14 ms·

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

237 points by joelhaus 15y ago

drallison 15y ago
An interesting read, but disquieting since it's mostly speculation and opinion without any real data or any models of debt and the dependencies of the economy on debt. And white papers of this sort appear to be the basis of policy decisions with far-reaching consequences.
- commieneko 15y ago
  Welcome to economics. Trying to model real, functioning economies is a lot like trying to model natural language. We think we understand a lot about it, but there is a level at which we really don't know what's going on. And it doesn't help there _everyone_ involved in an economy is not only willing, but eager to game it.
  - drallison 15y ago
    Economics could (and should) be much more of an engineering science than it is. The math and theories are rather beautiful, but do not have much to do with the real non-linear chaotic world in which we live. For some reason, no one expects that economic theory be predictive in the same sense that we expect of theories in the physical sciences. It seems to me that a bit of data and a little bit of modeling would have greatly improved the opinion piece this document describes. As for Economics, it is really time to rethink the field. I rather liked Eric D. Beinhocker's book, The Origin of Wealth (http://www.amazon.com/Origin-Wealth-Evolution-Complexity-Economics/dp/1422121038/ref=sr_1_2?ie=UTF8&qid=1319160726&sr=8-2 http://www.amazon.com/Origin-Wealth-Evolution-Complexity-Eco...). See also his Wikipedia bio: http://en.wikipedia.org/wiki/Eric_Beinhocker http://en.wikipedia.org/wiki/Eric_Beinhocker.
    - commieneko 15y ago
      It _can't_ be totally an engineering field anymore than language communication can. Trade and marketing are not about maximizing profits or reducing costs, though those are important aspects. It's as much politics and power and sex and violence as it is anything to do with prices and shipping costs. No matter how "good" your models are, people will get funny ideas in their heads and do something completely unexpected. When Asimov posited his Pyschohistory in the Foundation books he indicated that it could only be statistically useful on populations measured in the _trillions_. And even then it could only work if the methodology were kept absolutely secret from everyone in the modeled society.
      - drallison 15y ago
        What passes today as economic analysis is, in truth, modeling in which the assumptions and the data are implicit and only the conclusions are expressed. Moreover, projections are frequently based upon simple extrapolation of a constructed macroeconomic indicator and rather than exploring the underlying structure. It seems to me that "politics and power and sex and violence" and resource depletion,innovation, FUD, and all the rest is amenable to modeling and that a composite economic model based on systematic analysis is likely to better reflect reality than the process used now. Asimov's Foundation Series books are enlightened works of science fiction, but they are fiction, not fact. I find is strange that you cite them as if they were seminal works in societal modeling.
        commieneko 15y ago
        I said Asimov "posited", which seems pretty clear to me. FWIW, Asimov has a certain cachet these days among some Keynesian economists. When you are able to usefully, and predictively model "politics and power and sex and violence" then you will be doing extraordinary work and I'll look forward to you getting your well deserved Nobel Prize. :)
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sudonim 15y ago
As a private citizen, it's my goal to have no debt, and savings in excess of my future debts. Can someone explain why it's good to have a global economic system that is at great risk if the United States gets rid of it's debt?
- nknight 15y ago
  Who said it was good? An honest examination of the current state of reality is not a value judgement.
- rdtsc 15y ago
  I think that should make you think about how there is a systemic failure in the global monetary system. Many crazies advocate abolishing the Fed as they see it enslaving and controlling the entire economy without much supervision and control by the citizens of this country. Not saying they are completely right or anything, but it this is basically a warning or a symptom that something is perhaps fundamentally wrong (I sure don't know well enough how it works, it is just a feeling). Think of it as what would the drug companies do if all of the sudden there were cheap easy un-patent-able cures for all the chronic diseases. Would they start selling herbal supplements? Go into homeopathy business? Would they invent more 'restless leg syndromes' type diseases. I think it is a bit like that. It shows perhaps there is something wrong with the system & the constraints and incentive are not working they way we'd expect.
  - hvs 15y ago
    Many non-crazies also advocate abolishing the Fed. One of them is running for President.
    - harryh 15y ago
      I think it's pretty clear at this point that running for President does not constitute evidence that you aren't one of the crazies.
      - jganetsk 15y ago
hugh3 15y ago
Linkbait title from NPR. It's clearly not a secret government report, since if it was then it couldn't have been obtained via a FOI request. It is a genuine concern, though, what would happen if US Treasury Bonds ceased to exist. There's a good argument to be made for the US not completely paying off its debts.
- morsch 15y ago
  Well, the word secret has multiple meanings. I think it's fair to call this a secret memo, in a fairly broad sense of secret. But I agree that it's misleading, since secret has an additional sense specific to government documents.
darrennix 15y ago
The basic premise of this article is suspect. The US would still issue enough T-Bills to provide stability even in a zero-debt scenario... it would simply buy other safe, long-term assets to hold. If, for example, the US were borrowing money at 3% by issuing T-Bills, it would just buy a basket of high-grade foreign and corporate debt at 3.5% and earn a spread of 0.5% while continuing to provide adequate liquidity of T-Bills.
- jimmyhwang 15y ago
  But by doing that, you have an inherit risk of potentially getting a worse return than the bonds you issued. The government shouldn't be in the investment management industry. They already have enough issues trying to manage the country.
- raheemm 15y ago
  In spite of the recession, US debt is still considered the safest asset in the world. That's the challenge. How would you replace such a secure asset? After the US, Japan and EU used to be pretty solid economies, but not anymore.
