# Eliminating US debt **URL:** \ **Category:** Factual Questions\ **Created:** [March 11, 2009, 9:34pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131 "2009-03-11T21:34:06Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Financy](https://avatars.discourse-cdn.com/v4/letter/f/c57346/32.png) [@Financy](https://boards.straightdope.com/u/Financy)\ **Post date:** [March 11, 2009, 9:34pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/1 "2009-03-11T21:34:06Z")
Assume Republicans are right and we end up taking on enough debt so that the Government is no longer sustainable. Does the US have any kind of ace up its sleeve to get out of this? More specifically, since we would have such large debt obligations to Japan and China, is there any short term fix available to the US Government? Would the Government be able to introduce a gigantic sum of money into the supply overnight, pay off all of its foreign debts, and then do something the next day to reduce the money supply back to normal levels? Obviously this would have potential catastrophic consequences such as the situation in Zimbabwe, but I wonder if the elimination of public debt would be better for the country in the long run. To make sure this is a factual question, what can the Government/Fed do to drastically reduce the money supply in a very short amount of time? It seems the usual elevation of interest rates would not be an option because it is doubtful that an economy in the above scenario would last very long. I know this is a fantastic scenario, but I am sure crazier things have happened in history. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [March 11, 2009, 9:40pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/2 "2009-03-11T21:40:32Z")
(Please note that I’m half-serious, but only half-serious.) America could nuke China and Japan to radioactive rubble and thereby declare the debts invalid. On a more GD note, the U.K. Govt is trying Quantative Easing. ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [March 11, 2009, 10:02pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/3 "2009-03-11T22:02:36Z")
> [@Financy](#): > > Would the Government be able to introduce a gigantic sum of money into the supply overnight, pay off all of its foreign debts, and then do something the next day to reduce the money supply back to normal levels? And where would this money come from? ---
**Author:** ![Freddy\_the\_Pig](https://avatars.discourse-cdn.com/v4/letter/f/a587f6/32.png) [@Freddy\_the\_Pig](https://boards.straightdope.com/u/Freddy_the_Pig)\ **Post date:** [March 11, 2009, 10:06pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/4 "2009-03-11T22:06:29Z")
> [@Financy](#): > > Would the Government be able to introduce a gigantic sum of money into the supply overnight, pay off all of its foreign debts, and then do something the next day to reduce the money supply back to normal levels? Most Treasury bonds aren’t “callable”, so the government doesn’t have the option of forcing creditors to accept early payment. The government does have the option of permanently inflating the currency, which will make all future interest and principal repayments more manageable. However, inflation has other adverse consequences for an economy. Furthermore, it only works if you have your fiscal house in order and _don’t need to do any further borrowing_. If you continue to borrow even after inflating your currency, creditors demand higher interest rates and eventually will insist that loans be denominated in something more stable than dollars. ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [March 11, 2009, 10:37pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/5 "2009-03-11T22:37:18Z")
**Freddy** already posted what I was going to, so I’ll add this: If the US were to suddenly void its debt, that is, say that they no longer acknowledge it or something to that effect, then that would be called a “default.” If this were to happen, the first time EVER, then it would make this country’s current economic situation look like a cake walk. The Great Depression would look like a fond memory. There is the distinct possibility of genuine worldwide collapse. Too many countries are intertwined with the dollar. What is happening now with financial stocks is what would happen to the dollar. ---
**Author:** ![engineer\_comp\_geek](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/engineer_comp_geek/32/504_2.png) [@engineer\_comp\_geek](https://boards.straightdope.com/u/engineer_comp_geek)\ **Post date:** [March 12, 2009, 12:15am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/6 "2009-03-12T00:15:00Z")
> [@Duckster](#): > > And where would this money come from? The government would print it. It used to be that a dollar had something backing it up (gold, for example, but it was other things for a while too). Today the dollar isn’t based on anything. A dollar is worth a dollar because we all agree that it’s worth a dollar. At any time we could just print up a bunch more dollars and pay off whoever we want. Of course, since our dollar isn’t based on anything, suddenly flooding the market with more dollars would have a rather disastrous effect on our own economy. So, while we could just print up money and pay everything off, it wouldn’t be a smart thing to do. Like I said, a dollar is only worth a dollar because we all agree that it is. If everyone else starts thinking our dollar isn’t worth much, then it won’t be worth much. ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [March 12, 2009, 12:20am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/7 "2009-03-12T00:20:49Z")
Well, one thing to remember is that at the end of WWII, the US national debt was about 120% of the GDP. By the time Kennedy became president, they had reduced it to under 50%. Reagan tried to blow it out of the water, but didn’t really succeed. (Bush I ran non-serious deficits.) The Clinton made serious inroads into reducing the debts and–hard as it is to imagine–at the beginning of Bush II, the gigantic surpluses were considered by some as problematic. Well, Bush II solved that problem, first with tax cuts and then vast increases in military spending. I do not believe that anything Obama has proposed would raise the national debt much of over 50% of the GDP. I think that puts it into perspective. After prosperity returns (if it does) a modest increase in taxes (nothing like the maximum marginal rate of 91% that prevailed between sometime during the war and the Kennedy administration) should bring the debt down to reasonable levels. If I may be allowed an opinion here, I think the Republican desire that Obama fail to fix the ecomony is a kind of treason. ---
**Author:** ![RogueAOV](https://avatars.discourse-cdn.com/v4/letter/r/ecb155/32.png) [@RogueAOV](https://boards.straightdope.com/u/RogueAOV)\ **Post date:** [March 13, 2009, 3:50am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/8 "2009-03-13T03:50:11Z")
Just for the sake of discussion, is there a plus side to a national debt?, for example, just assume i happened to have exactly enough cash under my mattress to clear the national debt right now. What would happen to our economy? or the worlds economy? Would money suddenly flood into free health care for all? or would taxes, rates suddenly switch to offset…what? I cant remember where i read that it was almost essential for there to be some kind of national debt, and can not fathom why. ---
**Author:** ![Jragon](https://avatars.discourse-cdn.com/v4/letter/j/e19b73/32.png) [@Jragon](https://boards.straightdope.com/u/Jragon)\ **Post date:** [March 13, 2009, 4:01am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/9 "2009-03-13T04:01:09Z")
> [@RogueAOV](#): > > Just for the sake of discussion, is there a plus side to a national debt?, for example, just assume i happened to have exactly enough cash under my mattress to clear the national debt right now. What would happen to our economy? or the worlds economy? Would money suddenly flood into free health care for all? or would taxes, rates suddenly switch to offset…what? > > I cant remember where i read that it was almost essential for there to be some kind of national debt, and can not fathom why. You’re probably remembering the old economic ideal that having debt is a plus because the people you owe it to will do everything in their power to not let you fail, because then they don’t get their money, so the best way to stay chums with everyone is to be in debt with them because they’ll do everything in their power to prop you up when things get bad because otherwise they’re out a pretty penny. I can’t really comment on everything else, but I think above it was mentioned that even if you did have the money under your mattress, you can’t just pay it off because most of the treasury bonds aren’t callable. ---
**Author:** ![Grumman](https://avatars.discourse-cdn.com/v4/letter/g/43a26b/32.png) [@Grumman](https://boards.straightdope.com/u/Grumman)\ **Post date:** [March 13, 2009, 5:13am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/10 "2009-03-13T05:13:37Z")
> [@Financy](#): > > Would the Government be able to introduce a gigantic sum of money into the supply overnight, pay off all of its foreign debts, and then do something the next day to reduce the money supply back to normal levels? How do you plan to reduce the money supply? Wouldn’t the people who possess that money object rather strongly to your plan? And if you want to print new money, give it to people, and then destroy some old money, wouldn’t you be better off just giving them some old money? ---
