What If We Paid Off The Debt? The Secret Government Report : Planet Money : NPR

It sounds ridiculous today. But not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system.

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.

What do you do with the money that comes out of people’s paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?

In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.

via What If We Paid Off The Debt? The Secret Government Report : Planet Money : NPR.

A good example where an institution has its own life after birth due to entanglement with other institutions

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