  - joshuacc 15y ago
    I may be missing something, but why couldn't the US dollar function as a replacement?
    - danteembermage 15y ago
      Dollars do not pay interest and even risk free debt does (due to consumption time preference)
    - nhaehnle 15y ago
      It could, but fun fact: The US dollar is also a US government liability. (Technically, it is usually listed as a liability of the Fed, but since the Fed is part of the government, that's really just a smokescreen.) So you would be exchanging one liability of the government for another one. If you are so blasé about high levels of outstanding government liabilities in the form of cash (imagine the amount of physical bills that would have to be printed! ;-) ), then why not just stick with what works today, namely high levels of outstanding government liabilities in the form of debt? I don't want to pick on you specifically, but man would those discussions on HN be more fruitful if people were aware of basic facts in macro-economic accounting.
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mc32 15y ago
"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?" So why couldn't we buy other sovereign debt --obviously stable/safe. It's not as though we're the only ones with debt or safe debt. I don't imagine Germany or Japan or France defaulting.
- Newgy 15y ago
  This part of the article got it wrong. SS money is spent, it is not invested. The SS Trust Fund gets an IOU but there's no asset backing it. That's different from a Treasury bond, which is a real financial asset that is tradeable and marketable. Also, the US wasn't really running a true surplus, it was still borrowing from SS during this period. The feds use SS to mask the true size of the deficit, and it was only by this phony accounting that the budget was "balanced".
  - brc 15y ago
    Didn't I read recently that treasury or someone similar basically admitted that Social Security isn't asset backed? That it's a case of funds-in, funds-out? I know the republican guy got hounded for his 'ponzi scheme' comment but there is an element of truth in that hyperbole. Without new workers contributing SS payments, the recipients wouldn't have anything coming in. So it's not a ponzi scheme as such, but it's certainly not an investment fund either.
    - tsotha 15y ago
      That's correct. The Social Security "trust fund" is really just an accounting fiction. Most of the money paid in SS taxes always went right back out to recipients. For awhile the government was collecting more than it was paying out (for demographic reasons) and the surplus was borrowed by the government. But I believe at this point the program has a negative cash flow, so the government will have to issue new bonds to pay off the bonds in the "trust fund". It's really a lot like your right pocket borrowing from your left pocket.
afdssfda 15y ago
And if all of us stopped using credit cards, the credit industry would fail to catastrophic effect. Support your credit card company by going into massive debt. It's for the economy.
refurb 15y ago
This sort of makes no sense. The Province of Alberta (in Canada) balanced their budget, then paid off all debt in the early 2000s. They still had the ability to issue debt (and did) because it was the belief that they were a good credit risk that was the reason behind the AAA rating.
- borism 15y ago
  Province is not a country - they don't issue their own currency. Comparing Alberta's AAA to US or whatever sovereign AAA is nonsense.
  - skylan_q 15y ago
    Ok, but what difference does this make?
    - yardie 15y ago
      It's the difference of knowing what a dollar is worth. Imagine if the US devalued the dollar and paid off their debts immediately with some other currency. All of those bondholders would be mightily pissed. Because their bonds are worth pennies. Provinces and smaller countries can't do this. The value of their bonds will always be compared to the dollar (unless another currency becomes the standard).
hristov 15y ago
Ahh, remember the good old times under Clinton when we were actually paying off the debt. What happened then? They mocked Al Gore for his plans to pay off the debt (remember all the "lockbox" stuff) and then we got a president that promised tax cuts and drastically increased federal spending, and added a couple of wars just for fun. Now there is absolutely no danger of paying off the debt. By the way that report is absolutely wrong. Nothing terrible would happen if we paid off the debt. So there wouldn't be federal treasuries. BFD. Just set the risk free return to zero and you can use all of your old formulas. Yes several bank departments would not be able to make money for absolutely zero risk as they do now. Oh well, I suppose the banks would have to do what they are supposed to do, i.e., calculate risk properly. But of course it is all academic now. Because it is unlikely to ever happen. Paying off the debt means doing something to help the future generations of Americans and it is doubtful any president would do such a thing, and if he did he would probably have to face a lot of angry voters who do not give a shit about the future generations as happened with Al Gore.
- refurb 15y ago
  Take a close look at the graph. The debt starts going down for 3 years (at the peak of the market) and they make the assumption that that's going to keep happening for the next 14 years? Yay for gov't estimates. Second, I think the fact that the market crashed in 2000 might have a little something to do with gov't deficits as well.
  - csomar 15y ago
    Yay for gov't estimates. I think the estimates were made for the plans Clinton put. He didn't plan to go on war with Afghanistan or Irak or make huge spending.
- swaits 15y ago
  Total US debt (in dollars, not as a fraction of GDP, which is a horrible measure) increased every year through Clinton (and basically everyone else in modern history).
  - 15y ago
jxcole 15y ago
"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?" Perhaps this is a ridiculous question, I admit I haven't taken a lot of econ. But couldn't they just take the money that comes out of people's paychecks and, you know, keep it? I know that treasury bonds have a very slight overall interest rate, but that interest is paid by tax payers anyway, so if I'm not mistaken it's a net gain of zero.
- sliverstorm 15y ago
  The interest is more likely paid by new bonds, allowing inflation to help pay for interest.
- Newgy 15y ago
  Former budget staffer here-- this part of the article is factually incorrect. The government borrows SS taxes but spends the money, and provides a Treasury IOU to the Trust Fund. That IOU is not traded and is unrelated to the Treasury bond market in every way.
