In 2000, economists were projecting that the U.S. would pay off its national debt.At least, that’s what we know now, thanks to a secret report called “Life After Debt” obtained by NPR’s Planet Money through the Freedom of Information Act.
You’ll remember that in 2000 we were still flush with cash from the Clinton boom years when America was taking in more than it was paying out.
“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.
Seligman’s superiors are the ones who decided that “Life After Debt,” which would have been the last economic report of the Clinton administration, was too speculative to publish. You can read a PDF of it here.
According to the report, there are three reasons why paying off the debt would be scary for the United States:
- “…investors looking for an asset free of credit risk can no longer count on an abundant supply of U.S. Treasury securities, and Treasury securities may no longer provide a reliable benchmark for interest rates.”
- “…the Federal Reserve may have to change the mechanisms by which it conducts monetary policy.”
- “…the surpluses… would require the federal government to acquire assets through the Social Security Trust Fund.” The question would then be what would they buy, and how would they buy it?
The horror!! Who wants the dilemma of having so much money they don’t know what to buy first!? The report goes on to say that “the financial services industry has grown tremendously in this country over the past 8 years, and done a very good job of handling growth and the increased risks that accompany it.” They determined that U.S. Treasuries were safe, so if Treasuries were gone what would the rest of the world have complete faith in buying? How about about a bundle of low-risk private debt securities?
And of course here’s a good question, what would happen to mortgages?
The report fell on the side of figuring out how to keep issuing Treasuries, so they tried to come up with a number of solutions for how they could pay down the debt and continue the practice. For one, they played with diversifying the Social Security Trust Fund — they would have to, if they couldn’t invest Social Security money from American paychecks in Treasury bonds. The Treasuries would then only be sold on the open market.
They also considered creating a Federal investment fund to save for a rainy day.
Here’s the kicker: Regardless of how the Fed proceeds, by 2012 the public debt will be retired according to current projections, leaving the government with net receipts above its expenditures. In order to deal with financial obligations mid century, the government may choose to save, and indeed invest this surplus.
Of course, hind-sight is 20/20. But this is an interesting read if you would like to find yourself in a parallel universe.
But if you really would like to come back to a healthy dose of reality, check out this chart via NPR: