What is the USA federal debt to GDP?

[DRumsfeld2000]

This may sound like a stupid question but a lot people are spouting different levels of US government debt. I read today that the IMF wants the government to include its mortgage debt as part of government debt ie Fannie May and Freddie and this is about $6trillion.

Koltikoff talks about US debt as being almost 90%.

http://www.bloomberg.com/news/2011-0...kotlikoff.html

The site below states that the debt is over 97%.

http://usdebtclock.org/

I have listened to others who say that the debt is in the high 60%’s. Well that was from CNBC, but they were saying that the Treasuries which are being issued and bought by the US government was not debt. I do not understand that. Perhaps someone can explain it.

What is the actual US government debt level? My understanding is that it was close to 100%. This figure excludes the approximately $115trillion of unfunded liabilities.

[dcarrigg]

Re: What is the USA federal debt to GDP?

This may sound like a stupid question but a lot people are spouting different levels of US government debt. I read today that the IMF wants the government to include its mortgage debt as part of government debt ie Fannie May and Freddie and this is about $6trillion.

Koltikoff talks about US debt as being almost 90%.

http://www.bloomberg.com/news/2011-0...kotlikoff.html

The site below states that the debt is over 97%.

http://usdebtclock.org/

I have listened to others who say that the debt is in the high 60%’s. Well that was from CNBC, but they were saying that the Treasuries which are being issued and bought by the US government was not debt. I do not understand that. Perhaps someone can explain it.

What is the actual US government debt level? My understanding is that it was close to 100%. This figure excludes the approximately $115trillion of unfunded liabilities.

97.3% is the number for last fiscal year according to the US Treasury. That is IF one includes securities held by government accounts.

The statutory debt limit for that year was $14.294T. One cannot legally go over that.

But, why would you be concerned about securities held by government accounts? It's just one department of government owing another one money. No company would present its balance sheet like this.

When one includes only securities held by the public, and not what the government owes to itself, the figure drops to 58.9% of GDP as of FY 2010. This is likely to be called the "Federal public debt" or something like that in the media. Here's a graph (albeit from 2008) that separates the two out. It will make it easier to understand.



This does not include unfunded 'liabilities.' That being said, one must remember that the accounting is separate, the funding is separate, individuals pay into this, and that the US gov will probably never be on the hook for upside-down social security or Medicare payments. They will reduce benefits and eligibility before that happens. States will do the same for Medicaid. Believe me, it's already happening.

Regardless, the unfunded liability number you put forth is about 250% overstated.

Of course, one must always be skeptical of numbers proposed for 'unfunded liabilities.' They depend on investment return (in this case, rates on treasuries) and they also depend on how far out in the future one is looking, the rate of population growth, and a host of other factors.

We cannot predict the weather tomorrow, but we presume to predict how 'funded' major programs will be thirty years out. It is foolishness.

[c1ue]

Re: What is the USA federal debt to GDP?

When one includes only securities held by the public, and not what the government owes to itself, the figure drops to 58.9% of GDP as of FY 2010.

Is the money 'borrowed' from Social Security part of the 'owed itself' number? Because this is a non-trivial amount.

Secondly I'd note that a lot of the 'owed itself' debt is part of promised pension, disability, and other compensation packages/trust funds and can hardly be considered freely dismissable. This money isn't owed to nebulous government agencies, but is owed to individuals through specific programs.

The unfunded liabilities statement is correct.

I would add, however, that there is a lot of federal spending which directly feeds into state and local budgets - this in turn makes 'reduction' something which directly impacts individuals far more than most realize.

[DRumsfeld2000]

Re: What is the USA federal debt to GDP?

Dcarrigg wrote 'why would you be concerned about securities held by government accounts? It's just one department of government owing another one money. No company would present its balance sheet like this.'

That does not make sense to me as a debt is a debt. How can a government pay back a debt to itself except by taxes or I guess selling assets. A company can increase sales and earn a revenue or issue shares. I cannot see the US raising taxes as this would damage housing/consumption and the forecasts of GDP growth given by Obama in his February budget speech are very optimistic.

It seems to me that the real debt of the USA is about 100%. I also do not agree with your comment about the unfunded liabilities.

[dcarrigg]

Re: What is the USA federal debt to GDP?

Is the money 'borrowed' from Social Security part of the 'owed itself' number? Because this is a non-trivial amount.

