U.S. Financial Overview - Federal
In this section we will attempt to analyze the overall financial situation of the U.S. by agglomerating information regarding the various sectors of the government part of the economy.
The first thing that becomes obvious is how difficult it is to obtain official figures that reflect the true situation.
Typical examples:
The Federal Budget government figures do not include revenues from Social Security tax surpluses (hundreds of billions of dollars), which are transferred to the General Funds every year and spent on things other than Social Security.
The official Federal Debt doesn’t include trillions of dollars in liabilities for future payments in Social Security and Medicare.
The cost of wars (hundreds of billions of dollars) is not included in the military budget or anywhere in the Federal Budget.
An interesting May 2007 USA Today article by Dennis Cauchon gives probably one of the best analysis of the situation: The U.S. government keeps its books in a way that no corporation would be allowed to.
In fact even the Government Accounting Office warns that the U.S. government accounting is not reliable.
In this financial overview, we start with the major sections:
- The federal debt and deficit.
- The federal budget.
- The Federal Reserve Bank.
- Social Security and Medicare.
The figures used in most articles about the U.S. Federal Debt are taken from the official government web site. It is possible to create a good analysis with them, but other figures also need to be taken into account to really get the true picture (some spending, income and debt figures are not shown in the official budget).
This USA Today article by Dennis Cauchon is a good example of that.
USA Today article by Dennis Cauchon, Rules ‘hiding’ trillions in debt (May 29, 2007).
This article gives a much more realistic view of our debt.
The main factor is “unfunded promises” for things such as Social Security and Medicare.
As stated in the article, these are debts that the government doesn’t want to talk about.
Read carefully the part regarding the government’s argument that these are not true liabilities because government can cancel or cut them.
Let’s keep in mind that Social Security is not a government giveaway. This is money that has been paid by future recipients over generations. The money is theirs and is supposed to be held in a trust fund. Social Security funding up to now has always showed a surplus which, if kept in the trust fund, would have ensured Social Security payments for many generations to come. So when you’re told that Social Security will soon be in trouble, it’s not because of the baby boomer generation going into retirement or any of the other reasons advanced by the proponents of Social Security privatization. It’s only because the trust fund has been mismanaged and pilfered.
http://www.usatoday.com/educate/college/polisci/articles/20070603.htm
Another article by Dennis Cauchon in USA Today, written the day before the above article:
http://www.usatoday.com/news/washington/2007-05-28-federal-budget_N.htm
A web site specialized in the Federal Budget (this link is also included in the Federal Budget section).
It uses figure from the U.S. Treasury
http://www.federalbudget.com/
The Concord Coalition figures:
Relevant numbers on the public debt in July of 2006.
This site relies mainly on government site figure releases.
This has changed drastically in one year. What’s interesting is that official figures always refer to the public debt, which doesn’t reflect the total debt. The government is actually the main owner of the debt and when this is taken into consideration, we get a very different picture of the debt. Most analysts repeat over and over that we owe most of our debt to foreign entities. This is an error. Most of our debt is owed by our own government, in the form of IOUs. The problem is that this money is gone.
http://www.concordcoalition.org/issues/feddebt/debt-facts.html
MNSBC article, “Just Who Owns the National Debt”:
Uses only the $8.5T figure. Shows that the government owns 52% of the debt.
http://www.msnbc.msn.com/id/17424874/
Financial Management Services (a government entity) figures on full breakdown: http://www.fms.treas.gov/bulletin/b2006-4ofs.doc
(Page is right now missing)
Treasury department own figures. Shows the debt owned by the public, the intragovernmental holdings, and the total public debt.
These are government figures and do not show the unfunded debt!
http://www.treasurydirect.gov/NP/BPDLogin?application=np
Wikipedia, the United States Public Debt.