  - yequalsx 15y ago
    I don't know much about the bond market but is a Treasury IOU in the sense you mention really much different than a Treasury bond? I suppose the ability to reneg on the IOU without disrupting the bond market would be a difference. Provided this is true. That is, if the Treasury does not pay the IOU to the Social Security wouldn't there be a repercussion in the bond market? I don't see how a Treasury IOU would be different than a Treasury bond.
    - pessimizer 15y ago
      Your confusion is based on the fact that there's no such thing as a "Treasury IOU." It's a made-up prejudicial term to trivialize the Treasury bonds held by Social Security, used by people who argue that SS is insolvent. If the US government selectively defaulted on the Treasury bonds held by Social Security, would there be repercussions on the bond market? I don't know. It depends on whether you would continue to loan money to someone who was stealing from their children's piggy bank to pay off their bills. Maybe, if every other option for storing money was worse. What it would absolutely be was a theft of funds disproportionally levied from low income people to give as a gift to all other bondholders.
morsch 15y ago
The money supply, ie. the amount of money in existence, fluctuates. Obviously, paper money is only a small fraction of the total amount of money "stored" in checking acccounts, etc. Money is created through debt. If nobody is in debt, the amount of money in circulation is much lower otherwise. Does anyone know how much of the money supply is government debt? I always get dizzy when I try to understand the monetary system. It seems insane. It really shouldn't work at all. If you want to get a headache, too, try reading http://en.wikipedia.org/wiki/Money_supply http://en.wikipedia.org/wiki/Money_supply, http://en.wikipedia.org/wiki/Fractional_reserve_banking http://en.wikipedia.org/wiki/Fractional_reserve_banking or watching Money as Debt.
- borism 15y ago
  I always get dizzy when I try to understand the monetary system. It seems insane. It really shouldn't work at all. you use wrong/incomplete models to describe it (incidentally so do policymakers). try http://en.wikipedia.org/wiki/Modern_Monetary_Theory http://en.wikipedia.org/wiki/Modern_Monetary_Theory for starters.
  - RickHull 15y ago
    MMT has resurged recently in large part due to the evangelizing efforts of Warren Mosler. One of his intros to MMT for the layperson is "7 Deadly Innocent Frauds". For a counterpoint, here is a comprehensive refutation of 7DIF: http://conant.economicpolicyjournal.com/2010/10/refutation-of-mosler-economics-and.html http://conant.economicpolicyjournal.com/2010/10/refutation-o...
    - borism 15y ago
      Haven't heard about Warren Mossler before, but yeah, he does seem pretty important figure in MMT circles. But this so called refutation seems to be totally missing the point. No wonder - it's coming from Austrian. This is like asking Aristotelian about General Relativity. They're Universe apart.
- jganetsk 15y ago
borism 15y ago
US Dollars = US Treasury Bonds. they are freely interchangeable! money IS debt!
- nhaehnle 15y ago
  I'm not sure why you got voted down for that - perhaps because you just wrote things as if they were stupid slogans. Since what you write is true (well, except you neglect to mention the difference in maturity and interest rate between US$ and Treasuries), let me elaborate. Both US$ paper bills and US Treasury Bonds are liabilities of the government (where I consider the Fed as part of the government for obvious reasons). I use liabilities in an accounting sense, but you really need the basics of accounting down solidly to understand the monetary system. Another term for liabilities is debt. So when you have a 1$ bill, the government "owes" you something. Here's where things get a bit confusing, because what exactly does it mean that the government "owes" you 1$? Well, they have to extinguish the liability in the agreed-upon way. Usually, you extinguish a liability by moving a corresponding asset that is on the same level or higher up in the pyramid of liabilities (see here: http://neweconomicperspectives.blogspot.com/2011/09/mmp-blog-15-clearing-the-pyramid-of.html http://neweconomicperspectives.blogspot.com/2011/09/mmp-blog...). When I owe you something, I extinguish my liability to you by giving you paper money. But the government is at the top of the pyramid, so their liabilities can only ever be transformed into either another form (exchanging cash for bonds or reserves or vice versa) or they can be extinguished when you pay taxes. That takes some getting used to, but nobody said economics was always intuitive.
  - borism 15y ago
    thank you!
swaits 15y ago
> The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track. And how's that working out? This is all FUD, FUD, FUD..
- burgerbrain 15y ago
  opens up refridgerator Yup, that little light still comes on. And yup, there's still food in there. It might be a bullshit system, but it is functional.
tptacek 15y ago
This is such an interesting story, it's too bad politics are going to destroy our ability to talk about it on HN.
smogzer 15y ago
Report From Iron Mountain is similar: https://secure.wikimedia.org/wikipedia/en/wiki/The_Report_from_Iron_Mountain https://secure.wikimedia.org/wikipedia/en/wiki/The_Report_fr... Anyway money is just a tool to keep the populus occupied. And since without problems or debt there would be no need for governments and banksters, they shall exist to create problems(government) and debt(money) and therefore assure they survival.
kingkawn 15y ago
Why pay off all the debt? What are we saving our credit for? Of course the burden can rise so high that it is prohibitive to growth, but in general credit exists to be used.
- tsotha 15y ago
  Well, for one thing you have to pay interest on the debt, so in theory you can afford more by not borrowing for it.
  - kingkawn 15y ago
    But for cashflow. There are investments that need to be made that are beyond the bounds of money on hand, not to mention that even if you can afford to pay up front you might deplete your ability to continue other programs services. This is why we have housing loans, credit cards, and car loans. This is commercial paper. this is national debt.
    - tsotha 15y ago
