Ten Trillion And Counting

In early 2009 the PBS investigative series FRONTLINE did a show called Ten Trillion And Counting about America's debt. We are already nostalgic for the time when the total Federal debt was only $10 trillion. The Chicago Tribune just ran an article called A Tsunami of Red Ink about our growing debt, so this seems like an opportune time to explain some basic stuff to you about how that debt is accounted. The Tribune ran a bunch of graphs like this one—

This data pretty much speaks for itself with one exception—what is the difference between debt held by the public (dark red, left graph) and debt held by federal government accounts (light red, left graph)? Clearly it makes a big difference if we exclude the latter, which is called intra-governmental debt. This debt load is money the government owes to itself.

The FRONTLINE analysis included intra-governmental debt, so that's how they got the $10 trillion number as of early 2009. The Office of Management And Budget (OMB) objected to their inclusion of this debt. The OMB's view was that money the government owed itself should not count as "real" debt. In other words, the OMB was annoyed that FRONTLINE used America's gross debt, not the debt held by the public—

Most economists and budget analysts use debt held by the public and — not gross debt — as the most meaningful measure of the government's current fiscal position. This is a point of wide agreement among analysts, across political parties...

And, this is a (perhaps rare) point on which this Administration agrees with the prior one. For instance, in the 2003 budget, the Administration wrote, "[Debt] held by the public is a more meaningful measure of the government's effect on private financial markets" than debt subject to limit (which is a very close cousin of gross debt). (See [Budget Implications of the War] in the discussion related to the debt limit.)

Here's why:

Intra-governmental debt. Gross debt now includes about $4 trillion in "intra-governmental debt" -- the majority of which is held in the Social Security trust fund. This is debt that the federal government "owes to itself" -- and, as such, does not represent a "fiscal burden." (Perhaps one part of the federal government owes money to another part of the federal government, but, if so, this nets when you take the federal government as a whole.) Therefore, gross debt is not a way of measuring much of anything meaningful -- ie. the extent to which federal government borrowing is affecting the debt market; the federal government's ability to pay its obligations; etc.

The budget projection back in 2001 perfectly captured why "gross debt" is not a meaningful measure... [Etc.]

FRONTLINE responded to the OMB's complaint—

As the OMB correctly points out, there is a difference between gross debt and publicly held debt. Gross debt includes both publicly held debt (bonds and Treasury bills held by foreigners, corporations, individual citizens, investment vehicles, etc.) and intra-governmental debt such as special securities the federal government prints when one part of the government owes funds to another. The two Social Security Trust Funds hold the bulk of these securities. (For more on how this works, see this page on the Social Security Administration's Web site.)

For years surplus Social Security taxes -- what's left over after paying out Social Security benefits -- have been used to pay for other government programs. The securities are therefore an I.O.U. from the government to pay the Social Security Trust Funds in the future.

Administrations, both Republican and Democratic, like to count only publicly held debt -- approximately $6 trillion of the $10 trillion in our report's title -- when asked about the size of the nation's debt. As for the approximately $4 trillion in intra-governmental debt, OMB simply zeros this out. However, for purposes of our reporting, we believe that to do so would be to create an inaccurate description of our nation's overall debt problem.

Most economists look at the publicly held debt as the figure that has the most immediate impact on the economy. If the government issues too much public debt relative to the size of the economy as a whole, it can drive up interest rates for other types of borrowing. At some point, creditors may worry about the government's ability to pay back all its debt. (Currently, the Congressional Budget Office projects the Obama administration's proposed budget would result in deficits totaling $9.3 trillion over the next decade.)

OK, here's the kicker. Ready?

But if the publicly held debt represents the impact of government borrowing on the current economy, then intra-governmental debt represents the future promises we have made. Due to the retirement of the baby boomers and rising health care costs, under some projections Medicare and Social Security will run out of money. If this happens, the trust funds for those programs will have to start cashing in those I.O.U.s, and to pay them the government will need to borrow more from the public. Or it could raise taxes to cover the shortfall, or it could make cuts to the programs to make them less expensive. If our future economy grows more robustly than expected, it will be easier to pay for these commitments, but the intragovernmental debt is not simply going to evaporate.

Viewers are entitled to know that the country faces both an immediate and a long-term debt challenge. If we were not as clear as we should have been about this distinction in our broadcast, we nonetheless stand by our decision to highlight what we consider to be the true dimensions of the problem by using the gross debt figure of $10 trillion -- now more than $11 trillion -- and counting.

This seems clear enough. The Empire Federal Government has actively sought to hide its long-term debt problems from American citizens, as they did in this letter to FRONTLINE. They have created multi-trillion dollar intra-governmental IOUs by stealing borrowing from Social Security to pay for things that ordinarily would have necessitated more debt held by the public. And "the public" apparently refers to everybody on Earth, because the largest holders of this "public" debt are China, Japan and the UK (in that order).

FRONTLINE says that its viewers are entitled to know that the country faces both an immediate and a long-term debt challenge, but that is not the view of the Republicans, the Democrats or the White House (ie. the OMB).

Of course, FRONTLINE is right. You are entitled to know, and now you do.

Comments

[Ron Beasley]

As long as the ultimate entitlement program - the military industrial complex - is off the table the entire conversation is meaningless. Hegemony has a cost and that cost is a decline of empire.