A good overview of the public debt, but again, it only relies on government figures that do not include unfunded promises.
http://en.wikipedia.org/wiki/United_States_public_debt
United states National Debt, by Steve McGourty.
http://www.cedarcomm.com/~stevelm1/usdebt.htm
National Center for Policy Analysis 5-29-07, Taxpayers on the Hook for $59 Trillion:
Based on the USA Today article by Dennis Cauchon.
http://www.ncpa.org/sub/dpd/index.php?Article_ID=14596
MarkTAW figures and graphs on The National Budget, Debt and Deficit:
This is a 2004 information page, obviously made before the 2004 presidential elections for partisan purpose. It has some interesting graphs.
http://www.marktaw.com/culture_and_media/TheNationalDebt.html
zfacts National Debt History:
http://zfacts.com/p/318.html
Michael Hodges Grandfather Economic Report:
http://www.mwhodges.home.att.net/
An old set of charts (2003) in Centrist.org. regarding the impact of interest payment on the national debt.
The estimates for the most recent years probably need to be reviewed, but it gives a good idea of which elements are important to analyze a budget.
http://www.centrists.org/pages/2003/12/1_guest_budget.html
The Market Oracle.
For the purpose of selling gold, gives a rather good analysis of the state of the U.S. finances:
http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=327
The full GAO (General accounting office) report, source of the above article:
http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=327
The Bureau of Public Debt:
Frequently asked questions about the public debt, answered by the U.S. Department of Treasury:
http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm
Promises, promises...
In March 2005, President Bush said in a speech that the Social Security Trust Fund is only IOUs, pieces of paper, “which may be worth something, and it may not be worth something”!
What he was talking about is the U.S Government bonds that represent the trust fund in which money is supposed to have accumulated for future Social Security payments.
Every year, U.S workers pay more in Social Security taxes that is actually needed to pay for the current year’s needs. The surplus goes into the Treasury General Fund in exchange for Government Bonds. These bonds are allocated to a Social Security Trust Fund. The surplus can then be spent for other things, and the government owes that money (secured in bonds) for the time when the U.S. workforce will not be able to sustain the retirement payments of the aging part of the population, which is estimated by the government’s own General Accounting Office (GAO) to happen around 2018.
That’s the way it was set-up in 1983 by Congress with the advice of then Chairman of the Federal Reserve Alan Greenspan, when Social Security taxes were raised to plan for future shortage.
In theory, the money is there. It is there in the form of government bonds.
Bonds are in fact IOUs in the form of paper, but they are presumably legal tenders with the same validity as the dollar bill or any other currency. In fact, most of our debt to the private sector or foreign entities like Japan or China is in the form of bonds.
So how did it come to be that a President of the United States declared in a public forum that his country’s government bonds have no value?
The problem doesn’t seem to be with the bonds, but with who holds the bonds.
Bonds representing the debt owed to foreign entities are held by these entities.
The Social Security Trust Fund bonds are owed by the U.S. government to the U.S. government. It’s called an intragovernmental debt. It is the most unsecured kind of debt because, as we know, the government has the power to change its own rules.
Do we need a hint as to what the government might do with this debt?
When the budget is drawn and presented, year after year, the funds coming from the Social Security surplus are not shown as being part of the budget. Nor are they included in the debts that are owed.
The reason given by the government is that this is money that is not really owed in the sense that it can be cancelled or reduced at the government’s will!!!
The problem is that the funds do not originally come from IOUs. This is real money that was deducted from American people’s paychecks and that they could have spent on something else. It became IOUs only after it went into the government’s coffers.
So when you are told that Social Security is not a viable system, don’t believe a word of it. The problem doesn’t lie with Social Security. It’s about mismanagement of the funds.
What can be deducted is that when the Social Security tax was raised in 1983, it was nothing more than a tax increase hidden in a more politically acceptable form. The money is gone. It was spent on other things. It was presented to the public as a way to save Social Security’s future, but the truth is that when the time comes, other means will have to be used: raising taxes, cutting benefits, taking money from other sectors…
And by the way, when the yearly Federal Budget is drawn and presented, the hundreds of billions of dollars that the Iraq and Afghanistan wars have cost over the last few years are also not included in the budget. I wonder where that money is coming from!
The following are links to articles relating to Social Security.
What’s interesting is that most of the information that came out to forcefully argue that Social Security was unsolvable came from sources that are usually very protective of the government.
The main reason why the President himself and his allies suddenly came out in public to assert that the U.S. Government’s IOUs have no value was that they wanted the huge sums generated by the Social Security tax to be invested for the benefit of corporations.
What they don’t say is that the plan they propose would further deplete the Social Security funds.
