Tuesday, August 2, 2011
Let's Clear the Air on the National Debt!
It seems Vladimir Putin has made some very untoward remarks about the U.S. in the aftermath of the debt deal. Despite the increase in the debt ceiling, Mr. Putin referred to the United States as a "parasite", one of the most infamous epithets circulated in Russia and historically used by Stalin as a synonym for Jews. He chose this despicable term because, in his address to a Youth Rally, the U.S. was carrying an unconscionable debt load that represented a drain on the rest of the world, hence parasitical.
Okay, as usual, we have to separate the wheat from chaff. We can't lay all the blame for this on Mr. Putin but a large measure on the Tea Party's tea Baggers who - in their casus Belli as montebanks of the moment - have conflated ALL species of debt in their rhetoric about deficit reduction. Thereby they've sown enormous confusion not only in the minds of foreigners, but in our fellow citizens.
Yes, the media ought to have parsed this for the public, but most fell down on the job. Only one tiny article over the W/E, this in Parade magazine, for god's sakes, clarified the issue though it's been known for some time - as reported in numerous pieces last year in The Economist and The Financial Times.
Here are the fiscal facts on the national debt:
- Of the $14.3 trillion up to today, only $4.5 trillion is owed to external nations
- $6 trillion is owed to individuals within the country - as in federal pensions ($2.9 trillion) and Social Security (to its Trust Fund) $3.1 trillion)
- Another $3.8 trillion is owed to investors within the country, including to bond holders (Treasury bonds and bills) and others.
Technically speaking then, the true national debt (as defined as being owed to outside nations, interests) is only 31.4% of the total. I mention this because this is how most other nations measure their national debt. They do not reckon in what they owe themselves, internally! (For example, Switzerland)
Obviously, as may be seen from the above, several things pop into view:
1) A good chunk of the money, e.g. for wars in Afghanistan and Iraq, was raided from Social Security monies, the Trust Fund namely - which trillions the government now owes beneficiaries.
2) The canard that the Social Security Trust Fund bonds are only "IOUs" cannot possibly be true if they are in fact counted against the debt! On the other hand, if they were "only" IOUs and possessed no fiscal gravitas, then that $3.1 trillion would be subtracted so we'd "only" owe: $11.2 trillion not $14.3 trillion.
3) Obama's stimulus money, as well as the bank bailout money (enacted under Bush in 2008) was borrowed from U.S. investors and taxpayers.
Bottom line? If we measured national debt and deficits in the standard ways other nations do there wouldn't have been half the kerfuffle about it.
One more item, if people check the "national debt clock" they will spot two stats-figures: one for the national debt, one for the U.S. "Total Debt". The former is predicated on immediate obligations, while the latter is a projection of unfunded liabilities (e.g. Medicare and Social Security benefits owed to future beneficiaries) into the future, generally up to 2030.
Both of these parlous figures can easily be changed with just small changes in revenue. However, expecting "spending cuts" to solve all problems is idiotic and as one Brit economist said:
"Expecting to bring a nation to prosperity using only spending cuts is like cutting off your right foot and expecting to run faster."
As for Mr. Putin, we hope in view of this he chooses his use of the term "parasite" a tad more carefully in future!