Secondly I'd note that a lot of the 'owed itself' debt is part of promised pension, disability, and other compensation packages/trust funds and can hardly be considered freely dismissable. This money isn't owed to nebulous government agencies, but is owed to individuals through specific programs.

The unfunded liabilities statement is correct.

The money borrowed from social security is included in the 'owed itself' number (otherwise known as intragovernmental holdings). It is indeed a non-trivial amount - the total of the holdings is ~= 37% of GDP.

But I do want you to be able to think of it another way too...for example:

1) The social security trust fund takes in more revenue than it pays out in benefits
2) The fund is required by law to invest surplus revenue
3) The fund therefore invests the surplus in treasuries where it earns interest until maturity
4) The benefits are then paid out
5) All the while, this is counted as 'intragovernmental debt.'

The real problem is never on this side of the ledger. The real problem is that the Treasury often issues public debt to pay back these accounts when one of these funds 'cashes in' its holdings. Ideally, public debt would shrink and a surplus revenue would pay the intragovernmental debt back without issuing new public debt and inso doing leaving the US liable to pay out interest to entities other than itself.


For further clarification - from the Government Accountability Office:

Intragovernmental debt holdings represent balances of Treasury securities
held by federal government accounts, primarily federal trust funds, that
typically have an obligation to invest their excess annual receipts (including
interest earnings) over disbursements in federal securities. Most federal
trust funds invest in special U.S. Treasury securities that are guaranteed for
principal and interest by the full faith and credit of the U.S. government.
The federal government uses the federal trust funds’ invested cash
surpluses to assist in funding other federal government operations. The
Treasury securities held by the federal government accounts are not shown
as balances on the federal government’s consolidated financial statements
because, under current U.S. generally accepted accounting principles,
they represent loans from one part of the federal government to another.
When the federal government’s financial statements are consolidated, those
offsetting balances are eliminated. These securities are nonmarketable;
however, they represent a priority call on future federal budgetary
resources.

While both are important, debt held by the public and intragovernmental
debt holdings are very different. Debt held by the public approximates the
federal government’s competition with other sectors in the credit markets.
Federal borrowing absorbs resources available for private investment and
may put upward pressure on interest rates. In addition, interest on debt held
by the public is paid in cash and represents a burden on current taxpayers.
It refl ects the amount the federal government pays to its outside creditors.
In contrast, intragovernmental debt holdings typically do not require cash
payments from the current budget or represent a burden on the current
economy. In addition, from the perspective of the budget as a whole,
interest payments to federal government accounts by Treasury are entirely
offset by the income received by such accounts. This intragovernmental
debt and related interest represent a claim on future resources and hence
a burden on future taxpayers and the future economy. Specifically, when
trust funds redeem Treasury securities to obtain cash to fund expenditures,
Treasury usually borrows from the public to finance these redemptions.
Such borrowings result in competition for funds with the private sector and
thus an effect on the economy.

As for the next piece:

I would add, however, that there is a lot of federal spending which directly feeds into state and local budgets - this in turn makes 'reduction' something which directly impacts individuals far more than most realize.

You are absolutely correct. If it doesn't feed into state and local budgets, it often feeds into tax credits, government contracts (huge for defense), business loans, etc. Reduction will have an economic impact. The impact will not be positive. It can be phrased as a matter of short-term pain for long-term gain.

The problem with reductions is that there are existing institutions and businesses that operate around the current government structure. A broad tax increase pinches everyone, but likely sends relatively few overboard. Targeted deficit reductions will likely lead to plant closures, muni defaults, geographically concentrated unemployment, etc.

Of course, there is less of this if everything is done gradually, where people, business, and local gov can plan a couple of years out. Unfortunately, that's rarely how these things go.

To respond to DRumsfeld2000's second post:

Dcarrigg wrote 'why would you be concerned about securities held by government accounts? It's just one department of government owing another one money. No company would present its balance sheet like this.'

That does not make sense to me as a debt is a debt. How can a government pay back a debt to itself except by taxes or I guess selling assets. A company can increase sales and earn a revenue or issue shares. I cannot see the US raising taxes as this would damage housing/consumption and the forecasts of GDP growth given by Obama in his February budget speech are very optimistic.

It seems to me that the real debt of the USA is about 100%. I also do not agree with your comment about the unfunded liabilities.

