The Economic Consequences of Disappearing Government Debt

Brian P. Sack and

BPS

Brian P. Sack Macroeconomic Advisers, LLC

Vincent R. Reinhart

VRR

Vincent R. Reinhart American Enterprise Institute

John Heaton

JH

John Heaton

FEDERAL BUDGETARY DEVELOPMENTS in the United States of late have
been fast moving and nothing short of outstanding: The latest projections
of the Congressional Budget Office (CBO) peg the federal surplus for fiscal
year 2000 in excess of $230 billion, around $50 billion more than its
forecast of just six months earlier. For a generation accustomed to mounting
government obligations and dire warnings of adverse macroeconomic
consequences, a surplus in 2000 amounting to 2.4 percent of nominal
GDP—the largest since 1948—would seem to imply a changed economic
landscape.