President Clinton recently announced that the federal government could be debt-free by the year 2010 because of its stunning transformation from borrower to saver. While just eight years ago it borrowed more than 20 percent of what it spent, this year the government is projected to take in $ 268 billion more than it needs -- most of which is slated for debt reduction.

I am an economist who embraces fiscally responsible policies and hails the elimination of the budget deficit as one of the major accomplishments of the past decade, so you might assume that I would be jumping for joy at the prospect. But I am not. Amid all the fanfare over the prospect of eliminating the national debt, and politicians scrambling to claim credit for the country's expected riches, the downside of this historic change has been largely overlooked.

Granted, it seems counterintuitive to question the merits of a debt-free government. For most of the last century the government needed to sell billions of dollars' worth of U.S. Treasury bonds, bills and notes each year in order to pay its bills. Now, with the emergence of annual budget surpluses, Washington can instead use the extra dollars to pay off the publicly held debt, which totals $ 3.5 trillion. (That figure doesn't include borrowing within the government from its own trust funds, such as the Social Security Trust Funds.) The government hasn't paid off the debt since the 19th century. But it began doing that just last year when it started buying back those Treasury bonds.

Among the most obvious benefits of getting out of debt will be the elimination of costly interest payments, which now constitute the third-largest item in the budget after Social Security and defense spending. Interest rates can also be expected to fall, because with the government no longer in the market to borrow, competition for capital will decline.

But the problems that arise from completely wiping out the debt could actually outweigh the benefits.

For starters, let's consider the buying back of all those bonds and thus the disappearance of the Treasury market, which has become an integral part of financial markets and monetary policy. It is not just bond traders who would feel the loss. Without Treasury bonds, investors would lose the closest thing to a risk-free asset and the Federal Reserve would be left without its primary tool for affecting interest rates.

Treasury bonds provide a safe haven during times of financial crisis not only to American investors but to foreign investors and governments as well. They are a benchmark against which to price other debt and derivative securities. Their absence would send a ripple of discontent through markets around the world. Without Treasury bonds as a draw, sure, foreign capital could flow to other investments in the United States. But it could just as easily head elsewhere, weakening demand for the dollar and compromising the currency's strength. Suddenly, a world without U.S. debt doesn't look so rosy.

Furthermore, budget surpluses are expected to continue even after the debt has been paid off, which means that the government would need a place to house the surpluses. What to do? Should it keep the extra money in a vault in the Federal Reserve's basement? Invest it in the U.S. stock market? Send Fed Chairman Alan Greenspan to day-trading boot camp?

If the government were just an ordinary investor with a sudden windfall of cash to invest, it would stick the money into the stock market or some mutual funds and hope for double-digit returns. But the government is a 900-pound gorilla. It can't just invest in private assets without causing huge disruptions to financial markets. We're talking about trillions of dollars in assets, not just a couple of shares. In a recent report, the Congressional Budget Office noted: "The government's net indebtedness would fall to zero within a decade, and government assets would total almost 50 percent of GDP by 2030." That would be roughly $ 18 trillion.

Large-scale government ownership of private assets seems unwise on a number of fronts. If the government were to invest the surplus directly, it would have to decide which companies' shares to buy. General Electric, perhaps? Cisco Systems? Amazon? Its decisions would greatly affect the financial well-being of the companies chosen, as well as those not. Furthermore, the politicization of corporate governance would inevitably breach what should be a fire wall between public policy and private investment strategies. For instance, if the government were a major shareholder of Microsoft, would it use its ownership influence to alter business practices? Or conversely, would it care more about stock performance than antitrust violations?

Such a back-door nationalization of private companies gives risky investment schemes a whole new meaning. Additionally, a multitrillion-dollar government portfolio would dramatically affect share prices, leaving the government facing the same issues that have plagued large mutual funds: how to invest without influencing the price of whatever shares they are trading. Even if the government portfolio were invested passively in market indices (such as the S&P 500 or the Wilshire 5000) rather than individual stocks and bonds, someone would have to decide what to own. Would the portfolio be invested in a basket of tried-and-true American blue-chip companies or an index of all U.S. stocks and bonds, either of which, in a global economy, would be considered an old-school investment strategy? Any choice would involve the government's picking winners and losers -- among groups of companies or even countries. If the government decided to diversify into world markets, it would still have to choose among Indonesia, South Africa and Argentina. With a portfolio whose performance was directly linked to market returns, the government would have a strong interest in propping up stock markets -- both at home and abroad. The State and Treasury departments might have a thing or two to say about those decisions. More investment in European markets would be consistent with our policy of supporting the euro, but would it be the best investment call?

There are some who, at this point, are no doubt thinking that the government could avoid these complications entirely by simply resorting to the more familiar policies of tax cuts or new government spending. But either plan would be shortsighted, particularly in light of this country's low personal savings rate, which at last count was negative eight-tenths of one percent, meaning that, on average, individuals are spending slightly more than they earn. The surplus should be saved -- just not by the government. We know that not long after the debt is paid off, the cost of the baby boomers' retirement and their increased health care expenses will kick in. In anticipation of these costs, the government should help Americans increase their own savings, not spend away the surpluses.

One way to accomplish this would be for the government to gradually reduce the size of the debt but stop short of paying it off entirely, allowing for the continuation of a liquid and stable Treasury market, thereby not disrupting financial markets. The remainder of the surplus would be returned to individuals directly, but with the proviso that the money be saved. As long as the surplus dollars constituted new savings, they would create more investment capital, lowering interest rates while providing individuals with increased personal savings for a limited range of uses. Specifically, surpluses could be used to either jump-start a private investment component of Social Security or to augment private savings for education, home ownership or health care expenses. Individuals would own and invest the money but, as with Individual Retirement Accounts or other restricted accounts, the dollars would be saved over time and could only be withdrawn for specific purposes or at a retirement age.

Sure it's an unusual idea, but the government requiring people to save isn't that different from requiring them to participate in other government programs, such as Social Security -- which was developed because people tend not to save sufficiently on their own. But with required personal savings, we would have ownership rights. The money in your name would remain yours.

As always in politics, the question of who gets how much would have to be debated. Some will argue that the surplus dollars should go only to the poorest citizens; others will say they should be distributed more equally. But as long as a plan were structured to ensure that the surpluses created new savings -- not merely substituting for what is already privately saved -- the economy and individuals would benefit. The problem of how the government would invest trillions of new dollars would be avoided entirely. The surplus provides us with a rare opportunity that shouldn't be wasted. And while the government should not be in the business of saving, individuals should.