I am offering a more nuanced explanation. In the event of a budget surplus, intragovernmental debt does not turn into public debt (this happened as recently as the Clinton administration). Sometimes, believe it or not, the federal government doesn't actually spend all that is invested in it from these funds. In this case, only the interest has to come out of taxpayer dollars. Even then, the interest rate usually doesn't beat inflation by much. Thirdly, the majority of intragovernmental holdings are owed to taxpayers at large. We all get medicare and social security if our hearts are still beating after the earth spins around the sun 65 times from the day we popped out of our mothers.

To put it another way, it's akin to you making a contract with yourself to save $20 in a piggy bank that you have to pay back to yourself in a year. You charge yourself interest on what's in the piggy bank the day you take it out. If you took it out after a year and owed 5% on it, you'd need to come up with $1 to be allowed to take it out and give it to yourself. If you had the dollar, everything's gravy. If you didn't, you would have to borrow a dollar from someone. If you borrow that dollar, you have to pay interest on it.

Now, in the worst of circumstances, you take the same arrangement, but spend the $20 before the year was up. In that case, in a year, you have to pay yourself back $21, and you don't have the $20 to begin with. Now you will either have $21 on hand and declare the contract with yourself complete, or go and borrow $21 from someone to fulfill the contract.

As you can see from this example, it is the act of borrowing from someone else that really creates a debt issue. So no, the debts are not exactly the same. At the same time, yes, it is good to know that the obligations are out there, and they are not trivial. This is not a matter of opinion. There is nothing to agree with or disagree with. The debt to GDP ratio is almost 100% if one counts both public and intragovernmental debts. It is less if one doesn't. The two debts are not the same. All this and I have not even yet begun to force the question of asking what everyone here thinks the GDP figure really means...

I cannot understand why you would not agree with my comment about unfunded liabilities. It is true. One can see, over time, that a fund is becoming 'more or less solvent,' but basing policy today on numbers purporting to predict anything 50 years into the future is a dangerous game. Anything could throw the projection off hard - a lot can happen in 50 years. I put no more faith in those numbers than I do in the Easter Bunny. Imagine living in the Soviet Union in 1950 and reporting on a 50 year fund projection. Foolishness.

[c1ue]

Re: What is the USA federal debt to GDP?

The money borrowed from social security is included in the 'owed itself' number (otherwise known as intragovernmental holdings). It is indeed a non-trivial amount - the total of the holdings is ~= 37% of GDP.

Fair enough.

1) The social security trust fund takes in more revenue than it pays out in benefits

This is true, but is about to become untrue. The date for this switchover is approaching faster than anyone ever expected or projected.

As of last check, the year in which revenues dip below spending is now 2015:

http://www.socialsecurity.gov/OACT/TRSUM/index.html

Note also that this is assuming significant increase of SS revenues due to a recovery - something which is well behind projections as well.

The point is that while the intragovernmental holdings owed to the Social Security Trust fund won't become due immediately or in lump sum, payments which already are going into Social Security now (due to recession effect on SS revenue) are unlikely to reverse, and by anyone's expectation will dramatically increase in 2015.

This still means significant cash flow - and thus more Treasury issuance.

[dcarrigg]

Re: What is the USA federal debt to GDP?

The point is that while the intragovernmental holdings owed to the Social Security Trust fund won't become due immediately or in lump sum, payments which already are going into Social Security now (due to recession effect on SS revenue) are unlikely to reverse, and by anyone's expectation will dramatically increase in 2015.

This still means significant cash flow - and thus more Treasury issuance.

Sounds right to me. That looks like the likely scenario right now.

P.S. When discussing federal debt, one must also remember that international comparisons are typically made only on public debt. This means that numbers that come from abroad do not factor in these intragovernmental debts. It is an important distinction to make for international comparisons.

Of course, for social security...

Eliminate the wage base and the problem disappears. Tac the wage base on to capital gains everything is well, well in the black. Of course, they (Republicans/Democrats/Plutocrats/Wall Street Warriors) won't do that. They'd rather see 99.9% of people born after 1980 work until they're dead than have the wealthy put in their 6.2% like everyone else.

[charliebrown]

Re: What is the USA federal debt to GDP?

Agreed,

From my simplictic mind, it means that these agencies are sitting with a vault full of T's. Such as the airport trust fund.
Now if the airport trust actually wanted to to reach into this fund to build an airport, it would sell its its Ts either on the open market or back to the treasury, which would have to create new notes to have the cash to buy the airport T's.

Everything works as long as the the departments dont need to dip into the reserves. I thought the SS went negative cash flow last year?

