Re: The Real U.S. deficit and Debt

From: William F Hummel (wfhummel_at_comcast.net)
Date: 11/04/04 

Date: Thu, 04 Nov 2004 23:01:47 GMT

On Thu, 04 Nov 2004 21:36:13 GMT, thorne.2@osu.edu (Charlie Thorne)
wrote:

>On Thu, 04 Nov 2004 17:46:35 GMT, William F Hummel
><wfhummel@comcast.net> wrote:
>
>>On Thu, 04 Nov 2004 17:12:42 GMT, thorne.2@osu.edu (Charlie Thorne)
>>wrote:
>>
>>>On Thu, 04 Nov 2004 16:12:22 GMT, William F Hummel
>>><wfhummel@comcast.net> wrote:
>>>
>>>>On Thu, 04 Nov 2004 14:21:42 GMT, thorne.2@osu.edu (Charlie Thorne)
>>>>wrote:
>>>>
>>>>>Now that the election is over, treasury is announcing the problems of
>>>>>the current Federal Debt. Treasury will be selling $51 billion of
>>>>>bonds (3, 5 and 10 yr) to cover the deficit for the next two weeks.
>>>>
>>>>In spite of the large Bush deficit, only about 12% of Treasury
>>>>securities sold add to the debt. The rest are sold simply to redeem
>>>>maturing securities, known as rolling the debt over -- a basically
>>>>even exchange.
>>>
>>>Also, according to the Treasury, the $51 billion is the limit treasury
>>>can sell and will hold the government till Congress can increase the
>>>debt limit by $690 billion to hold over till the end of the fiscal
>>>year.
>>>
>>>That's an increase to $8.074 trillion that doesn't count the "funny
>>>money" of other agency debt. Fannie Mae and Freddie Mac along have
>>>$1.7 trillion in debt. There's also the huge debt owed to Social
>>>Security that is not counted as part of the debt, but it is spent by
>>>the Federal Government.
>>>
>>No, the $8 trillion being authorized does include intragovernment debt
>>like Social Security. Intragovernment debt is what one pocket owes to
>>another within the government, a basically meaningless accounting
>>game. The debt that counts is what is owed to the public on which
>>real interest payments are made and which must be redeemed as it
>>matures. That totals about $4 trillion.
>>
>The Social security debt is in fact owed to the public as well as
>being an intergovernmental debt. That assumes that the government will
>in fact honor the debt it owes those people who have contributed to
>the fund. In your theory, the fund doesn't exist and will never be
>paid. Unfortunately, Bush's program is that it won't be paid.

I did not say the Social Security Trust Fund does not exist and will
never be paid. I don't think Bush has said that either. A trust fund
must use its income for the purposes designated by law. However a
government trust fund is not a trust in the ordinary meaning of the
term. As the government puts it in Analytical Perspectives, FY 1996,
p. 251 at http://www.gpoaccess.gov/usbudget/fy96/pdf/bud96p.pdf:

"The Federal budget meaning of the term trust differs significantly
from its private sector usage. In the private sector, the beneficiary
of a trust owns the income generated by the trust and usually its
assets. A trustee, acting as a fiduciary, manages the trust assets on
behalf of the beneficiary. The trustee is required to follow the
stipulations of the trust, which he cannot change unilaterally. In
contrast, the Federal Government owns the assets and earnings of
Federal trust funds, and it can raise or lower future trust fund
collections and payments, or change the purpose for which the
collections are used, by changing existing law."

There is no reason the government couldn't arbitrarily increase the
interest rate it "pays" to the Social Security Trust Fund. That would
extend the period during which the Trust Fund would cover the promised
benefits. But that is mere bookkeeping, and has no bearing on how the
government finances its spending. Ultimately all spending is covered
by taxes and the sale of Treasury securities. The only debt that
counts in terms of government finance is the total of bills, notes,
and bonds that have been sold to the public.

Relevant Pages

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