**Author:** ![Chessic\_Sense](https://avatars.discourse-cdn.com/v4/letter/c/7c8e57/32.png) [@Chessic\_Sense](https://boards.straightdope.com/u/Chessic_Sense)\ **Post date:** [March 13, 2009, 5:30am UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/11 "2009-03-13T05:30:33Z")
> [@Hari\_Seldon](#): > > I think the Republican desire that Obama fail to fix the ecomony is a kind of treason. I think it’s treasonous that **Hari Seldon** smuggles drugs across the US border. See what I did there? > [@RogueAOV](#): > > Just for the sake of discussion, is there a plus side to a national debt? Sure is. Right now, I’m in debt for my school loans and my mortgage. That’s good debt. For the gov’t, it’s the same thing. They get the same buy-now-pay-later benefits we get from borrowing money. They can fight wars, for one. They can stimulate the economy, for another. It’s not the debt itself that’s good…it’s what they get for it. ---
**Author:** ![Colibri](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/colibri/32/1841_2.png) [@Colibri](https://boards.straightdope.com/u/Colibri)\ **Post date:** [March 13, 2009, 7:30pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/12 "2009-03-13T19:30:00Z")
> [@Hari\_Seldon](#): > > If I may be allowed an opinion here, I think the Republican desire that Obama fail to fix the ecomony is a kind of treason. [Moderator Note] Actually, no. Political commentary of this kind should be kept out of GQ. If you want to discuss opinions of this kind, let’s take it to GD or the Pit. Colibri General Questions Moderator ---
**Author:** ![Colibri](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/colibri/32/1841_2.png) [@Colibri](https://boards.straightdope.com/u/Colibri)\ **Post date:** [March 13, 2009, 7:39pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/13 "2009-03-13T19:39:17Z")
> [@Chessic\_Sense](#): > > I think it’s treasonous that **Hari Seldon** smuggles drugs across the US border. See what I did there? [Moderator Note] Yes, you made another post of a kind we’d rather not see in GQ. I know you were trying to make a point, but if you have a problem with someone else’s post it’s better to report it rather than respond to it. Colibri General Questions Moderator ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [March 13, 2009, 8:34pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/14 "2009-03-13T20:34:45Z")
> [@engineer\_comp\_geek](#): > > The government would print it. > > It used to be that a dollar had something backing it up (gold, for example, but it was other things for a while too). Today the dollar isn’t based on anything. A dollar is worth a dollar because we all agree that it’s worth a dollar. At any time we could just print up a bunch more dollars and pay off whoever we want. > > Of course, since our dollar isn’t based on anything, suddenly flooding the market with more dollars would have a rather disastrous effect on our own economy. So, while we could just print up money and pay everything off, it wouldn’t be a smart thing to do. Like I said, a dollar is only worth a dollar because we all agree that it is. If everyone else starts thinking our dollar isn’t worth much, then it won’t be worth much. Back when our money was on the gold standard all Roosevelt had to do was freeze gold payments and the dollar was overnight converted from the gold standard to fiat currency. If you can turn gold standard money into fiat currency overnight then what good is the gold standard? Any time there is a war or an economic crisis the first thing a government on the gold standard does is renege on gold payments. The gold standard is silly. If you want to use actual gold or silver coins then fine. But a piece of paper is a piece of paper. A gold certificate only has value because you think the government is likely to trade you a weight of gold for that piece of paper. You can walk into any coin shop in the United States today and trade them pieces of paper for gold bullion. During an economic crisis the first thing the United States Government will do is refuse to trade you pieces of paper for gold anyway. Why pretend? ---
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [March 13, 2009, 9:01pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/15 "2009-03-13T21:01:16Z")
Recent statements by China’s [Premier Wen](http://www.bloomberg.com/apps/news?pid=20601103&sid=aOZ5WKjIF5aE&refer=news) highlight that even a whiff of an indication that the US might over-inflate the currency to make it easy to pay its debts would be counter-productive: > [@](#): > > Wen earlier said that China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets,” he said at a press briefing in Beijing. > … > Wen’s words contributed to a decline in Treasuries, before the losses were recouped. So long as the US needs to borrow money from foreign countries to keep the US economy afloat, it has to ensure it will pay that money back, without any jiggery-pokery. ---
