Saturday, 2 January 2010

In 2000 Clinton’s economic advisors predicted wiping out the US National Debt by 2015!

The following passage is taken from “Functional finance and the US government budget surpluses in the new millennium” by L. Randall Wray, Professor, University of Missouri—Kansas City.

According to President Clinton's 1999 and 2000 State of the Union addresses, we are on a course to run federal government budget surpluses for the next 15 to 25 years. On current projections, these surpluses are so large that all the publicly held debt of the US government would be completely eliminated by 2015.

The President actually proposed that some portion of the surplus be “set aside” to be held in Social Security trust funds. For example, if a budget surplus of $100 billion were to accrue in one particular year, $100 billion worth of government bonds held by the public would be retired, while perhaps $60 billion worth of new government debt would be created to be held in the trust fund. This would be described as “saving” 60% of the budget surplus to be used later when baby boomers retire.

The President’s analyses have been well received. A number of prominent economists, including at least six Nobel winners circulated an open letter after the 1999 State of the Union address dubbing the president's plan "good economics" and stating that "Although no one can predict how large the budget surpluses will turn out to be, we can be sure that saving them by reducing outstanding government debt is an excellent way to ease the burden on future workers of supporting an aging population."

Lawrence Summers, now Secretary of the Treasury, and Janet Yellen, chair of the President's Council of Economic Advisers, assured us that the president's proposal to "lock away" most of the projected budget surpluses in the Social Security Trust Fund is based on "sound accounting" and that it will extend Social Security's solvency through 2055.

David Broder's Washington Post article (February 7, 1999) proclaimed the plan to be "the greatest gift to our children" because it will "help grow the economy" by "raising national savings."

Little did they know . . . .

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