What would it mean for the U.S. if it was to pay off all of its national debt?

[MrEgo]

I'm not an economist by any means, although I know there are a lot of people that post here that think they know, so what would be the major benefits of (theoretically, of course) paying off the national debt?

No need to be condescending in your response, I just want to hear what your takes are.

 

[IceBergSLiM]

debt interest payments become public funds for public works projects, tax breaks etc?

 

[Zebo]

There is no problem with national debt so long as people keep lending. It's like having a CC with no limit and no monthly payments. We do pay payments but those are offset by another loan. The problem is what we are seeing now, governments are cutting back their handouts, so we are printing at an accelerated rate not keeping pace with GDP, increasing money supply, which weakens dollar, makes any money you have saved in bank worth less, and inflation sets in and any investments you have must outperform inflation to hold par value - some think hyperinflation is a real possibility if we print too much. That means riots in the street because welfare checks and paychecks won;t buy anything.

 

[piasabird]

You could cut all our taxes in half or maybe even less.

 

[Carmen813]

You could cut all our taxes in half or maybe even less.

Our interest payments are about $200 billion a year, certainly significant, but not enough to cut taxes that substantially.

 

[Ausm]

Impossible if we keep financing these worthless wars we are in.

 

[jpetermann]

It would mean that all politicians were dead and some level-headed people who actually gave a hoot about the country and not just their own personal interests had actually stepped in, taken over and done what should have already been done decades ago.

 

[fskimospy]

It actually wouldn't mean very much at all. Government debt is perpetually rolled over, so in many ways the debt never actually needs to be paid back.

 

[HendrixFan]

Our interest payments are about $200 billion a year, certainly significant, but not enough to cut taxes that substantially.

Actually for this year income taxes will be a little over $1 trillion of government receipts ($1.051T) while interest on the National Debt is $454 billion. The half number is actually quite more accurate than "not enough" to be "substantial".

Since our annual deficit is larger than the interest payments on the debt (minimum payments in a sense), then technically we are borrowing money to be able to cover minimum payments on the debt.

 

[her209]

No inflation.

 

[Ausm]

It actually wouldn't mean very much at all. Government debt is perpetually rolled over, so in many ways the debt never actually needs to be paid back.

Sounds like my kids when they hit me up for cash

 

[fskimospy]

Sounds like my kids when they hit me up for cash

Hey man, you can do it too! Just pay them in your own sovereign currency! All you gotta do is convince the local grocery store to accept Ausmbucks.

 

[Special K]

I know many on here have dismissed the Zeitgeist movies as conspiracy theory BS, but the second movie seems to be more objective than the first, and it claims that since all money is created from debt (i.e. government sells bonds to the Fed, who creates money out of thin air to buy the bonds), it would be impossible to ever completely pay off all debts since the amount of money owed (principal + interest) will always be greater than the amount of money in circulation. The debt can be rolled over, but never eliminated.

Is that true?

 

[heyheybooboo]

Actually for this year income taxes will be a little over $1 trillion of government receipts ($1.051T) while interest on the National Debt is $454 billion. The half number is actually quite more accurate than "not enough" to be "substantial".

Since our annual deficit is larger than the interest payments on the debt (minimum payments in a sense), then technically we are borrowing money to be able to cover minimum payments on the debt.

Net interest paid on the Federal debt is estimated at $135.9 billion for FY 2010 (they have 'refinanced' a portion of the 'public' debt). In FY 2009 net interest on the debt was $143b and $250b in FY08.

In the late 1990s they began reducing the long-term debt to shorter-term ---- average maturity was less than 5 years last time I checked. They also did away with 30-year bonds in the late 1990s (or maybe 2000-ish) but brought them back in 2005 or so.

Net interest is expected to increase rapidly because of our spending spree over the last 8-9 years.

No inflation.

In the late 1990s (when we had an actual chance to possibly pay off the Federal debt over a projected 10 years) some economists had an interesting debate about this.

Their conclusion was that completely eliminating the Federal debt would drive the economy to a hyper-accelerated state with rapidly rising inflation. Thank goodness we don't have to worry about that now, huh?



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[Atreus21]

I'm not an economist by any means, although I know there are a lot of people that post here that think they know, so what would be the major benefits of (theoretically, of course) paying off the national debt?

No need to be condescending in your response, I just want to hear what your takes are.

