NPR releases secret report prepared during the Clinton administration about paying off the national debt with the surplus it had accumulated.
Nixed. Why? They concluded that too little debt was a problem.
Full report in PDF, Life After Debt
What If We Paid Off The Debt? The Secret Government Report (with audio) by by David Kestenbaum at NPR
The US only paid down the national debt once, under President Andrew Jackson. It was followed by a depression.
See also L. Randall Wray, The Federal Budget is NOT like a Household Budget – Here’s Why
13 comments:
I've said in this blog before that the Clintonian surplus was a foul egg in disguise for Bush.
As if they new how MMT works and did a back door jam to the incoming Bushies
googleheim: When you think of it, the Rebulicans are always talking about a balanced budget, it would be funny if the Clinton administration had been smart enough to show them the results of one.
Tom Hickey; In Randy Wray's collumn, he said, "Government actually spends by crediting bank deposits (and credits the reserves of those banks)." I'm not questioning Mr. Wray's knowledge, but I do wonder if he didn't mean to use debit in one of those instances. I do try to read everything Mr. Wray writes.
GLH, Wray's wording is correct. Government spending will involve crediting the private bank accounts of the recipients of the spending (these deposits are an asset for the recipient and a liability of the private bank) and crediting the reserve accounts the private banks hold with the Fed (these reserves are an asset of the private banks and a liability of the Fed).
So, the overall effect is to increase non-government net financial assets by the amount of the increase in reserves. Whereas the private bank deposits are both an asset and liability within the non-government (netting to zero), the bank reserves are a non-government asset with no offset within the non-government. The corresponding liability is in the government sector.
Hi GLH
CLinton was smart enough
that was my point
CLinton balanced the budget to look good temporarily ( in an attempt to satisfy caucus deficit terrorists ) for the help to GORE
However, since Gore did not win, BUSH inherited the effects of the balanced budget which was a BIG CRUNCH and dot com implosion to the REAL economy -
Clinton made a great bomb
But BUSH came back with the tax surplus theory and spinned it off very well with "tax rebates" pretending to be a "tax payer advocate" and then the surplus was out of the Fed and back into Real economy
ergo it is a game nothing but a game
Mike the Mad Biologist has a good interpretation of Bill Mitchell's IHR interview - How Modern Monetary Theory Can Enable Liberals
Clonal, From MtMB's blog tagline: "Helping idiots who desperately need my assistance by calling them fucking morons since 2004"
For the record, this is not a blog that I am authoring under an alias ;)
But seriously, that is another good catch. there seems to be a lot of evidence in the blogs that MMT is lately (last few weeks) getting some wider attention and more critically some understanding.
This is heartening.
Resp,
What if we paid off the national debt after we used proof platinum coin seigniorage to fill the Treasury General Account at the Fed with enough electronic credits to do that?
This post doesn't mention that possibility. It is really asking what would happen if we paid it off by the Government taxing more than it spends?
Hi Joe,
A lot of it had to do with T-securities aka corporate welfare going away. The platinum coin doesn't change that. These folks are rent-seekers, after all, and they want that subsidy, I mean, interest.
tom and joe,
a lot /most of that interest has already gone away now (with interest rates close to zero).
fwiw, i think that two of the three issues discussed in the paper, "investors looking for an asset free of credit risk" and, "mechanisms by which it [the fed reserve] conducts monetary policy" are still relevant to paying down the 'national debt' via ppcs (which is actually extinguishing only those fed govt liabilities subject to current debt ceiling legislation -- not all fed govt financial liabilities).
i'm especially curious about the implications of the first issue raised, "investors looking for an asset free of credit risk" as i haven't seen any 'in paradigm' analysis on the potential economic consequences of removing all treasury securities (including t-bills), savings bonds, etc from the system. if anyone knows of such an analysis, i'd be grateful for the link(s). thanks.
selise and Tom,
selise, please explain which Federal Government liabilities could not be extinguished by a sufficiently vigorous application of PPCS.
Also, don't you think Billy covered the main issues involved in letting the interest rates fall to zero here?
http://bilbo.economicoutlook.net/blog/?p=4656
Tom,PPCS isn't different from paying off the debt through taxation when it comes to ending that corporate and foreign nation welfare we pay. But PPCs is different in that permits retaining the deficit gap between tax revenue and spending. So, the Government can add, rather than subtract from net financial assets and still pay off the dent subject to the debt ceiling.
lets,
"please explain which Federal Government liabilities could not be extinguished by a sufficiently vigorous application of PPCS."
well, for example, aren't reserve balances fed govt liabilities?
more generally, you've stated that when you write "national debt" you mean only that which is currently subject to fed govt debt limit legislation (iow, not all fed govt liabilities -- which is the clarification i wanted to make clear since 'national debt' can mean different things to different people and personally i find the what is and is not included in the debt limit legislation a bit confusing).
"don't you think Billy covered the main issues involved in letting the interest rates fall to zero here?"
my comment re interest rates was only that we're already practically there. when it comes to "letting the interest rates fall to zero," it's not like we have very far to fall.
p.s. an aside: do you also advocate that the fed not pay interest on reserve balances? (interest on reserves = zero)
selise,
Reserves are a liability in the sense that the Government promises to exchange reserves for reserves of equal value on demand. So, what kind of debt is that? Certainly that kind of debt is not debt in any common sense notion that working people can understand.
I understand that if PPCS or money printing can be used by Treasury to redeem debt instruments, then these debts are also not liabilities in the same sense that people experience them. But it's harder to explain this to people, than it is to explain to them that promising to exchange reserves for reserves is not the kind of 'debt' they experience.
Next, along with you, I also find what is and what is not included as debt for purposes of the debt ceiling legislation to be confusing. What is included seems very arbitrary to me and also seems to have been determined by political considerations.
Finally, on:
"p.s. an aside: do you also advocate that the fed not pay interest on reserve balances? (interest on reserves = zero)"
my view is that I don't see what justification there is for the banks to be given profits on the Federal money they are holding. I understand that Central Bank may want to pay interest rates on reserves because there may be reasons consistent with public purpose to have non-zero overnight rates during periods of Federal gaps between tax revenue and Government spending. But in the absence of a generally valid reason why the overnight rate should be greater than zero, I don't see why there should a policy of paying interest on reserves as the norm.
Having said that I know that the MMT economists we've all learned from have thought about this more deeply than I and have different perspectives on this. But I think that they wouldn't agree among themselves about whether IOR shoudl be paid. based on what I've read I'd guess that Scott Fullwiler and Warren Mosler would be for paying IOR more frequently than would Randy, Bill Mitchell, Stephanie, and Pavlina. I also think that within this group, Bill, would probably be the least willing to either issue debt instruments, or pay IOR.
joe,
"Reserves are a liability in the sense that the Government promises to exchange reserves for reserves of equal value on demand. So, what kind of debt is that? Certainly that kind of debt is not debt in any common sense notion that working people can understand."
must say i object to your comment on what "working people can understand."
moving on... if reserves are a liability then i think that is one answer to your question (for current institutional arrangements), "please explain which Federal Government liabilities could not be extinguished by a sufficiently vigorous application of PPCS."
further, unless i am misunderstanding (always possible), reserves can currently be considered govt borrowing. see, for example, warren here:
"paying interest on reserves *is* borrowing on an overnight basis."
http://moslereconomics.com/2011/08/17/from-professor-andrea-terzi-mmts-non-gnome-soldier-in-lugano/
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