fund would use as an accumulation vehicle instead of U.S. Treasury securities?

Anyone?

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considering the run away corporatism is calling the shots, I'm guessing stocks, probably green energy stocks based on our current masters in charge.

when the other guys are in charge, we would invest heavily in weapons stocks, and oil (which would probably be as good a bet as anything)

Simon W. Moon said:

I may be wrong, but, iirc, budget deficit ≠ the debt.

the budget deficit is a year to year thing and the debt is a running total that has accumulated.

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You are correct as the budget deficit is:

The amount by which a government, company, or individual's spending exceeds its income over a particular period of time. also called deficit or deficit spending. opposite of budget surplus. (What is budget deficit? definition and meaning)


While the (national) debt is:

The sum of all previously incurred annual federal deficits. Since the deficits are financed by government borrowing, national debt is equal to all government debt outstanding. (What is National Debt? definition and meaning)