Every now and then I hear something like, “using accounting gimmicks, the Federal government can hide how much it borrows.” This implies that there are a bunch of ways the Feds can borrow that I haven’t heard of, because the only way I can think of - issuing bonds - seems like it should be pretty easy to find.
T-bonds, T-bills, Savings Bonds…
What other ways does the Federal government borrow?
(I hope it’s not a credit card.)
Loans from one part of the government to another are probably the most common accounting gimmick.
The Social Security Trust Fund currently has accumulated cash savings of over $2.5 Trillion (yes, that’s Trillion with a “T”) But they don’t just stuff all these banknotes under their mattress; they invest them in U.S. Treasury debt instruments. If Soc Sec is a government function, should that debt be counted or not? I owe my wife from a playful bet we made yesterday, but that debt has no effect on our net family debt.
I’m not trying to trivialize the issue of future Soc Sec obligations, but how to account for this savings/debt is not clearcut; if you think any of the federal debt summaries you read is purely objective, let me try to sell you a bridge!
(Right-wingers, by the way, often claim that the Soc Sec Trust Fund has thrown away its $2.5 trillion recklessly on worthless paper, somehow ignoring that Treasury paper still has the highest rating in the world!)
By committing itself by law to future obligations, but not funding those obligations. The federal government has committed itself to trillions of dollars in future Social Security and Medicare benefits, but funds only a small portion of these through the trust funds. The remainder are the so-called “unfunded liabilities” which are not counted as part of the national debt, but will become part of the deficit and debt unless we make dramatic and painful changes in entitlement law over the next several decades.
But that rating is a point-in-time evaluation: today’s assessment. Baby boomer Senior citizens haven’t begun drawing on the “savings” stored in that Treasury paper en masse yet. The treasury notes have “nominal” value but not “real” value. When there’s real pressure put on the redemption of treasury debts, the government can inflate the currency (meet the “nominal” obligations) or simply default.
That’s like saying San Francisco property values are among the highest in the world – before an 8.0 magnitude earthquake hits it leaving it in a heap of rubble.
Good answers, folks. It sounds like a lot of these gimmicks are indeed pretty abstract and I can see how it would be easy to miss them.
To sum up the answer to the less-abstract side of my question:
Issuing T-Bill, T-Bonds, Savings Bonds, and the like, is the Federal government’s only way of present-day borrowing from the private sector.
Is that right? (I.e., they don’t have a bank account, line of credit sort of thing with Bank of America or anything…?)
The reason I started this thread was: I was thinking about ways a country (not necessarily the US) could try to prevent this sort of thing with constitutional measures.
I was thinking about Article I Section 8 Clause 12 of the US Connie:
To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years
Take a look a the latter caveat - a measure designed to prevent the Congress from creating the sort of permanent standing army that the Framers were against. Were you to extend that provision in the constitution of Straightdopia to every sort of spending, and combine it with,
**To borrow money on the credit of Straightdopia, but neither Congress nor any court or agency of the government shall borrow money, but in consequence of a law passed by two thirds of each House of Congress. **
On the face of it that strikes me as a better idea than a simple balanced budget amendment, at least the ones that don’t give any direction as to what to do if the budget isn’t balanced (short of calling the whole budget unconstitutional). In other words, if Congress couldn’t get veto-busting majorities in favor of a big bond issue, they wouldn’t necessarily have to cut taxes because the overlarge spending bills would just lapse on their own.
Of course because of Social Security, or rather because of immense public support for Social Security, those amendments couldn’t pass in the United States … I was just thinking of how you could do it if you were starting afresh.
If that’s what you want to discuss, then you probably should start a thread in Great Debates.
samclem, Moderator, General Questions