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.
ROBERT SIEGEL, host: From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MELISSA BLOCK, host: I'm Melissa Block.
And now a story about a secret government document that dates from the Clinton administration, outlining what was believed to be a looming potential crisis. Not a matter of terrorism or national security. No, the crisis was, imagine this, the possibility that the U.S. might pay off its entire debt.
David Kestenbaum with our Planet Money Team got hold of the document and explains why it was buried until today.
DAVID KESTENBAUM: The document is called "Life After Debt." I heard about it from Diane Lim Rogers, an economist at the White House who reviewed it at the time. It was written in 2000, and Diane had not seen it since then until I gave her the copy. For her, it brought home just how much has happened since then.
DIANE LIM ROGERS: Wow, I mean, I - the document just reminded me of a lot of things I'd forgotten. Like I'd completely forgotten that we were projecting that the debt would be completely paid off by 2012.
KESTENBAUM: Remember those times? The economy was booming. The U.S. government was actually running a surplus, taking in more than it was spending. This sounds like a good thing, and everyone agreed it was. But it also posed a danger, a danger that this document was spelling out.
If the U.S. paid off its debt, there would be no more U.S. Treasury Bonds in the world. That's how the U.S. borrows money. It sells bonds. So no more debt meant no more bonds. But the U.S. has been issuing bonds for so long, has been in debt for so long that the entire world has come to depend on those bonds.
U.S. Treasury Bonds are a critical reference point for the entire global economy. Banks buy hundreds of billions of dollars worth because they're safe places to park your money. There's a good chance your mortgage is tied to the interest rate on U.S. Treasury Bonds. The Federal Reserve, our central bank, buys and sells Treasury Bonds all the time to keep the economy on track.
If you took Treasury Bonds away, would the world unravel? Would it adjust somehow?
ROGERS: It was a dramatic issue. It was a huge issue for not just the U.S. economy but the global economy. And that's why we felt, initially, that we had to address it somehow.
JASON SELIGMAN: I probably thought about this piece easily 16 hours a day, and it took me a long time to even start writing it.
KESTENBAUM: Economist Jason Seligman did most of the writing. It was a strange, science-fictiony question.
SELIGMAN: What would it look like to be in a United States without debt? What would life look like in those United States?
KESTENBAUM: It turned out there weren't any easy answers. Yes, there were ways for the world to adjust, but certain things got really tricky. Like, what do you do with the money that comes out of people's paychecks for Social Security? Currently, it 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? Everything just gets complicated.
Jason concluded in the end. Pay down the debt? Sure. But don't pay it off entirely.
SELIGMAN: There's such a thing as too much debt, but there's also such a thing, perhaps, as too little. The world really - it needs the Treasury Bonds. It needs the U.S. government to be in debt, so it can buy that debt.
KESTENBAUM: You don't want to go too far with that argument because...
(SOUNDBITE OF LAUGHTER)
KESTENBAUM: ...it can be very self-serving.
SELIGMAN: But there is some saliency to the argument, yes.
KESTENBAUM: The copy of "Life After Debt" we obtained reads: Preliminary and close hold, official use only. I had to get a copy through the Freedom of Information Act because it was never published. In the end, people above Jason Seligman decided it was too speculative, too politically sensitive, and it was not included in the final economic report of the president.
The danger that we would pay off our debt by 2012 seems today to have passed. There are plenty of Treasury Bonds around these days. The public debt of the United States has more than doubled to over $10 trillion.
David Kestenbaum, NPR News
BLOCK: As we just heard, "Life After Debt" was never published. But we've put it up on our Web site. You can take a look. It's at npr.org. Transcript provided by NPR, Copyright NPR.