World’s Strangest

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What If The US Government Paid Off Its Entire Debt?

The idea might seem laughable now, but 11 years ago, when the US was
running a budget surplus, the government did a secret study to find out
what would happen if it paid off its entire debt.

The study’s conclusion? Paying off the entire US debt could actually
harm the global economy!

If the U.S. paid off its debt there would be no more U.S. Treasury
bonds in the world. "It was a huge issue … for not just the U.S.
economy, but the global economy," says Diane Lim Rogers, an economist
in the Clinton administration.

The U.S. borrows money by selling bonds. So the end of debt would
mean the end of Treasury bonds.

But the U.S. has been issuing bonds for so long, and the bonds
are seen as so safe, that much of the world has come to depend on them.
The U.S. Treasury bond is a pillar of the global economy.

Banks buy hundreds of billions of dollars’ worth, because they’re
a safe place to park money. Mortgage rates are tied to the interest
rate on U.S. treasury bonds. The Federal Reserve — our central
bank — buys and sells Treasury bonds all the time, in an effort
to keep the economy on track.

If Treasury bonds disappeared, would the world unravel?

NPR’s All Things Considered has the story: Link

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October 21st, 2011

Stranger to the World


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