Friday, October 21, 2011

Paying off the Debt

An interesting article about a report written in 2000 that explained some of the pros and cons of the US paying down all of its debt. While we tend to think that a nation without debt is the ideal, the report points out some of the issues we would have if our economy did not operate with debt.

The biggest issues, the report claims, is that treasury bonds would no longer work. Treasury bonds operate based on our current debt. It's how we continually move money around, how businesses borrow from the government, and how our economy basically runs while we continually rack up debt. The idea that such a fundamental piece of our economy would no longer be solvent is a bit daunting.

However, think about what a debt-free nation would be like. We wouldn't have to worry about defaulting. We wouldn't have to worry about a crisis of confidence. We wouldn't have to worry so much about the economy because it would be in the black.

The point of the article is that, like the unemployment rate, a little bit of debt may not be such a bad thing. Debt forces us to be more fiscally responsible, and allows us to show we can continually make payments on our debt. When a person has a credit card, the thing that raises their credit score is being able to make payments on their accrued debt. If they have no debt, they don't build credit.

On the other hand, eliminating all of our debt would allow us to put more money into our own development, which we desperately need to do. I would rather have to solve the problems of a debt-free world than a debt-ridden one. Having experienced the latter, I'm keen to see what the former is like.

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