Which is the real deficit increase, 162.8 or 497.1 billion? (Clinton, politicians, compare)

[TnHilltopper]

U.S. government tricks hide trillions in debt / MSN Finance

Interesting article and the magic of creative financing.

Consider the proud trumpeting that came from Washington at the close of fiscal 2007. The deficit for the unified budget was, politicians crowed, down to a mere $162.8 billion.

In fact, the U.S. government is overspending at a far greater rate. The total federal debt actually increased by $497.1 billion over the same period.

But politicians of both parties use happy numbers to distract American voters. Democrats routinely criticize the Republican administration for crippling deficits, but they politely use the least-damaging figure, the $162.8 billion. Why? Because references to more-realistic accounting would reveal vastly greater numbers and implicate both parties.

You can understand how this is done by taking a close look at a single statement on U.S. federal finance from the president's Council of Economic Advisers. The September statement shows that the "on-budget" numbers produced a deficit of $344.3 billion in fiscal 2007. The "off-budget" numbers had a surplus of $181.5 billion. (The off-budget figures are dominated by Social Security, Medicare and other programs with trust funds.)

Combine those two figures and you get the unified budget, that $162.8 billion. In the past eight years there's been two years of reported surpluses and six years of reported deficits. Altogether, the total reported deficit has run $1.3 trillion.

Some numbers don't add up
But if you examine another figure, the gross U.S. federal debt, you'll see something strange. First, the U.S. debt has increased in each of the past eight years, even in the two years when surpluses were reported. Second, the gross federal debt, which includes the obligations held by the Social Security and Medicare trust funds, has increased much faster than the deficits -- about $3.3 trillion over the same eight years.

That's $2 trillion more than the reported $1.3 trillion in deficits over the period. Can you spell "Enron"?

In other words, while the reported deficits averaged $164 billion over the past eight years, U.S. government debt increased an average of $418 billion a year. That's a lot more than twice as much.

How could this happen?

Easy. The U.S. Treasury Department simply credits the Social Security, Medicare and other trust funds with interest payments in the form of new Treasury obligations. No cash is actually paid. The trust funds magically increase in value with a bookkeeping entry. It represents money the American government owes itself.

Why so hard to get a straight answer from these folks?

[saganista]

Uh, the people at MSN Finance are either lying (i.e., they perfectly well know the answers to their own questions), or they should be fired (for not perfectly well knowing the answers to their own questions). There is no 'creative accounting' going on here. There are no funny numbers. I'll get to a more detailed explanation later...

[saganista]

Originally Posted by TnHilltopper

Interesting article and the magic of creative financing.

A little later than expected. A ton of good food and a few bottles of wine around the table can make for a spell on the couch instead of at the keyboard.

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
Consider the proud trumpeting that came from Washington at the close of fiscal 2007. The deficit for the unified budget was, politicians crowed, down to a mere $162.8 billion. In fact, the U.S. government is overspending at a far greater rate. The total federal debt actually increased by $497.1 billion over the same period.

Apples and oranges. While debt will be issued to finance a budget deficit, debt arises in many other ways as well. The debt for instance increases for such mundane reasons as that a federal employee invests part of his 401-k in USG securities. There is no reason to suggest that these two published numbers are in any way contradictory to each other, but the implication is made anyway.

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
But politicians of both parties use happy numbers to distract American voters. Democrats routinely criticize the Republican administration for crippling deficits, but they politely use the least-damaging figure, the $162.8 billion. Why? Because references to more-realistic accounting would reveal vastly greater numbers and implicate both parties.

The government publishes many different numbers that reflect the nature of its operations. All of them are talked about in one degree or another. Which one should be talked about depends on what point is being analyzed. People talk about the unified budget (surplus or) deficit when they wish to focus on the overall in's and out's that are subject to the budget process.

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
You can understand how this is done by taking a close look at a single statement on U.S. federal finance from the president's Council of Economic Advisers. The September statement shows that the "on-budget" numbers produced a deficit of $344.3 billion in fiscal 2007. The "off-budget" numbers had a surplus of $181.5 billion. (The off-budget figures are dominated by Social Security, Medicare and other programs with trust funds.) Combine those two figures and you get the unified budget, that $162.8 billion.

Another reason why debt and the on-budget deficit are different. The Social Security surplus, itself more that $200 billion, is off-budget cash received by the government, i.e., an inflow. But because those funds are invested in USG securities, they are also a part of the public debt. Put it in personal terms. Suppose you earned $80K last year, but spent $100K. Suppose you also had $50K in lottery winnings. Did you have a deficit of $20K or a surplus of $30K? Or would it make more sense to say that you actually had two different positions and recognize that there is some sense to each of them?

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
In the past eight years there's been two years of reported surpluses and six years of reported deficits. Altogether, the total reported deficit has run $1.3 trillion. But if you examine another figure, the gross U.S. federal debt, you'll see something strange. First, the U.S. debt has increased in each of the past eight years, even in the two years when surpluses were reported.

As would have been expected by anyone paying attention! The effects of the budget surpluses were smaller than the net effects of Social Security and other off-budget surpluses. Thus debt grew at the same time as there were on-budget surpluses reported. It could not have turned out another way.

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
Second, the gross federal debt, which includes the obligations held by the Social Security and Medicare trust funds, has increased much faster than the deficits -- about $3.3 trillion over the same eight years.

Of course it has. The Social Security surplus has been increasing each year since 1983. It will continue to do so at least through 2018. These receipts have absolutely no relation to on-budget deficits at all. It is simply false to imply that there should be one.

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
That's $2 trillion more than the reported $1.3 trillion in deficits over the period. Can you spell "Enron"? In other words, while the reported deficits averaged $164 billion over the past eight years, U.S. government debt increased an average of $418 billion a year. That's a lot more than twice as much. How could this happen?

How could this not have happened? If Clinton's budget surpluses had been maintained by Bush instead of being squandered on stupid wars and tax cuts, the comparison would have looked even worse.

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
Easy. The U.S. Treasury Department simply credits the Social Security, Medicare and other trust funds with interest payments in the form of new Treasury obligations. No cash is actually paid. The trust funds magically increase in value with a bookkeeping entry. It represents money the American government owes itself.

Why in the world would SS want to receive its interest payments in cash??? It already has way more cash than what it currently needs, which is why there is a surplus and a Trust Fund to begin with. Fiduciary responsibility requires that this surplus cash be invested in an income-earning asset, and aside from USG securities, there is no market that could efficiently handle the roughly $5.5 trillion that SS will ultimately need to invest. Compare and contrast the situation to your own mutual fund accounts that include automatic reinvestment of earnings. The latter arrangement would be in lieu of the fund sending you a check that you would then turn around and send right back to the fund for deposit to your account. That's all that's going on with the SS interest payments. The fact that SSA is a US government entity makes no difference at all. To the Treasury (the agency that maintains the public debt) SSA is just another investor, just like a pension fund, or a foreign government, or your kid with his little stash of US Savings Bonds.

Originally Posted by TnHilltopper

Per the MSN/Finance piece...
Why so hard to get a straight answer from these folks?

It isn't. All the numbers are there for the taking. The real question would be why do people who should plainly know better insist upon building scare-scenarios out of situations and conditions that either don't exist or make no difference?