      Well, sure. But the reason we don't have "money on hand" to pay for anything is we're servicing all the debt we racked up in previous years. Over the long term people who pay off their credit cards every month are in a better cash flow position, which is why I laugh when people say they need cards to maintain their standard of living. Countries are no different. Now, if you're making an investment sometimes it's worth borrowing money. Businesses do that all the time. Governments do it too, but only very rarely, and they usually end up spending far more past the point of diminishing returns.
brc 15y ago
Australia paid off all of it's federal public debt in the mid-2000's. By 2007 the Federal government had no net debt. That is - the net position of the governement (savings-debt) was zero. This didn't mean that there were no securities on issue - the need for an active market in government debt meant that there were still securities outstanding, but these were offset by liquid assets that could be sold to buy back the debt if necessary. I don't know what the surplus money was invested in, but one of the leftovers from that period is a 'Future Fund' which is a very large pool of investment funds held in trust for the future pension needs of the public service. That is - the money was separated out from the general revenue pit and put aside to pay out the retirement benefits of the people employed by the government itself. I do know that this fund is a diversified fund like any other, and invests in different styles and classes of securities. Of course, a change in government since that period and a drop in revenues from the financial crisis means this is no longer the case. But for that brief period it was a very good place to be - income tax rates were going down every single year and the economy had an unbroken 13 year period of real growth in wages and productivity. You don't need public debt to function properly. Australia is a perfect example of this. In fact, a lack of public debt is a good thing as it allows a government to either return taxes via lowering tax rates, or invest the surplus for the inevitable rainy day, or, to build productive infrastructure if that is what they choose to do.
- ohashi 15y ago
  I think that's great for Australia but isn't the central question what would happen without US public debt? Australian public debt isn't a pillar of the world economy.
  - vacri 15y ago
    Economies would adapt - they always have, they always will. Bubbles and tiger economies existed before the US was even a whiff of a dream. It's not like the US is $14T in debt in 2011 and in 2012 it'd be $0T in debt - repayment would take a long time, ample to examine effects and counter where needed.
  - jacques_chester 15y ago
shn 15y ago
This is the most ridiculous idea I have ever heard of. It was probably a project for fun within some circles, that would be all. Here's the reason. US empire like many of her predecessors taxed her subjects. However unlike any other empire in history US has been able to tax her subjects indirectly. When I say subject I do not mean US citizens living within the borders in Northern America, but I mean anyone who carries US dollar bill in his pocket, does trade with US dollar terms and especially buy US treasury bills. These subjects literally subsidize US economy doing just that. Even if US could be able to pay off its debt they would not have stopped issuing loans, why would one want to stop influx of easy money. By creating inflation of money (a.k.a. printing money) US will always be able to pay her debt with lesser value. Same amount but less value.
- shn 15y ago
  I wish those that down voted what I said could dispute and write something, and show some intellectual engagement. Pity.
losethos 15y ago
The debt article is pure evil. http://news.ycombinator.com/item?id=3137560 http://news.ycombinator.com/item?id=3137560 That hacker news article on hiring a security person should be about going after fraud in the anti-virus department by companies like Microsoft. Paranoia benefits the known brands. Sue companies who cause loses to me by making people paranoid of computer security stuff. God says... C:\TEXT\QUIX.TXT ripped to the skin and performing a dozen or two of insanities, which I can get done in less than half an hour; for having seen them with thine own eyes, thou canst then safely swear to the rest that thou wouldst add; and I promise thee thou wilt not tell of as many as I mean to perform." "For the love of God, master mine," said Sancho, "let me not see your worship stripped, for it will sorely grieve me, and I shall not be able to keep from tears, and my head aches so with all I shed last night fo
darksaga 15y ago
The fallacy of the article is if we paid off the debt that we would never incur any debt in the future. Just not realistic to consider in any case.
Shivetya 15y ago
I think it is odd they would consider still selling bonds regardless of our debt load. Who never heard of a rainy day fund?
chris_dcosta 15y ago
I read the article thinking it was about the following idea, the principle is almost the same, just it's about govt debt not personal debt. It would of course be too outrageous for most polticians but here's a thing: When the UK govt bailed out the banks they spent 500billion. The outstanding mortgage debt of everyone in the country at the time was 368billion. Whilst I know there are many people without mortgages (because they rent) the knock on effect of paying off all the oustanding mortgages instead of recapitalising banks would have done some amazing things: it would have given the whole economy an enormous payrise which would have had an immediate positive effect on high-street retail. Also because people would not immediately spend all of their new found money it would have gone into savings: recapitalised the banks indirectly. They were always using everyone's savings anyway. It would have resolved the thing that caused the crisis: that being risky mortgage debt on the banks books. No more mortgage debt, no more unstable banks. Lastly and probably most importantly, it would have allowed govts to raise taxes to refill their coffers because absolutely nobody would notice, and probably nobody would even care.
johnconroy 15y ago
This perspective is the greatest pile of steaming horse shit I've read in a long time. The idea that becoming debt-free would be a bad thing is obscene. The only people it wouldn't benefit are in the financial industry. Meanwhile unthinkable amounts of taxpayer cash go into a black hole to service the debt (ie into the pockets of the scum who run the finance industry). This is the same old stuff lads... another example of scaremongering bullshit propaganda for the finance industry.
maigret 15y ago
The report may have been secret, but the fact hasn't been anymore for quite a few years. Greenspan already mentioned it in his autobiography.