I've often wondered the same thing. There's some very technical and economic argument in favor of maintaining some national debt, but certainly not a huge amount. I don't really understand it.

 

[HendrixFan]

Interest paid in 2008: $451,154,049,950.63
Interest paid in 2009: $383,071,060,815.42

According to treasurydirect.gov

 

[Carmen813]

Actually for this year income taxes will be a little over $1 trillion of government receipts ($1.051T) while interest on the National Debt is $454 billion. The half number is actually quite more accurate than "not enough" to be "substantial".

Since our annual deficit is larger than the interest payments on the debt (minimum payments in a sense), then technically we are borrowing money to be able to cover minimum payments on the debt.

I remember reading an article a month or two ago that said our national debt was running about $175 billion a year right now, which is actually lower than in previous years. Mainly due to the fact that the recession caused lowered interest rates. Do you have a source for your numbers?

 

[ElFenix]

I've often wondered the same thing. There's some very technical and economic argument in favor of maintaining some national debt, but certainly not a huge amount. I don't really understand it.

it's not a technical argument, it's that there are things that the .gov can invest in that give a better return than the cost of the money. it's right to borrow a certain amount of money to buy louisiana from the french.



the biggest benefit of paying down the debt would be that the .gov wouldn't be competing for bond funds with everyone else. so, interest rates would be lower. i think there is some level of bond money that wouldn't chase other bonds because of the special features that .gov bonds have, but that would be a small segment of the overall market (the bond market is trillions of dollars, so that could be quite substantial). i think we're well beyond that level at the moment.

 

[lokiju]

Would mean hell froze over.

 

[Zebo]

No inflation.

Quoted for next year.

 

[Darwin333]

It actually wouldn't mean very much at all. Government debt is perpetually rolled over, so in many ways the debt never actually needs to be paid back.

We do however continually pay interest on it. If you have an interest only loan on your house, that you have to borrow money to make just the interest payments, and you pay it off do you think that would improve your financial situation? Of course it would because you aren't paying, or borrowing to pay, interest anymore.

Not to mention the whole "national security" thing of not living on a prayer that the "interest rate" we pay doesn't shoot the moon. If it does, and it can, it would have darn near immediate effects that could tack on another $200-400 billion dollars a year to our budget. I would say that being at risk of having to spend an additional 20-30% of what we actually make on interest payments is a pretty big deal.

Even without that, not having to pay the interest payments we are currently paying would, at least in my book-o-economics, mean a whole lot. A few hundred billion extra to spend (you guys don't really think they would give it back do you?) without needing to raise taxes would definitely mean something.

 

[Modelworks]

It would give them a blank card to start charging up all over again , and don't think they wouldn't try to get it back to where it is.

 

[HendrixFan]

I remember reading an article a month or two ago that said our national debt was running about $175 billion a year right now, which is actually lower than in previous years. Mainly due to the fact that the recession caused lowered interest rates. Do you have a source for your numbers?

Treasurydirect.gov

They also have a month to month breakdown of interest payments. $40 billion so far this fiscal year (Oct and Nov), which does put it on pace to be lower than the previous years at around $250 billion.

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

 

[Modelworks]

Treasurydirect.gov

They also have a month to month breakdown of interest payments. $40 billion so far this fiscal year (Oct and Nov), which does put it on pace to be lower than the previous years at around $250 billion.

Even better:
http://www.usdebtclock.org/

Watch the money flow down the drain.

 

[heyheybooboo]

Interest paid in 2008: $451,154,049,950.63
Interest paid in 2009: $383,071,060,815.42

According to treasurydirect.gov

We don't pay 'gross'; the actual net interest paid is as I listed above.

Instead of adopting the Gore 'lockbox' and funding state and local infrastructure improvements (with the repayment of principle and interest providing really nice cash flow), trust fund revenues are now expensed for things like War, tax cuts, Part D, NCLB and Hank Paulson's Golden Bucket of Taxpayer Cash.

Interest on the debt which the Fed holds simply becomes another IOU to the trust funds.

The excuse, errrr, reason they give for this is that it provides a fixed level of return for the money that we borrow from ourselves.

Last time I checked we were going to 'borrow' another $1.8 trillion from the trust funds over the next ten years (though I imagine that number has changed with the recession and payroll tax cuts that are being discussed)



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