With very little fanfare, the national debt topped $19 trillion on Wednesday for the first time ever.
The debt has been expanding at its most rapid pace ever, and most likely will continue unchecked with the suspended debt ceiling in place until March 2017.
But some argue that the national debt is much, much higher — possibly $65 trillion or more. Former Comptroller General of the United States David Walker claims that the amount is much higher and should include what the government owes in the future. This includes future payable benefits to social security to give a more realistic figure
Walker’s claim is based on the GAAP (Generally Accepted Accounting Principles) methodology that states that if one entity owes another at a future date, that amount is carried as a liability for the payor and an asset for the payee.
This is no different than what we see in daily life: a person with a car loan holds a debt payable in the future, while it is counted as an asset by the bank.
The major difference, however, is that the government does not use GAAP accounting for its expenditures.
When a business buys an asset (for instance a vehicle) it must be held as an asset and then depreciated over time — this is how the business is able to reclaim the value of the capital by earning nontaxable revenue.When the government buys an asset ... it is treated as an expense. It is not represented as an asset to the federal government.David Yee, IVN Independent Author
But when the government buys an asset (for instance an aircraft carrier), it is treated as an expense. It is not represented as an asset to the federal government (see the government’s balance sheet).
Likewise, debts payable in the future are not included in the government’s balance sheet, only debts that are immediately payable.
Why is this?
Part of the reason is that the federal government doesn’t pay taxes to itself (it would be rather redundant), but most of the reason is that it would be too complicated to track, calculate, and depreciate the assets if it was done like in the private sector.
Imagine just the 400+ ships in the U.S. Navy, the U.S. Interstate System, or the Tennessee Valley Authority (one of the few profitable government projects). How many accountants would it take just to track those three government projects?
So in reality, the government does in fact owe a walloping debt to its citizens at a future date. But it still wouldn’t be appropriate to include this number in the national debt.
What we need to focus on is the interest bearing debts we have, and who we are paying these debts to. If all of the federal debt was held by Americans, who cares if it runs sky-high? The interest just counts as income to our people, but we are paying the interest overseas, something that depletes our economy.
If we really wanted to change the way the federal debt worked in America, we’d limit who could buy it and then create programs that encouraged citizens to hold it (like the 401k programs of the 70s and 80s that drove millions into the stock market).
If you can’t fix the debt, at least fix who is getting all the benefit from the interest.
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The way things stand, debt is necessary for this economy to function, much less grow. The problem is that debt provides an immediate boost economic but creates a drag on future growth. In the long run debt-as-stimulus is economically inefficient: over time, debt grows faster than the economy does.
A better way would be to provide the money the economy must have to function without requiring debt, whether public or private, in the process. One proposal for such a monetary system is available for consideration in "A New and Different Monetary System for a Better Economy" right here on IVN.
@Stephen Yearwood Money always exists as debt. As someone with an economics background (yourself) I am consistently surprised that you consistently make this mistake. If money doesn't exist as a debt, it can never exist as an asset. Simple accounting principles. Money is ALWAYS a debt to the federal government because they MUST accept it in payment of taxes.
Money has existed as a balance sheet phenomenon MUCH longer than beliefs such as yours--including Babylonian clay pots, English tally sticks, etc.
Good article. Ultimately all the talk about the 'national debt' and 'unfunded liabilities' is just propaganda designed to keep people afraid. Pensioners will be fine as long as the economy can produce the necessary resources for their care.
https://www.youtube.com/watch?v=DNCZHAQnfGU
@coolslim744
In your comment, the operative concept is this: "as long as the economy can produce the necessary resources for their care."
Since there is no way to know how long producing the necessary resources will last or why, talk about on or off the books debt, discussions like this are not "just propaganda".
If you disagree, why? It isn't the case that foreign governments in the past have failed under a crushing debt burden. It isn't the case that some US states such as Illinois and Oregon are facing bankruptcy without significant, painful changes. Why not the US? What if the US economy can no longer produce the necessary resources for "their" care, with a major or dominant factor in that scenario the failure of the economy to support its debt? Or, is that utterly impossible? If so, why?
Just because there is a real or theoretical solution that has worked in the past, why does that necessarily mean it will always work in the future?
I don't understand where you are coming from.
Yes, it's complicated.
Encourage citizen to hold the growing out of control government debt? No Thank you. I'm sad that all this interest is money is going oversea but I would rather not be stuck with that unpayable debt. It will be hard for foreign government to get that money back but it would be impossible for US Citizens to get that money back. I know that eventually the government would thank you for your service and forgive itself for that debt.
What we need is a balanced budget but I know it won't happen. For those who watched that sad show that was the Omnibus Bill, you can accept that the government is incapable of controlling itself and will spend itself until there are no more lenders. The can is getting close to the end of the road and the end of the road will not be pretty for anybody.
@jchrisperrault If our bonds aren't worth anything, our money isn't worth anything. If our money isn't worth anything, our stocks aren't worth anything. Even gold becomes worthless, because eventually you run out of things to buy if the economy stops producing.
@DavidYee @jchrisperrault I don't think Gold will ever become completely worthless and I don't think that the economy will ever completely stop producing however I can see that if the production and distribution could become very slow, gold might get you very little since there is very little to go around but even if this happened, I think it would be relatively brief.
I know the Bonds losing value is a Doomsday scenario however it seems like the inevitable end to an unstoppable trend. How do you stop a train that doesn't have breaks?
I think politicians will find a way to kick the can down the road until the system crashes, we have already passed (a long time ago) the point where reason should have made us curb the government spending. We can't repay the debt and nobody even considers the idea of paying back the debt anymore.
It looks like we have come to a new balance between the Dems and GOP where the GOP gets lots of money for the military and the DEMS get a lot of money for welfare and everybody's happy.... and the debt grows.
I don't think Austerity is possible for the US because we can print money.
PS: Thanks for the good article, I wish more people talked about it.
The unfunded debt obligation issue is one of my favorite topics and it has been for years. The estimates are all over the place, about $80-210 trillion based on what I have seen (https://www.washingtonpost.com/news/fact-checker/wp/2015/05/13/ben-carsons-claim-that-the-u-s-owes-211-trillion-beyond-the-reported-federal-debt/). Your $65 trillion number is a breath of fresh air - it ain't as interesting as I thought it was. Estimates vary so much because the time frames differ from about 20 to about 50 years and input assumptions vary, e.g., GDP growth and inflation estimates vary.
One groups of economists argue to not worry about this at all because the economy will simply grow and inflate the future obligations into irrelevance. Another group argues that the government will have no choice but to cut benefits, making the situation for future generations look really bleak.
Which side has the best bead on the future? The "What, me worry?" economic theory or the Armageddon hypothesis? If nothing else, politics is a source of endless fun and wonder.
BTW, I like Walker a lot. I supported him when ran in the Americans Elect fiasco.
@Dissident Politics I agree with your assessment. It's complicated. The sad reality is that we wouldn't even be TALKING about this if the politicians had been true to the actuarial tables when they adjust Social Security benefits.
@DavidYee
Politicians of both parties are only true to their own partisan interests, election, re-election and serving special interests with money and/or their own political ideology-morals.There are good reasons for people to lose trust. Two-party politics is just smoke, mirrors and empty rhetoric-spin that passes for serious discussion.
I think we are hosed.