$13 Trillion of Debt…Nothing to Show For It
Recently a Senator made the following statement:
“We have managed to acquire $13 trillion of debt on our balance sheet” and, “in my view we have nothing to show for it.”
What right wing Republican made that statement? Well actually it was Democrat Senator Michael Bennet of Colorado.
Of course Bennet’s rhetoric is completely belied by his drunken sailor voting record when it comes to spending. However his statement is still interesting for two reasons:
1. It demonstrates how rather than defend the insane fiscal policies of the current administration, Democrats in Congress are beginning to see how quickly they can turn their coats inside out and test just how stupid voters truly are.
2. It hits the nail directly on the head. This current administration has mortgaged our future, and the future of our kids and grandkids and got bupkis for it. The economy is still in the tank, no great public works like Hoover Dam have been completed and no wars have been won. Instead we have had the Feds shifting money to bankrupt state governments for road projects which the states did not have to pay for, and thus enabled them to avoid the day when they would have to get their fiscal houses in order. At least a con man on the street provides some entertainment value to the mark of the con as he is being fleeced.
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Digest of Top Posts in St. Blogs
One economist after another says that public expenditure is an inefficient means of manipulating aggregate demand unless you have slack in the economy a good deal more severe than we have seen or says that the characteristics of the economy have changed in the last 70 years and it no longer has the practical effect it once did. The economic numbers produced by the Bureau of Economic Analysis and the Bureau of Labor Statistics indicate the stabilization of production levels last year occurred too quickly after the stimulus was enacted to be attributable to it. Japan went up to its eyeballs in debt over a period of 13 years to no discernable effect. Yet, not too many weeks ago, I see Joseph Stiglitz on television saying the stimulus was ‘not big enough’. You begin to wonder if there is not some hidden agenda there.
One other thing, Treasury issues held by the public are approaching $9 tn. The bulk of the remainder are held by the Social Security Administration as parking places for payroll tax revenue. The Federal Reserve holds about $0.9 tn.
Point of Information,
The $4 trillion held by SS and Medicare trust funds is not sitting in a vault or in an FDIC-insured checking account. It’s US, nonmarket debt paper. It may as well be Confederate dollars.
Once SS/Medicare tax receipts (cash paid by you) fall below the benefits cash pay-outs, the guvmint will need to tax you to repay to SS/Medicare the UST debt paper and they pay benefits.
Plus, the guvimnt will need to tax somebody to just pay the interest on the other $9 trillion.
Whence the fit hits the shan.
PS: The $.9 trillion held by FRB – they printed that money. It’s called monetization of the debt.
PPS: Does the debt figure include $1.6 trillion FNM/FRE directly owe and $6 trillion they indirectly guaranty?
The debt figure would not include loan guarantees, no. The federal government’s liabilities with regard to Fannie Mae and Freddie Mac are not the face value of the outstanding mortgage-backed securities but the future losses due to defaults.
The Federal Reserve always maintains a stack of U.S. Treasury securities with which to trade. While I think this stack has increased some in the last two years, the large run up in the Federal Reserve’s balance sheet has been from the purchase of Fannie Mae and Freddie Mac debt. It made sense to increase the size of the monetary base given the increase in demand for real balances, which is why prices have been fairly stable in the last two years, rather than declining at a 9% rate, which is what they did during the period running from 1929 to 1933.
Will Rogers said, “It ain’t what you don’t know that gets you into trouble, it’s what you know that ain’t so.”
So what?
Point of clarification,
“The $4 trillion held by SS and Medicare trust funds is not sitting in a vault or in an FDIC-insured checking account.”
That’s true, as far as it goes.
- If it were sitting in a vault, that’d be deflationary, which would be bad.
- If it were sitting in a checking or savings account, that would suggest it was being invested somewhere and generating a positive return. I wouldn’t have a problem with this, but I think a lot of folks would get the willies if the Federal Government held $4T in stocks and corp bonds as a matter of course.
Obviously, the Federal Government spends its FICA and Medicare tax receipts pretty much the moment it receives them. The non-marketable bonds are an IOU.
If the Federal Government does its job well, its efforts (which cost money to perform) will continue to create an environment in which the private economy grows, which eventually provides the taxes to honor those IOUs without increasing the individual tax burden.
If the Federal Government does a bad job, they’ll honor the IOUs via higher taxes and additional deficit spending.