Bloomberg: What’s in the Social Security Trust Fund? ‘Paper, Bush Says.
http://quote.bloomberg.com/apps/news?pid=10000103&sid=av8Zsx0M7.4M&refer...
Wikipedia: In 2018, Social Security will start redeeming its assets.
http://en.wikipedia.org/wiki/Social_Security_Trust_Fund
A Heritage Foundation article from 2004 explains in very clear and simple terms that there is no money in the Social Security trust fund and, mainly, that the funds necessary for future payments no only aren’t in the fund, but they haven’t been invested anywhere. Of course, this article was written for the purpose of arguing for privatization of Social Security. Some corporations would love to be the ones receiving the hundreds of billions of dollars that U.S. citizens pay in Social Security taxes every year.
http://www.heritage.org/Research/SocialSecurity/em940.cfm
A 1999 Cato Institute article with arguments identical to the Heritage Foundation.
http://www.cato.org/dailys/10-16-99.html
The Future of Freedom Foundation: same argument as previous two.
http://www.fff.org/comment/ed0901j.asp
Zfacts article, refuting the Heritage Foundation and the Cato Institute assertions: the situation isn’t that bad, but it would be worse with privatization.
http://zfacts.com/p/784.html
An American Prospect article by Dean Baker, preceded by an introduction by Jeff Weintraub.
No need for the proposed Social Security payments cuts. The bonds are IOUs that must be repaid.
http://jeffweintraub.blogspot.com/2007/01/straight-talk-on-social-securi...
An excellent 2005 MediaMatters article.
If the Social Security trust fund doesn’t exist because it is in the form of government bonds, does that mean that all debts owed to the private sector by the government are also worthless? The decision to raise the Social Security tax in 1983 was proposed by Alan Greenspan exactly for the purpose (or the excuse) of planning for when more money would need to be paid out than the tax would bring in.
http://mediamatters.org/items/200502040009
A Michael Hodges analysis of the link between Social Security and the Federal Deficit.
http://mwhodges.home.att.net/deficit-trusts.htm
Truthout article by Dean Baker addressing the myths of the Social Security Trust Fund.
http://www.truthout.org/cgi-bin/artman/exec/view.cgi/61/20540
University of Illinois: Social Security is not in crisis.
http://www.news.uiuc.edu/news/05/0513socialsecurity.html
CounterPunch article, by Jackie Corr:
In 2001, Bush said he would protect the social Security Fund.
In 2005, the money is gone.
http://www.counterpunch.org/corr03102005.html
A Cato Institute article arguing that government should not invest Social Security funds, and that the investment should be left to private individuals themselves.
In fact, a study on IRA investments has shown that most people who manage their own retirement portfolio end up losing much of it.
http://www.cato.org/pubs/ssps/ssp6.html
Government Social Security FAQs:
http://www.ssa.gov/OACT/ProgData/fundFAQ.html
Stochastic Forecasts of the Social Security Trust Fund.
http://mwhodges.home.att.net/deficit-trusts.htm
General Accounting Office 2003 report:
http://www.gao.gov/new.items/d031038t.pdf
Medicare represents the bulk of unfunded debt not accounted for in the U.S. Federal Budget.
Which means that there will come a time, in a not so far away future, when U.S. citizens not only will probably have reduced Social Security benefits, but also will not be able to rely on the health benefits that they were promised, and that they paid for during all their working lives.
This will be a harsh reality for the younger part of the present times U.S. population, if they ever intend to retire. There are already talks about raising the retirement age.
National Center for Policy Analysis, 2004 report:
Future Medicare needs unfunded by $62 Trillion.
http://www.ncpa.org/prs/rel/2004/20040604bnr.htm
Howstuff works: the Medicare Trust Fund is harder to manage than the Social Security Trust Fund, because expenses are harder to predict. Medicare expenses amount to about 13% of the total Federal Budget.
http://health.howstuffworks.com/medicare4.htm
A site explaining the source of funding for Medicare:
http://www.ehealthlink.com/Senior/MedicareFunding.asp
Raising the Retirement Age (Economic Policy Institute):
http://www.epinet.org/content.cfm/briefingpapers_raisingretirement_raisi...