What SHOULD the National Debt be reduced to?

Many people want to reduce the national debt. But the country’s debt is not like personal debt. People actually LIKE government debt–it gives them safe ways to invest. So reducing the debt to zero would mean that no one would be able to invest in treasury bonds, etc.

So to what level should the gov’t. be trying to reduce the debt? Is a billion-dollar debt enough to satisfy investors but not hurt us in the future? 500 billion? A trillion? 50 million?

Setting a specific dollar amount is not the answer. Rather, I think the total assets controlled by the federal government should be divided as a certain percent acquired from taxes and the remainder from loans. IMHO, that break down should be as close to 50/50 as possible. That seems to be the set up that most large corporations find comfortable for the long term, and the government should probably operate along those same lines.

Well, considering this is one of the major areas of interest for macroeconomists and has been discussed for years, it may be a tad difficult for us to find an answer, at least in terms of efficeincy. :slight_smile:

But the bond system just takes money from those who earn money (via taxes) and gives it to those who already have money (via interest). It is just a boondoggle for the rich against the middle class – or otherwise the rich are just ultimately paying themselves back their own money which doesn’t do anyone any good.

The long-term value of the US Treasury bond is important enough by itself to be worth paying a certain interest rate, even if the government didn’t need any money at the time. There has never been a nation in history with the credit rating enjoyed by the United States. While I oppose debt funding in general as fiscally irresponsible, the benefit of this cornerstone instrument is worth paying for.

That said, it is not worth paying for huge piles of them, and the sheer number of them does not increase their worth to us as a nation. If we had an outstanding debt that was maintained at a level equal to our projected annual income, the cost would be bearable, the market reliable, and the outlook for additional borrowing in times of sudden need much greater. Even twice our projected one year income would be a vast improvement. (After all, this is generally a thirty-year debt instrument.)

Of course, that would kick the props out from under the debt market. The absence of the enormous, and reliable pile of US debt would free many billions of dollars in investment seeking capital, and drive interest rates down by multiple percentage points, worldwide. The banking industry would find this undesirable, after all, they make a lot of money out of that difference in debt level.

the people looking for SAFE places to invest know damn well the government gets its money from taxes. so someone wants me working to pay taxes to give them a SAFE place to invest. they can kiss my a$$.

its just another economic power game strategy.

Dal Timgar

Jesus. Oddly enough, I agree with dal here. Why should the feds subsidize safe investments for the rich? Besides, even if the federal government pays the debt off completely, there will still be all the construction bonds that local governments issue.

Hey, but maybe the feds should operate the same way. Want a new Aircraft Carrier? Issue 30 year bonds to pay for it, rather than out of yearly taxes. But still, why should the taxpayers have to pay interest to bondholders when we can pay for things out of pocket? Debt makes sense if there is a crisis that can’t be paid for out of current revenues, like a war or depression. During good times our debt should be zero.

Hey, why not. I mean it’s not like ripping out one of the foundations of the world’s economic and financial arrangement wouldn’t be fun to watch.

The idea that the rich are the only people who invest in T-bills is somewhat in error. The days of “Only rich people invest in securities” are long gone.

Everyone uses T-bills. They are risk free investments, used by financial planners far and wide to manage risk in portfolios for everyone from Warren Buffet to little old Aunt Minnie who’s dependant on her pension from 30 years of teaching grade school. In the first quarter of 2000, penison funds alone held $400 billion worth of Treasury Securities. Mutual funds, banks and insurance companies held nearly a trillion dollars worth of Treasury offerings. Kick in Savings Bonds for another nearly $200 billion and you realize that the middle class, directly or indirectly consumes nearly half of all the publicly held Treasury Securities.

Source: The Treasury Bulletin; December, 2000 (Ownership of Federal Securities, page 3)

Deficit financing of the Government is not the smartest idea that has ever come down the highway, but in deciding to eliminate all Treasury Securities one of the foundations of finance and investment is going to be ripped out of the world of economics.


Sorry, see I just scored some real live rum here, which is a pain, and I had to test it. And… I should go to bed soon.

Cheers to you Collounsbury!!

As an aside, I hasten to point out that the Federal Government could continue to run budget surpluses without running down the stock of treasury securities. They would do this by buying corporate bonds. One method of doing this would be to allow the social security and medicare trust funds to purchase corporate bonds. To my surprise (and confusion), I found that there may be limits to this technique however, as I indicate below.

To answer the OP, if you believe the GW Bush administration, the target is about 2 trillion dollars worth of debt. Beyond that, they say it becomes expensive to buy additional treasuries on the open market. I have read no substantiation for that claim.

The following report touched on some of the problems associated with continued budget surpluses. (BTW, IMHO our elected leaders will succeed in doing away with chronic surpluses long before these sorts of problems occur.)

The paper had an interesting table:
Table 5. A comparison of the size of some important bond markets
($US billion, end-1998)
US government (a) … 3 355.5
Japanese government … 2 590.4
US non-financial corporates …1 621.8
US government-sponsored enterprises (b)… 1 273.6
US asset-backed securities issues …1 012.8
[sub]a) Total marketable interest-bearing Federal debt.
b) Securities issued by Federal Home Loan Banks, Fannie Mae, Federal Home Loan Mortgage Corporation (Freddie Mac), Farm Credit System, the Financing Corporation, the Resolution Funding Corporation, and the Student Loan Marketing Association (Sallie Mae), not including mortgage-backed securities (MBS).
Sources: Board of Governors of the Federal Reserve System, Flow of Funds Accounts of the United States; Bank of Japan, Financial and Economics Statistics [/sub]

Note how small non-financial corporates are relative to US Treasury debt. Apparently though, household debt is larger than Treasury debt; I’m not sure what share of household debt is securitized. The government could also buy equities, of course. And the government could also try holding a larger share of securities issued by government-sponsored enterprises. (The latter, BTW, are not backed by “the full faith and credit of the US government”.)