**Author:** ![The\_Great\_Philosopher](https://avatars.discourse-cdn.com/v4/letter/t/3ec8ea/32.png) [@The\_Great\_Philosopher](https://boards.straightdope.com/u/The_Great_Philosopher)\ **Post date:** [March 13, 2009, 9:20pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/16 "2009-03-13T21:20:38Z")
> [@Financy](#): > > To make sure this is a factual question, what can the Government/Fed do to drastically reduce the money supply in a very short amount of time? It seems the usual elevation of interest rates would not be an option because it is doubtful that an economy in the above scenario would last very long. I know this is a fantastic scenario, but I am sure crazier things have happened in history. Is it possible to literally reduce the money supply in an economy? I understand how the government could increase interest rates and so on to slow the amount of lending in an economy, but if the money’s already out there in people’s hands I don’t see how it’s possible to claw that back without simply stealing it. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [March 13, 2009, 9:48pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/17 "2009-03-13T21:48:14Z")
> [@The\_Great\_Philosopher](#): > > Is it possible to literally reduce the money supply in an economy? I understand how the government could increase interest rates and so on to slow the amount of lending in an economy, but if the money’s already out there in people’s hands I don’t see how it’s possible to claw that back without simply stealing it. Well, for starters, one of the central bank’s methods of controlling the money supply is the sale of bonds. By selling bonds in exchange for money, they effectively reduce the money supply. When the central bank raises interest rates, the interest rate that they’re raising is the rate they charge banks to borrow money from it. This decreases the amount of money that banks will borrow from the central bank, which decreases the amount of money that banks have to lend out to others. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [March 13, 2009, 9:54pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/18 "2009-03-13T21:54:46Z")
> [@engineer\_comp\_geek](#): > > The government would print it. > > It used to be that a dollar had something backing it up (gold, for example, but it was other things for a while too). Today the dollar isn’t based on anything.. No, the US government does not do this. It is true the dollar is no longer \*backed \*by gold, but afaik, no currency is. However, the US Dollar/US Spending is based upon how much _income_ the US Government _has or can borrow_. A few governments do “just print more” and those have often had triple digit runaway inflation, aka hyperinflation. > **[Hyperinflation](https://en.wikipedia.org/wiki/Hyperinflation)** > > Empirical methods > Prescriptive and policy > In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as they usually switch to more stable foreign currencies. Effective capital controls and currency substitution ("dollarization") are the orthodox solutions to ending short-term hyperinflation; however, there are signi... There is not enough gold in the world for a return to the gold standard. All that it would do is make gold miners rich beyond beleif and they and South Africa would control the worlds economy. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [March 13, 2009, 9:57pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/19 "2009-03-13T21:57:31Z")
> [@RogueAOV](#): > > Just for the sake of discussion, is there a plus side to a national debt?, . > **[Government debt](https://en.wikipedia.org/wiki/National_debt)** > > A country's gross government debt (also called public debt or sovereign debt) is the financial liabilities of the government sector.: 81  Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occurs when a government's expenditures exceed revenues.: 79–82  Government debt may be owed to domestic residents, as well as to foreign residents. If owed to foreign residents, that quantity is included in the country's external debt. > In 2020, the valu... _In the dominant economic policy generally ascribed to theories of John Maynard Keynes, sometimes called Keynesian economics, there is tolerance for fairly high levels of public debt to pay for public investment in lean times, which can be paid back with tax revenues that rise in the boom times._ ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [March 13, 2009, 10:22pm UTC](https://boards.straightdope.com/t/eliminating-us-debt/489131/20 "2009-03-13T22:22:14Z")
Of course, what we have is high levels of public debt to pay for public investment in boom times, to be paid back with even higher levels of public debt to pay for public investment in lean times. [Next page](https://boards.straightdope.com/t/eliminating-us-debt/489131.md?page=2)