THE DECLINE OF THE FEDERAL DEBT: LIFE WITHOUT HAMILTON’S BLESSING?

As budget deficits turned to surpluses and the federal debt began to shrink at the end of the 1990s, the possibility that the federal debt could be eliminated arose. This paper provides historical analysis of the debt to help decide if the nation’s economy would be healthier without the federal debt. After presenting the history of the debt, the paper assesses the trends of the major components of the debt — the portions owned by the government, the Federal Reserve, and private investors, both domestic and foreign. That leads to a final consideration of the economic implications of eliminating the federal debt.