After looking at some of the news stories that started last year, think the blogger who started this new article, Bruce Krasting, was not counting the interest on the
trust fund. And, maybe he is right. After all, the interest is being paid by the treasury. And since they are running a deficit, they are just selling more bills to pay the interest.
Here is a link to the SS balance sheet.

http://www.cbo.gov/budget/factsheets...TrustFunds.pdf

I doubt these projections account for the 2 year 2% payroll tax holiday.

[flintlock]

Re: What is the USA federal debt to GDP?

Eliminate the wage base and the problem disappears. Tac the wage base on to capital gains everything is well, well in the black. Of course, they (Republicans/Democrats/Plutocrats/Wall Street Warriors) won't do that. They'd rather see 99.9% of people born after 1980 work until they're dead than have the wealthy put in their 6.2% like everyone else.

I am inclined to agree with you on this. But it won't put us in the black. The entitlement mentality will take up any slack this produces and we'll be right back where we were in no time. America is going to have to crash and burn so we have a reference of why not to do this again. It's like trying to threaten a child with a spanking when they've never experienced one. They ain't gonna listen.

[dcarrigg]

Re: What is the USA federal debt to GDP?

I am inclined to agree with you on this. But it won't put us in the black. The entitlement mentality will take up any slack this produces and we'll be right back where we were in no time. America is going to have to crash and burn so we have a reference of why not to do this again. It's like trying to threaten a child with a spanking when they've never experienced one. They ain't gonna listen.

I agree there are issues with the entitlement mentality, but getting social security upon retirement shouldn't feed it. You work for a living, you pay in, you retire, you get your check. It is not much, but enough, if you saved, to get you by at a moderate standard of living. There is nothing undignified or wrong with this.

[DRumsfeld2000]

Re: What is the USA federal debt to GDP?

charliebrown wrote 'I thought the SS went negative cash flow last year?'

Correct. By $37billion from memory. Howard Davidowitz did an interview on Yahoo about it but so far I have been unable to find the link.


dcarrigg wrote 'I cannot understand why you would not agree with my comment about unfunded liabilities.'

You appear to be saying that the government will simply cut SS and other financial obligations when the time comes and so reduce the financial liability. If the government did this they would have millions of pensioners etc voting against them and no politician will do this. What will most likely happen is that the debt or financial liabilities will be inflated away.

[goodrich4bk]

Re: What is the USA federal debt to GDP?

"The unfunded liabilities statement is correct."

Sorry, but the concept of "unfunded liabilities" is indeed false. If I borrow money from you and promise to repay it in a year, that is a current liability even if it does not mature for a year. I cannot escape it and it will come due, as sure as the sun rises each day for 365 days.

If the government promise to pay you SS when you retire, or pay for your medical care, that is a promise that will not necessarily come due---ever. You may die before you reach 65. The government may decide to cut your benefits, as they are not at all guaranteed. You did not lend the government money that it is obligated to repay you. Rather, you funded this year's SS recipients ---maybe your grandma's SS --- and any surplus was loaned to the government. THAT is an obligation and it is evidenced by non-marketable securities that have laddered maturity dates projected to coincide with the needs of the SSA.

Look at it another way. What portion of tomorrow's defense costs are funded? Zero. What portion of this year's maturing treasury bills and notes funded? Zero. In fact, ALL of the government's future obligations are unfunded EXCEPT social security, which is at least partially funded.

So please, spare us the "unfunded" cannard. It does nothing to address the real problem, which is that even the Tea Party cannot bring itself to cut funding for anything other than their opponents' programs when, in fact, everybody's programs need to be cut. So until defense, oil subsidies, prescription drug subsidies, agricultural subsidies and all other forms of corporate welfare are on the chopping block, too, I say shut it all down and let's find out what really matters and what does not.

Oh, and if the Tea Party wishes to lead, they are in the drivers seat and need no help from Obama or the Dems. No spending bill can pass without it starting in the House. So all they need to do is keep sending spending bills to the Senate --- or not. Let the Senate and/or Obama decide whether to veto or pass.

And my advice to Obama is to pass whatever spending bills the House sends that you approve. If they send a bill to fund oil subsidies, veto it. If they send a bill for agricultural subsidies, veto it. Treat the process like a line item veto.

[flintlock]

Re: What is the USA federal debt to GDP?