237 points by joelhaus 15y ago

An interesting read, but disquieting since it's mostly speculation and opinion without any real data or any models of debt and the dependencies of the economy on debt. And white papers of this sort appear to be the basis of policy decisions with far-reaching consequences.

commieneko 15y ago
Welcome to economics. Trying to model real, functioning economies is a lot like trying to model natural language. We think we understand a lot about it, but there is a level at which we really don't know what's going on. And it doesn't help there _everyone_ involved in an economy is not only willing, but eager to game it.
- drallison 15y ago
  Economics could (and should) be much more of an engineering science than it is. The math and theories are rather beautiful, but do not have much to do with the real non-linear chaotic world in which we live. For some reason, no one expects that economic theory be predictive in the same sense that we expect of theories in the physical sciences. It seems to me that a bit of data and a little bit of modeling would have greatly improved the opinion piece this document describes. As for Economics, it is really time to rethink the field. I rather liked Eric D. Beinhocker's book, The Origin of Wealth (http://www.amazon.com/Origin-Wealth-Evolution-Complexity-Economics/dp/1422121038/ref=sr_1_2?ie=UTF8&qid=1319160726&sr=8-2 http://www.amazon.com/Origin-Wealth-Evolution-Complexity-Eco...). See also his Wikipedia bio: http://en.wikipedia.org/wiki/Eric_Beinhocker http://en.wikipedia.org/wiki/Eric_Beinhocker.
  - commieneko 15y ago
    It _can't_ be totally an engineering field anymore than language communication can. Trade and marketing are not about maximizing profits or reducing costs, though those are important aspects. It's as much politics and power and sex and violence as it is anything to do with prices and shipping costs. No matter how "good" your models are, people will get funny ideas in their heads and do something completely unexpected. When Asimov posited his Pyschohistory in the Foundation books he indicated that it could only be statistically useful on populations measured in the _trillions_. And even then it could only work if the methodology were kept absolutely secret from everyone in the modeled society.
    - drallison 15y ago
      What passes today as economic analysis is, in truth, modeling in which the assumptions and the data are implicit and only the conclusions are expressed. Moreover, projections are frequently based upon simple extrapolation of a constructed macroeconomic indicator and rather than exploring the underlying structure. It seems to me that "politics and power and sex and violence" and resource depletion,innovation, FUD, and all the rest is amenable to modeling and that a composite economic model based on systematic analysis is likely to better reflect reality than the process used now. Asimov's Foundation Series books are enlightened works of science fiction, but they are fiction, not fact. I find is strange that you cite them as if they were seminal works in societal modeling.
      - commieneko 15y ago
        I said Asimov "posited", which seems pretty clear to me. FWIW, Asimov has a certain cachet these days among some Keynesian economists. When you are able to usefully, and predictively model "politics and power and sex and violence" then you will be doing extraordinary work and I'll look forward to you getting your well deserved Nobel Prize. :)

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sudonim 15y ago

As a private citizen, it's my goal to have no debt, and savings in excess of my future debts. Can someone explain why it's good to have a global economic system that is at great risk if the United States gets rid of it's debt?

nknight 15y ago
Who said it was good? An honest examination of the current state of reality is not a value judgement.
rdtsc 15y ago
I think that should make you think about how there is a systemic failure in the global monetary system. Many crazies advocate abolishing the Fed as they see it enslaving and controlling the entire economy without much supervision and control by the citizens of this country. Not saying they are completely right or anything, but it this is basically a warning or a symptom that something is perhaps fundamentally wrong (I sure don't know well enough how it works, it is just a feeling). Think of it as what would the drug companies do if all of the sudden there were cheap easy un-patent-able cures for all the chronic diseases. Would they start selling herbal supplements? Go into homeopathy business? Would they invent more 'restless leg syndromes' type diseases. I think it is a bit like that. It shows perhaps there is something wrong with the system & the constraints and incentive are not working they way we'd expect.
- hvs 15y ago
  Many non-crazies also advocate abolishing the Fed. One of them is running for President.
  - harryh 15y ago
    I think it's pretty clear at this point that running for President does not constitute evidence that you aren't one of the crazies.
    - jganetsk 15y ago

hugh3 15y ago

Linkbait title from NPR. It's clearly not a secret government report, since if it was then it couldn't have been obtained via a FOI request. It is a genuine concern, though, what would happen if US Treasury Bonds ceased to exist. There's a good argument to be made for the US not completely paying off its debts.

morsch 15y ago
Well, the word secret has multiple meanings. I think it's fair to call this a secret memo, in a fairly broad sense of secret. But I agree that it's misleading, since secret has an additional sense specific to government documents.

darrennix 15y ago

The basic premise of this article is suspect. The US would still issue enough T-Bills to provide stability even in a zero-debt scenario... it would simply buy other safe, long-term assets to hold. If, for example, the US were borrowing money at 3% by issuing T-Bills, it would just buy a basket of high-grade foreign and corporate debt at 3.5% and earn a spread of 0.5% while continuing to provide adequate liquidity of T-Bills.

