Relevant and even prescient commentary on news, politics and the economy.

Fed Treasury Holdings, ‘Real Debt’ and ‘Real Debt Service’

It is not difficult to determine a dollar figure for Total U.S. Public Debt. In fact you have to round UP from the Treasury’s Debt to the Penny and Who Holds it web application which tracks that number daily. As of end of business Thursday that total was $17,472,051,696,926.14. Which is a lot of money however you slice it but doesn’t really get to the issue of ‘sustainability’. First this number includes Intragovernmental Holdings amounting to $4,993,180,664,362.07 which while are certainly full obligations of the U.S. government and backed by Full Faith and Credit or in fact obligations that are under the control of that government and are largely in held as rolling reserves for various programs that ideally will never be redeemed in full. For example over half of that $4.9 trillion is the $2.8 trillion held by the Social Security Trust Funds which, if prudent and necessary steps were taken to shore up its ‘sustainability’, might never have to be redeemed on net and indeed would need to grow over time. So it would make some sense for calculations of ‘Real Debt’ to use the remainder, which Treasury tracks under the name ‘Debt Held by the Public’. Which to my mind is too close to ‘Public Debt’. But it is what it is.

And what is it? $12,478,871,032,564.07. But even this doesn’t get us to a good measure of ‘Real Debt’ because it doesn’t address the issues of Rate, Maturity and Term. To take this to an imaginary limit, what if every penny of that $12.5 trillion was in 30 year Bonds bearing a Maturity ranging from 2039 to 2044 and carrying a Rate of 0.025%. Well whip out your Financial Caclulator and do some PV calcs and that wouldn’t really be ‘Debt’ at all. And in particular it would incur no ‘Debt Service’ in the meantime. Now take it to a different imaginary limit. Assume every penny of that $12.5 trillion was held in 6 month or 1 year notes at a Rate of 6.0% but was all held by the Federal Reserve. Well that would imply a HUGE amount of Debt Service. On the other hand the Fed rebates all profits to Treasury so the net effect would be Treasury writing a ‘check’ to the Fed that would be ‘signed over’ back to Treasury. So that too means no ‘Real Debt Service’ in practical effect.

Now we don’t exist in a world near either of those limits. But that doesn’t mean we shouldn’t net out Public Debt that is held by either Government Trust Funds or the Fed from ‘Real Debt’. And equally important we need to understand what portion of total debt service is ‘Real Debt Service’ that is payable to non-Federal entities out of actual tax collections. That is we get exactly nowhere just stating: “The U.S. has $17 trillion in Public Debt”. Instead we need to have a grasp on the questions of “Debt to Whom? At what Maturity? At what Rate?” before we can put our fingers on ‘Real Debt’ and ‘Real Debt Service’. Answering those questions would require more than a single blog post and comment thread, but I suggest we start by looking at Fed Treasury Holdings under the fold.

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Debts, Deficits, and Social Security: Once Again

There are a couple of easy ways to check out current Federal Public Debt to the dollar or even the penny. One you could check out the National Debt Clock which also is conveniently mirrored (in simplified form) in Times Square. In the top left you will find the number for ‘US National Debt’ at $17.1 trillion and counting. If you wanted to cross check that number via official sources you could check the Treasury’s Debt to the Penny website which is updated at the end of the previous business day. This would also show a ‘Total Public Debt Outstanding’ as of the close of business Friday of that same $17.1 trillion. This also is within rounding error the same figure that makes up ‘US Debt Subject to the Limit’. Which is to say if anyone asks anyone with any amount of knowledge what is the total amount of Federal Debt as of today the universal answer is “$17.1 trillion”.

Now if we return to the Treasury version of this we see that ‘Total Public Debt Outstanding’ is simply the sum of two other numbers: ‘Debt Held by the Public’ and ‘Intragovernmental Holdings’. And if you clicked the explanatory link on ‘Intragovernmental Holdings’ you would find that it consisted of a variety of funds and predominantly ones classified as ‘Federal Trust Funds’. And a little further digging would show that the plurality of the $4.9 trillion in ‘Intragovernmental Holdings’ consisted on the $2.8 trillion in the Social Security Trust Funds.

Alright, simple enough. But complications under the fold.

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The United States long term debt problem

Michael Linden from Center for American Progress addresses one aspect of using CBO projections, especially the June 2012 report. Best to walk it through with him based on the June report and subsequent reports…good for several posts more is how the current situation is still improving on the debt to GDP ratio so much talked about( and remind people to keep in mind the differences between federal deficit and public debt). Based on going over there to read the walk through, I will post his conclusions only:

The United States long term debt problem

Does this mean our long-term debt problem is solved? No, it doesn’t. Debt at 97 percent of GDP is still a serious challenge. But it’s a much more manageable and less intractable challenge than if the debt was actually on track to hit nearly 200 percent of GDP. With only a little additional deficit reduction, we can stabilize the long-term debt-to-GDP ratio at a reasonable level. Implementing an average of about 0.5 percent of GDP in additional annual programmatic spending cuts or tax increases—or some combination of the two—would keep the debt level essentially stable for the next 25 years, reducing it to about 71 percent of GDP in 2037. This 0.5 percent of GDP would amount to about $1 trillion saved over the next 10 years.

The conventional wisdom in Washington is that we have a huge long-term debt problem. But we rarely recognize that much of the expected run up in debt is derived not from out-of-control entitlement spending but rather from the assumption that future Congresses will make our budget challenges much worse by enacting new tax cuts and new spending increases without paying for them. Take that assumption away, add in the deficit reduction we’ve already enacted, and factor in the recent slowdown in the growth of health care costs, and the debt projection falls by more than 100 percentage points of GDP. That doesn’t mean the long-term budget picture is suddenly rosy, but it does mean that we may not need to hyperventilate quite so much.

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