What is the Real U.S. Deficit?

**Xiahou** · 08-04-2006, 20:45

Originally Posted by Lemur

Was that addressed to me? No, Vlad, I'm anti-deficit 24/7, 365 days a year. I danced a little jig when the toxic mixture of Newt Gingrich and Bill Clinton created a temporary budget surplus. The rest of the time I moan and whinge.

Well, according to the article it was actually still a deficit- just a smaller one.

Originally Posted by article

The Clinton administration reported a surplus of $559 billion in its final four budget years. The audited numbers showed a deficit of $484 billion.

Of course, the government seems to be arguing that entitlements shouldnt be counted because.....

Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.

**Lemur** · 08-04-2006, 20:50

Originally Posted by Xiahou

Well, according to the article it was actually still a deficit- just a smaller one.

Point taken, Xiahou. Point taken. Thanks for stealing my one bit of happiness and crushing it beneath your boot.

**Don Corleone** · 08-04-2006, 21:09

Well, being something of a defecit hawk myself, Lemur, I'm right there with you.

But don't panic just yet. Overall, our foreign debt has actually decreased a percentage of GDP. That means we're borrowing more money, but from ourselves.

As for Social Security, talk about between Scylla and Charibdes. The Republians want to end it, so they won't address it. Democrats want it to become 30% of our GDP. At least that's the rhetorical game they all play. In reality, neither side is really working very hard towards a solution, which leads me to believe it's not quite the crisis we all think.

I'm 36. I am absolutely convinced the system will have to default prior to my ever taking a check out of the system. This is why I fund my 401K so heavily, it's the only retirement income I allow my financial planner to use (along with any proceeds from the sale of my house, and maybe a new job I start at age 68). What scares me is the ocassional talk, from both sides of the aisle to re-address the special tax sheltering aspects of the 401K code, and do it retroactively

. It is these whisperings that have me up nights, and it's why I won't take out a Roth IRA (simply too good to be true, Congress will never let that money grow untaxed). And, in case anyone in Washington is listening, it's why I'm seriously flirting with the idea of moving all of my retirement funding to a bank in Costa Rica (no, I'm not kidding). Frankly, I see this as the real threat to the US... more and more of the large financial pool of private retirement savings being moved to financial institutions outside of the country.

As far as the original topic goes, I give up Lemur. There is no such thing as frugality left here in these fifty states: at the personal, local, state, federal, corporate level, it's just spend-spend-spend.

**rotorgun** · 08-04-2006, 21:43

My question about this is from whom are they borrowing the money to fund all this overspending? Is it borrowed against the future Gross National Product (GNP), or is it actually loaned to the US from private investors/international financial institutions? Heck, the Japanese, Chinese, Germans, British, and the Saudis all own significant parts of the US economy. Maybe we borrow from them? We darn sure don't get it from Mexico, as we only seem to inherit their poor who undercut our wages. (I know, wrong rant)

**Don Corleone** · 08-04-2006, 21:57

In order to make up the shortfall, the US issues promissary notes, also known as Treasury Bills. These are then bought by investors. Since they are very low risk, they offer a low rate of return, and therefore really aren't considered investment grade obligations (though that is slowly changing). Usuually they're bought and sold my investors (and mutual funds) that want to take a cash-like position. Think Grandma and her rock solid cash fund from Fidelity in her 401k account.

Frequently large banks will buy up the notes to play games with the available money supply (a real large leveraged buy or sell can slightly steer interest rates up or down), but this is done as a short term tactic only. Generally speaking, the notes are too conservative for long term investment strategies.

**Xiahou** · 08-04-2006, 23:34

Originally Posted by Don Corleone

In order to make up the shortfall, the US issues promissary notes, also known as Treasury Bills.

Which pretty much makes up the entirety of our Social Security "surplus". There's no actual money in the trust fund- just a bunch of government IOUs.

That's always interesting to me... we're (along with our employer) taxed to contribute money to SS. The government then proceeds to take that money and spend it on whatever the hell it wants leaving a bunch of IOUs instead. So, how do they intend to repay these? (assuming they do) Yup, you guessed it- by taxing us.

**rotorgun** · 08-05-2006, 01:12

Thanks Don Corleone,
So, in a manner of speaking, the government essentially thrives on a system of finance that would, if practiced by most average people, put us in the "poorhouse" in short order? I have always found this rather unsettling, as I pride myself on a conservative fiscal approach.

Ti Xiahou,
Your eloquent point is precisely why I was totally opposed to any monkeying around with the social security fund as proposed by the Bush camp. Given his propensity for failed financial adventures, it amazed me that he had the audacity to recommend privatizing the system. (I can imagine that he had a string of investors lined up from the family owned investment group to rake in that windfall)

While I am not so naiive to think that the Democrats actually "balanced" the budget, I do think that they at least tried to put some limits on deficit spending.
The whole time the Republicans were calling them a tax and spend group, they have finally showed their true colors. It's just a matter of priorities in my humble opinion. I understand that a nation must occasionally borrow money to improve its position, but it is outrageous what we are watching now.

**drone** · 08-04-2006, 20:58

Originally Posted by Xiahou

Of course, the government seems to be arguing that entitlements shouldnt be counted because.....

Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.

Well, it's technically true, as long as the people who cut them don't care about getting re-elected.

Here's a question. I assume we are paying accountants to generate the true audited books. Does this mean we are paying another set of accountants to create fake, more public-friendly books?