jimmyhwang 15y ago
But by doing that, you have an inherit risk of potentially getting a worse return than the bonds you issued. The government shouldn't be in the investment management industry. They already have enough issues trying to manage the country.
raheemm 15y ago
In spite of the recession, US debt is still considered the safest asset in the world. That's the challenge. How would you replace such a secure asset? After the US, Japan and EU used to be pretty solid economies, but not anymore.
- joshuacc 15y ago
  I may be missing something, but why couldn't the US dollar function as a replacement?
  - danteembermage 15y ago
    Dollars do not pay interest and even risk free debt does (due to consumption time preference)
  - nhaehnle 15y ago
    It could, but fun fact: The US dollar is also a US government liability. (Technically, it is usually listed as a liability of the Fed, but since the Fed is part of the government, that's really just a smokescreen.) So you would be exchanging one liability of the government for another one. If you are so blasé about high levels of outstanding government liabilities in the form of cash (imagine the amount of physical bills that would have to be printed! ;-) ), then why not just stick with what works today, namely high levels of outstanding government liabilities in the form of debt? I don't want to pick on you specifically, but man would those discussions on HN be more fruitful if people were aware of basic facts in macro-economic accounting.

deleted 15y ago

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mc32 15y ago

"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?" So why couldn't we buy other sovereign debt --obviously stable/safe. It's not as though we're the only ones with debt or safe debt. I don't imagine Germany or Japan or France defaulting.

Newgy 15y ago
This part of the article got it wrong. SS money is spent, it is not invested. The SS Trust Fund gets an IOU but there's no asset backing it. That's different from a Treasury bond, which is a real financial asset that is tradeable and marketable. Also, the US wasn't really running a true surplus, it was still borrowing from SS during this period. The feds use SS to mask the true size of the deficit, and it was only by this phony accounting that the budget was "balanced".
- brc 15y ago
  Didn't I read recently that treasury or someone similar basically admitted that Social Security isn't asset backed? That it's a case of funds-in, funds-out? I know the republican guy got hounded for his 'ponzi scheme' comment but there is an element of truth in that hyperbole. Without new workers contributing SS payments, the recipients wouldn't have anything coming in. So it's not a ponzi scheme as such, but it's certainly not an investment fund either.
  - tsotha 15y ago
    That's correct. The Social Security "trust fund" is really just an accounting fiction. Most of the money paid in SS taxes always went right back out to recipients. For awhile the government was collecting more than it was paying out (for demographic reasons) and the surplus was borrowed by the government. But I believe at this point the program has a negative cash flow, so the government will have to issue new bonds to pay off the bonds in the "trust fund". It's really a lot like your right pocket borrowing from your left pocket.

afdssfda 15y ago

And if all of us stopped using credit cards, the credit industry would fail to catastrophic effect. Support your credit card company by going into massive debt. It's for the economy.

refurb 15y ago

This sort of makes no sense. The Province of Alberta (in Canada) balanced their budget, then paid off all debt in the early 2000s. They still had the ability to issue debt (and did) because it was the belief that they were a good credit risk that was the reason behind the AAA rating.

borism 15y ago
Province is not a country - they don't issue their own currency. Comparing Alberta's AAA to US or whatever sovereign AAA is nonsense.
- skylan_q 15y ago
  Ok, but what difference does this make?
  - yardie 15y ago
    It's the difference of knowing what a dollar is worth. Imagine if the US devalued the dollar and paid off their debts immediately with some other currency. All of those bondholders would be mightily pissed. Because their bonds are worth pennies. Provinces and smaller countries can't do this. The value of their bonds will always be compared to the dollar (unless another currency becomes the standard).

hristov 15y ago

Ahh, remember the good old times under Clinton when we were actually paying off the debt. What happened then? They mocked Al Gore for his plans to pay off the debt (remember all the "lockbox" stuff) and then we got a president that promised tax cuts and drastically increased federal spending, and added a couple of wars just for fun. Now there is absolutely no danger of paying off the debt. By the way that report is absolutely wrong. Nothing terrible would happen if we paid off the debt. So there wouldn't be federal treasuries. BFD. Just set the risk free return to zero and you can use all of your old formulas. Yes several bank departments would not be able to make money for absolutely zero risk as they do now. Oh well, I suppose the banks would have to do what they are supposed to do, i.e., calculate risk properly. But of course it is all academic now. Because it is unlikely to ever happen. Paying off the debt means doing something to help the future generations of Americans and it is doubtful any president would do such a thing, and if he did he would probably have to face a lot of angry voters who do not give a shit about the future generations as happened with Al Gore.

refurb 15y ago
Take a close look at the graph. The debt starts going down for 3 years (at the peak of the market) and they make the assumption that that's going to keep happening for the next 14 years? Yay for gov't estimates. Second, I think the fact that the market crashed in 2000 might have a little something to do with gov't deficits as well.
- csomar 15y ago
  Yay for gov't estimates. I think the estimates were made for the plans Clinton put. He didn't plan to go on war with Afghanistan or Irak or make huge spending.
swaits 15y ago
Total US debt (in dollars, not as a fraction of GDP, which is a horrible measure) increased every year through Clinton (and basically everyone else in modern history).
- 15y ago

jxcole 15y ago

"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?" Perhaps this is a ridiculous question, I admit I haven't taken a lot of econ. But couldn't they just take the money that comes out of people's paychecks and, you know, keep it? I know that treasury bonds have a very slight overall interest rate, but that interest is paid by tax payers anyway, so if I'm not mistaken it's a net gain of zero.

