Well, maybe the question is oversimplified…
For some reason, I can’t find current numbers, but when I heard it on TV last week it was some absolutely stupendous figure (US national debt) that I had a hard time wrapping my head around. I remember asking myself if they could ever pay it off?
Hypothetically, if the US did pay off the debt, would that be a good thing or a bad thing for the economy?
[politics removed -manhattan]
Yes, we could pay it off, with a decade or two of 1990’s level surpluses. The debt isn’t yet greater than our annual GDP. If you owed someone a year’s salary, it would be tough to pay it off but you could. But the other question is, is paying off the debt the best thing to do? Well, in general it would be good to be pretty much debt free. But debt can also finance important investments. Many people in America have mortgages to pay for their houses. This is good debt. Other people have maxed out credit cards from paying for day to day consumption. This is bad debt. Which one the national debt most resembles is left as an exercise for the reader.
One major point to consider… the US can’t pay off it’s debt. The majority of that debt is owed to bondholders. Unless you can convince them to turn in their bonds, the US will still have that debt.
Zev Steinhardt
Zev, while that sounds reasonable, it demonstrates that you are not in the finance industry.
Bonds are VERY easy to pay off early.
Three major mechanisms are:
“Call” Most bonds have a call date, a date where they can be paid off early, usually at slightly above the price if they were allowed to mature (as in 102 cents on the dollar instead of 100 cents on the dollar).
Buy back. These bonds sell on the open market. That is how people can tell you what treasuries are doing today, as opposed to having to wait till the next time the US issues them. If the U.S. Government buys back their own debt on the open market, it is gone.
Escrow financing. This is more complex. Basically, what they do is place the debt in a special escrow account and put assets capable of paying it off in that same account. The accountants declare it to be a net value of 0, and ignore it. If interest rates are favorable, this can be profitable. The US has rarely done this, mainly because there is some risk and some potential profit in it (depends on the other assets).
You’re correct, Tarkin, I’m not.
Thanks for the info.
Call: All most government bonds callable?
Buy Back: What percentage of bonds are actually on the market at any one time? For example, I’m sure that many savings bonds are just sitting collecting dust (and interest) and not available for sale on the market. In addition, wouldn’t a massive buy back just escalate the price of the bonds? The government would probably have to end up issuing bonds to recall the bonds. 
Zev Steinhardt
I’ve read that Andrew Jackson purposely created the debt when he dissolved the Bank of America (?) - the theory was that people wouldn’t let a government fall that owed them money.
I’d say you heard wrong, Bob. That’s more Alexander Hamilton that pushed that viewpoint.
In theory paying down the debt wouldn’t be hard. Given that all the debt is in limited term bonds (varying levesl up to 30 years, I think) all the United States would have to do is stop issuing bonds for that length of time. At the end of that period bang! No debt.
That’s without even trying to pay it off early.
And as long as I’m wishing I’d like a pony.
Tarkin, I couldn’t agree with you more, but it’s been suggested that politics stay out of General Questions.
Debt of the magnitude we’re seeing is a fairly new phenomena. As has been stated, the debt has varying terms, so the question is more “when will enough funds be freed up to meet our debt obligations without issuing new bonds?”
Certainly not as sexy when put that way.
“Hypothetically, if the US did pay off the debt, would that be a good thing or a bad thing for the economy?”
Think of all the money we would be saving on not paying interest on it, that money could go back to the taxpayers & they would spend it on things. Thus, could be good for the economy.
Must U.S. Government bonds are non-callable. The assets that must be placed in an escrow account to defease a U.S. -issued bond are, uh, U.S. government bonds. So the government can’t get rid of its debt by defeasing it.
Remember that a lot more government debt comes due in any particular year than even the largest surplus one can imagine would pay off. The way the government would pay off the debt would be to gradually refinance less and less of it each year, combined, perhaps, with buybacks.
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Well…saw that one coming…
Of course I agree with you about the amount of debt coming due exceeding available funds, manhattan.