I agree there are issues with the entitlement mentality, but getting social security upon retirement shouldn't feed it. You work for a living, you pay in, you retire, you get your check. It is not much, but enough, if you saved, to get you by at a moderate standard of living. There is nothing undignified or wrong with this.

No of course not. But come on, politicians will "borrow against" any funds in the SS "trust fund" that pop up from these taxes. And not ALL people pay enough into SS and Medicare to justify what they get back, if you want to look at it as a "savings plan" or " health insurance plan". Not by a long shot. So it is an entitlement for many. Whether that is wrong or not is a different issue.

Politicians don't look at revenue like you or I would. They look at it like freeing up more credit on a giant VISA card. The idea of balanced budgets is so far from what goes on in Washington, its not funny. Its going to be "kick the can accounting" until it all blows up regardless how you slice it. I've already accepted that and I am planning accordingly.

[dcarrigg]

Re: What is the USA federal debt to GDP?

You appear to be saying that the government will simply cut SS and other financial obligations when the time comes and so reduce the financial liability. If the government did this they would have millions of pensioners etc voting against them and no politician will do this. What will most likely happen is that the debt or financial liabilities will be inflated away.

I did say something along those lines, but it is not what I meant by saying that the unfunded liabilities number is foolish.

What I meant by unfunded liabilities numbers being foolish is that the number presented is a projection. It is based on myriad factors including treasury rates, economic growth, demographics, etc. Therefore, when one is presented with these numbers, odds are they will not reflect reality 70 years into the future. Whether reality will be rosier or darker than what they represent is unknown.

But, they present graphs like the one below as if they were fact. You may believe these numbers if you wish, but they do assume no major event for the next several decades. The dollar could cease to be the world's reserve currency, a major war could break out, we could hit peak oil, we could discover how to run cars off rainbows and honeycombs. Who knows? The one thing that I do know, however, is that things will not be the same in 2080 as they are today, and that these 'projections' will look insane when the time comes to pass.

[c1ue]

Re: What is the USA federal debt to GDP?

Sorry, but the concept of "unfunded liabilities" is indeed false. If I borrow money from you and promise to repay it in a year, that is a current liability even if it does not mature for a year. I cannot escape it and it will come due, as sure as the sun rises each day for 365 days.

If the government promise to pay you SS when you retire, or pay for your medical care, that is a promise that will not necessarily come due---ever. You may die before you reach 65. The government may decide to cut your benefits, as they are not at all guaranteed. You did not lend the government money that it is obligated to repay you. Rather, you funded this year's SS recipients ---maybe your grandma's SS --- and any surplus was loaned to the government. THAT is an obligation and it is evidenced by non-marketable securities that have laddered maturity dates projected to coincide with the needs of the SSA.

Every argument you put forward above applies just as equally to private debt as to public debt.

The fact is the debt right now is owed according to law.

Secondly, while any individual may die, actuarially speaking there is no doubt whatsoever that collectively the projected benefit payments are going to be necessary. If anything, the 2 generation long trend of longer lifetimes will increase the payments needed in the future.

And lastly while certainly the government may choose not to pay, equally so can individuals choose not to repay their debt. Creditors, however, generally don't get to vote out judges in bankruptcy/debt collection cases while individuals absolutely can vote out politicians who dare attack entitlement spending.

As for your comment on 'loan' - the reality is quite simple: every person who paid into Social Security expects to get something back. If the promised payments aren't to the expected benefit from lifetime payments, then there's going to be hell to pay politically.

I'm not saying Social Security is a wonderful program that shouldn't ever be touched, but at the same time it is disingenuous to say that it is a piggy bank which can be broken at any time for any reason - especially when there is such a clear divide in terms of economic gains between the top 10% and the bottom 90%.

What I meant by unfunded liabilities numbers being foolish is that the number presented is a projection. It is based on myriad factors including treasury rates, economic growth, demographics, etc. Therefore, when one is presented with these numbers, odds are they will not reflect reality 70 years into the future. Whether reality will be rosier or darker than what they represent is unknown.

As I noted above, while at an individual level there is a great deal of variability, at a demographic level there is not.

Only a change such as raising the retirement age would affect entitlement payouts, or a means test, or similar heavy handed changes. The other method to fix the problem is devaluation of the dollar which is not accompanied by corresponding COLA increases.

I think clearly we're going to see both.

The only non-intrusive, non-stealth inflation/devaluation method by which Social Security will trend back towards solvency is a major fall in American lifespans.

So, eat up everyone.

Fat is good for America.