sliverstorm 15y ago
The interest is more likely paid by new bonds, allowing inflation to help pay for interest.
Newgy 15y ago
Former budget staffer here-- this part of the article is factually incorrect. The government borrows SS taxes but spends the money, and provides a Treasury IOU to the Trust Fund. That IOU is not traded and is unrelated to the Treasury bond market in every way.
- yequalsx 15y ago
  I don't know much about the bond market but is a Treasury IOU in the sense you mention really much different than a Treasury bond? I suppose the ability to reneg on the IOU without disrupting the bond market would be a difference. Provided this is true. That is, if the Treasury does not pay the IOU to the Social Security wouldn't there be a repercussion in the bond market? I don't see how a Treasury IOU would be different than a Treasury bond.
  - pessimizer 15y ago
    Your confusion is based on the fact that there's no such thing as a "Treasury IOU." It's a made-up prejudicial term to trivialize the Treasury bonds held by Social Security, used by people who argue that SS is insolvent. If the US government selectively defaulted on the Treasury bonds held by Social Security, would there be repercussions on the bond market? I don't know. It depends on whether you would continue to loan money to someone who was stealing from their children's piggy bank to pay off their bills. Maybe, if every other option for storing money was worse. What it would absolutely be was a theft of funds disproportionally levied from low income people to give as a gift to all other bondholders.

morsch 15y ago

The money supply, ie. the amount of money in existence, fluctuates. Obviously, paper money is only a small fraction of the total amount of money "stored" in checking acccounts, etc. Money is created through debt. If nobody is in debt, the amount of money in circulation is much lower otherwise. Does anyone know how much of the money supply is government debt? I always get dizzy when I try to understand the monetary system. It seems insane. It really shouldn't work at all. If you want to get a headache, too, try reading http://en.wikipedia.org/wiki/Money_supply http://en.wikipedia.org/wiki/Money_supply, http://en.wikipedia.org/wiki/Fractional_reserve_banking http://en.wikipedia.org/wiki/Fractional_reserve_banking or watching Money as Debt.

borism 15y ago
I always get dizzy when I try to understand the monetary system. It seems insane. It really shouldn't work at all. you use wrong/incomplete models to describe it (incidentally so do policymakers). try http://en.wikipedia.org/wiki/Modern_Monetary_Theory http://en.wikipedia.org/wiki/Modern_Monetary_Theory for starters.
- RickHull 15y ago
  MMT has resurged recently in large part due to the evangelizing efforts of Warren Mosler. One of his intros to MMT for the layperson is "7 Deadly Innocent Frauds". For a counterpoint, here is a comprehensive refutation of 7DIF: http://conant.economicpolicyjournal.com/2010/10/refutation-of-mosler-economics-and.html http://conant.economicpolicyjournal.com/2010/10/refutation-o...
  - borism 15y ago
    Haven't heard about Warren Mossler before, but yeah, he does seem pretty important figure in MMT circles. But this so called refutation seems to be totally missing the point. No wonder - it's coming from Austrian. This is like asking Aristotelian about General Relativity. They're Universe apart.
jganetsk 15y ago

borism 15y ago

US Dollars = US Treasury Bonds. they are freely interchangeable! money IS debt!

nhaehnle 15y ago
I'm not sure why you got voted down for that - perhaps because you just wrote things as if they were stupid slogans. Since what you write is true (well, except you neglect to mention the difference in maturity and interest rate between US$ and Treasuries), let me elaborate. Both US$ paper bills and US Treasury Bonds are liabilities of the government (where I consider the Fed as part of the government for obvious reasons). I use liabilities in an accounting sense, but you really need the basics of accounting down solidly to understand the monetary system. Another term for liabilities is debt. So when you have a 1$ bill, the government "owes" you something. Here's where things get a bit confusing, because what exactly does it mean that the government "owes" you 1$? Well, they have to extinguish the liability in the agreed-upon way. Usually, you extinguish a liability by moving a corresponding asset that is on the same level or higher up in the pyramid of liabilities (see here: http://neweconomicperspectives.blogspot.com/2011/09/mmp-blog-15-clearing-the-pyramid-of.html http://neweconomicperspectives.blogspot.com/2011/09/mmp-blog...). When I owe you something, I extinguish my liability to you by giving you paper money. But the government is at the top of the pyramid, so their liabilities can only ever be transformed into either another form (exchanging cash for bonds or reserves or vice versa) or they can be extinguished when you pay taxes. That takes some getting used to, but nobody said economics was always intuitive.
- borism 15y ago
  thank you!

swaits 15y ago

> The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track. And how's that working out? This is all FUD, FUD, FUD..

burgerbrain 15y ago
opens up refridgerator Yup, that little light still comes on. And yup, there's still food in there. It might be a bullshit system, but it is functional.

tptacek 15y ago

This is such an interesting story, it's too bad politics are going to destroy our ability to talk about it on HN.

smogzer 15y ago

Report From Iron Mountain is similar: https://secure.wikimedia.org/wikipedia/en/wiki/The_Report_from_Iron_Mountain https://secure.wikimedia.org/wikipedia/en/wiki/The_Report_fr... Anyway money is just a tool to keep the populus occupied. And since without problems or debt there would be no need for governments and banksters, they shall exist to create problems(government) and debt(money) and therefore assure they survival.

kingkawn 15y ago

Why pay off all the debt? What are we saving our credit for? Of course the burden can rise so high that it is prohibitive to growth, but in general credit exists to be used.

