A balanced budget may not have been such a good thing after all, according to a new report classified for over a decade and recently released by NPR’s Planet Money team.
As the world watched Europe’s leaders continue to deal with their continent’s debt crisis this week, NPR Planet Money reporter David Kestenbaum received a declassified document that dates back to the final year of the Clinton Administration. The document predicted a financial crisis similar to the one the stock market faced in 2008, but caused by an unlikely source: a debt-free United States.
The report, “Life After Debt,” is a small document, about 12 pages in length. It was supposed to be included in President Clinton’s final “Economic Report of the President,” a publicly available, annually published report put out by the President’s Council of Economic Advisers.
Written by economist Jason Seligman, the report made the argument that if the government continued to buy back public debt, investors and other treasuries would not have a benchmark to price riskier assets with.
According to the report, “Because of their abundant supply and because they are backed by the full faith and credit of the U.S. government, Treasury securities have traditionally supplied investors with an asset that is highly liquid and free of risk.”
The report continues, “By running surpluses instead of deficits, the Federal government will be shrinking rather than expanding the supply of this valued financial asset for the first time in recent history.”
In a segment on NPR’s daily show All Things Considered last week, report author Seligman said, “There’s such a thing as too much debt, but there’s also such a thing, perhaps, as too little.”
He said that the world needs Treasury Bonds, because certain things that are guaranteed by them, like the money taken out of paychecks for Social Security, wouldn’t be able to find reliable alternatives if they no longer existed.
“Life After Debt” was rejected because it was, according to NPR, “too speculative.” Economic projections at that time were predicting a continued reduction of what was, in 2000, a $3.6 trillion public debt. In 2000 they were prediction that the public debt would reach “0” by 2011.
With a 9.1 percent official unemployment rate and a $10 trillion debt today, one economist, Diane Lim Rogers, who worked under the Clinton administration, was shocked to look at a past prediction.
“The document just reminded me of a lot of things I’d forgotten,” she said. “Like I’d completely forgotten that we were projecting that the debt would be completely paid off by 2012.”