But what level of debt retirement do you think would be feasible using your ‘issue new bonds to refinance some of it and pay off the rest’ system? I don’t have a handle on it. Would it take 50 years? 100 years?
Either one strikes me as infeasible for the current crop of politicians we’ve got. Call me cynical.
On whether it would be a good thing or a bad thing there are a few schools of thought on that…
First, having no finance costs in the federal budget would either a) allow lower tax rates or b) allow government services to be increased until the roads are paved with synthetic diamonds.
On the other hand…a significant debt allows the government to be assured that the rich will favor the government’s continuance. Also, having federal bonds as the absolute safest investment on earth gives investors someplace to hide their investment capital during scary times.
So there’s pluses and minuses…you make the call.
So the U.S. Government can buy back this I Bond I have at any time? Have they ever done that?
Actually, it was Andrew Jackson who paid off the national debt–a unique feat.
So, had bernse submitted this question to the SDMB back when Martin Van Buren was President, someone could have answered, “the national debt will not be paid off in our lifetimes.”
Excellent question. (Which is, of course, the GQ way of saying “I don’t know.” 
)
Last I checked, the average life of the Government bond portfolio was around 7 years. But that was a while ago. The Clinton Administration shifted to a policy of shortening the average life and the Bush Administration has continued it, so I suppose it’s a bit shorter now. The longest-dated bond I could find was the 5 3/8% of Feb. '31, and the government isn’t issuing new 30-year paper (except, I think, to trust funds like social security – I dunno the terms of those obligations offhand). So I suppose if the surplus were high enough, they could pay it off in February of 2031 or so by progressively shortening the average life. Quicker with open-market purchases of long-dated paper, but they’d have to pay up in this interest rate environment. Those '31s go for a little over 107, and the 6 1/4% of May '30 go for 118.
Of course, I offer no opinion as to whether that’s politically feasible, nor as to whether it’s economically desirable.
I hope this isn’t politics.
I suspect that this question may “beg” others, so I thought I might mention Ricardian Equivalence*. Basically, we’re just paying money to ourselves, and borrowing from ourselves. Indeed, since the rich pay most of the taxes and, IIRC, own most of the relevant bonds, Ricardian Equivalence may be a very good model.
The thing is that while it may be legally or technically feasible to pay off the debt, that doesn’t mean we “can get out of debt” in the real world. This is how I am thinking of the problem. The gov’t. borrows money at low% interest from The People. It pays off The People over time. To pay off the debt, The People would have to sacrifice current consumption, in the form of gov’t. spending. But current gov’t. spending often has a high rate of return–roads and schools and police and stuff. Paying off the debt means that The People have to take money out of high% investments to pay off low% debts. So paying off the debt may be the sort of financially unsound decision that no sensible person would undertake. If I’m correct, then it really isn’t feasible to pay off the debt, not for any institutional or physical limitation, but because of financial/economic limitations.
*Ricardian Equivalence just means that the burden and the benefit from gov’t. debt balance out to no net effect.
The current US debt to the penny:
As of April 1, 2003 - $6,460,741,982,363.11
Source: http://www.publicdebt.treas.gov/opd/opdpenny.htm
If you want to see how that breaks down, see http://www.publicdebt.treas.gov/opd/opds022003.htm (last updated February 2003).
I’m too lazy to dig up the article, but I read somewhere that if a dollar is invested at some modest interest rate (say 3% over inflation), it would grow to more than the value of the solar system in about 1000 years.
Couldn’t the US government, expecting to last hundreds of years, invest some piddly amount (say a million bucks) and after a while, it would grow big enough to wipe out the debt and create an endowment to make taxation completely unnecessary?
Yes, it could. But the money may be better used elsewhere, e.g. education or not taxing that amount and leaving it in the private sector. By the time that little amount grew to the point of funding the gov’t., an equivalent amount elsewhere might have grown by an astronomically higher amount. So in that regard, it would be a poor investment.