tsotha 15y ago
Well, for one thing you have to pay interest on the debt, so in theory you can afford more by not borrowing for it.
- kingkawn 15y ago
  But for cashflow. There are investments that need to be made that are beyond the bounds of money on hand, not to mention that even if you can afford to pay up front you might deplete your ability to continue other programs services. This is why we have housing loans, credit cards, and car loans. This is commercial paper. this is national debt.
  - tsotha 15y ago
    Well, sure. But the reason we don't have "money on hand" to pay for anything is we're servicing all the debt we racked up in previous years. Over the long term people who pay off their credit cards every month are in a better cash flow position, which is why I laugh when people say they need cards to maintain their standard of living. Countries are no different. Now, if you're making an investment sometimes it's worth borrowing money. Businesses do that all the time. Governments do it too, but only very rarely, and they usually end up spending far more past the point of diminishing returns.

brc 15y ago

Australia paid off all of it's federal public debt in the mid-2000's. By 2007 the Federal government had no net debt. That is - the net position of the governement (savings-debt) was zero. This didn't mean that there were no securities on issue - the need for an active market in government debt meant that there were still securities outstanding, but these were offset by liquid assets that could be sold to buy back the debt if necessary. I don't know what the surplus money was invested in, but one of the leftovers from that period is a 'Future Fund' which is a very large pool of investment funds held in trust for the future pension needs of the public service. That is - the money was separated out from the general revenue pit and put aside to pay out the retirement benefits of the people employed by the government itself. I do know that this fund is a diversified fund like any other, and invests in different styles and classes of securities. Of course, a change in government since that period and a drop in revenues from the financial crisis means this is no longer the case. But for that brief period it was a very good place to be - income tax rates were going down every single year and the economy had an unbroken 13 year period of real growth in wages and productivity. You don't need public debt to function properly. Australia is a perfect example of this. In fact, a lack of public debt is a good thing as it allows a government to either return taxes via lowering tax rates, or invest the surplus for the inevitable rainy day, or, to build productive infrastructure if that is what they choose to do.

ohashi 15y ago
I think that's great for Australia but isn't the central question what would happen without US public debt? Australian public debt isn't a pillar of the world economy.
- vacri 15y ago
  Economies would adapt - they always have, they always will. Bubbles and tiger economies existed before the US was even a whiff of a dream. It's not like the US is $14T in debt in 2011 and in 2012 it'd be $0T in debt - repayment would take a long time, ample to examine effects and counter where needed.
- jacques_chester 15y ago

shn 15y ago

This is the most ridiculous idea I have ever heard of. It was probably a project for fun within some circles, that would be all. Here's the reason. US empire like many of her predecessors taxed her subjects. However unlike any other empire in history US has been able to tax her subjects indirectly. When I say subject I do not mean US citizens living within the borders in Northern America, but I mean anyone who carries US dollar bill in his pocket, does trade with US dollar terms and especially buy US treasury bills. These subjects literally subsidize US economy doing just that. Even if US could be able to pay off its debt they would not have stopped issuing loans, why would one want to stop influx of easy money. By creating inflation of money (a.k.a. printing money) US will always be able to pay her debt with lesser value. Same amount but less value.

shn 15y ago
I wish those that down voted what I said could dispute and write something, and show some intellectual engagement. Pity.

losethos 15y ago

The debt article is pure evil. http://news.ycombinator.com/item?id=3137560 http://news.ycombinator.com/item?id=3137560 That hacker news article on hiring a security person should be about going after fraud in the anti-virus department by companies like Microsoft. Paranoia benefits the known brands. Sue companies who cause loses to me by making people paranoid of computer security stuff. God says... C:\TEXT\QUIX.TXT ripped to the skin and performing a dozen or two of insanities, which I can get done in less than half an hour; for having seen them with thine own eyes, thou canst then safely swear to the rest that thou wouldst add; and I promise thee thou wilt not tell of as many as I mean to perform." "For the love of God, master mine," said Sancho, "let me not see your worship stripped, for it will sorely grieve me, and I shall not be able to keep from tears, and my head aches so with all I shed last night fo

darksaga 15y ago

The fallacy of the article is if we paid off the debt that we would never incur any debt in the future. Just not realistic to consider in any case.

Shivetya 15y ago

I think it is odd they would consider still selling bonds regardless of our debt load. Who never heard of a rainy day fund?

chris_dcosta 15y ago

I read the article thinking it was about the following idea, the principle is almost the same, just it's about govt debt not personal debt. It would of course be too outrageous for most polticians but here's a thing: When the UK govt bailed out the banks they spent 500billion. The outstanding mortgage debt of everyone in the country at the time was 368billion. Whilst I know there are many people without mortgages (because they rent) the knock on effect of paying off all the oustanding mortgages instead of recapitalising banks would have done some amazing things: it would have given the whole economy an enormous payrise which would have had an immediate positive effect on high-street retail. Also because people would not immediately spend all of their new found money it would have gone into savings: recapitalised the banks indirectly. They were always using everyone's savings anyway. It would have resolved the thing that caused the crisis: that being risky mortgage debt on the banks books. No more mortgage debt, no more unstable banks. Lastly and probably most importantly, it would have allowed govts to raise taxes to refill their coffers because absolutely nobody would notice, and probably nobody would even care.

johnconroy 15y ago

This perspective is the greatest pile of steaming horse shit I've read in a long time. The idea that becoming debt-free would be a bad thing is obscene. The only people it wouldn't benefit are in the financial industry. Meanwhile unthinkable amounts of taxpayer cash go into a black hole to service the debt (ie into the pockets of the scum who run the finance industry). This is the same old stuff lads... another example of scaremongering bullshit propaganda for the finance industry.

maigret 15y ago

The report may have been secret, but the fact hasn't been anymore for quite a few years. Greenspan already mentioned it in his autobiography.