The basic premise of this article is suspect. The US would still issue enough T-Bills to provide stability even in a zero-debt scenario... it would simply buy other safe, long-term assets to hold.
If, for example, the US were borrowing money at 3% by issuing T-Bills, it would just buy a basket of high-grade foreign and corporate debt at 3.5% and earn a spread of 0.5% while continuing to provide adequate liquidity of T-Bills.
Australia faced the same issue over the period 2006-2009 when the national debt became a surplus. The bond market didn't implode as this article would predict. Rather the govt simply continued to issued bonds and bought other assets to keep the market alive.
The bond market actually did very well - in 1998 there was approx $167BB of govt debt issued while in 2008 there was $480BB.
>The basic premise of this article is suspect. The US would still issue enough T-Bills to provide stability even in a zero-debt scenario... it would simply buy other safe, long-term assets to hold.
The US has no reason to issue T-Bills in a zero-debt scenario, through. The only reason that the US government has to sell bonds like T-Bills is to make up for the difference between income(taxes and fees) and costs. If the budget is completely balanced, there is no reason for the government to sell off bonds of any form, since they would need to pay them off with interest at a later date.
True, but if you had zero debt it might well be appropriate to issue some. for example, suppose you want to build a vast new infrastructure project; it may make more sense to borrow to do so if the cost of capital is lower than the opportunity cost of waiting for the money to accumulate.
You're right. State and city-level governments do bond sales for this exact reason.
However, I was assuming that the size(and budget) of the federal government is large enough that if it were completely balanced, and all debt was paid off, they would have enough surplus cash(or the ability to redirect funds) to invest in a large-scale project like that. Short of another world war, I don't think that there are really any projects that would absolutely require this kind of immediate investment by the public.
To lift a line from one of last year's best films: You mustn't be afraid to dream a bit bigger, darling.
You can always go bigger, and in such an incredibly desirable position as you describe, the potential economic feedback loop from going even further with investment in infrastructure and public services is too big to ignore.
Imagine an alternate universe in which there is still a Glass-Steagall act, the Bush tax cuts were never passed, the Afghanistan and Iraq wars were never started, the financial crisis was limited to a few isolated dominoes, and the US is on track to pay off its sovereign debt completely by 2016. We could build a competent, national network of high speed rail without borrowing anything. Or, we could borrow again and build a world-class rail network, invest heavily in education, transform the nation's healthcare system, revitalize NASA... There is always room for more investment.
Also, this is a really depressing fantasy to return from.
That's a fantasy which could never have come to pass in any universe. The only reason the budget was in surplus (technically) is the economy was so white hot revenue was coming in faster than Congress had anticipated. As soon as this was apparent, our legislators were falling all over themselves to spend money on their pet pork projects.
We would have ended up in the hole anyway, since the revenue burst was bubble induced and destined to go down. But even if that wasn't true they would never have allowed the surplus to continue.
Even then it was imaginary, because the growth in Social Security and Medicare spending was always going to outstrip revenue under the rosiest of scenarios.
But by doing that, you have an inherit risk of potentially getting a worse return than the bonds you issued. The government shouldn't be in the investment management industry. They already have enough issues trying to manage the country.
Ask the people that bought gold in the late 70s how safe their investments were. Gold prices crashed in 1981 and never rebounded until the gold bugs returned in the mid-2000s.
Commodities and currencies fluctuate against each other. Over longer terms, the value of currencies tends towards zero. Everything depends on the time frame you are looking at.
Dollars originally were redeemable in gold. But because of inflation of the money supply (i.e. creating more dollars) the US didn't have enough gold to pay their outstanding debt (i.e. the dollars out there being held by other countries).
So Nixon was forced to sever the dollar's tie with gold in 1971. At that point the dollar is a fully flexible (or fiat) currency.
Look at the price of gold in that chart since 1971.
That's not the value of gold going up. It's the value of the dollar going down.
Gold supply is relatively stable. It takes investment and time to mine new gold, so only a small amount is introduced into the economy each year.
New dollars are added to the economy at a terrifying rate. Every fiat currency in the history of mankind has always gone to zero.
It could, but fun fact: The US dollar is also a US government liability. (Technically, it is usually listed as a liability of the Fed, but since the Fed is part of the government, that's really just a smokescreen.)
So you would be exchanging one liability of the government for another one. If you are so blasé about high levels of outstanding government liabilities in the form of cash (imagine the amount of physical bills that would have to be printed! ;-) ), then why not just stick with what works today, namely high levels of outstanding government liabilities in the form of debt?
I don't want to pick on you specifically, but man would those discussions on HN be more fruitful if people were aware of basic facts in macro-economic accounting.
If, for example, the US were borrowing money at 3% by issuing T-Bills, it would just buy a basket of high-grade foreign and corporate debt at 3.5% and earn a spread of 0.5% while continuing to provide adequate liquidity of T-Bills.