The U.S. public debt is the amount of money that the United States federal government (not the states or banks or corporations or individuals) owes. Its calculation is subject to a great deal of political manipulation and creative accounting, and there is literally no objective or neutral number that can be cited as representative.
However, the accounting assumptions behind the specific sets of numbers can be made clear, and as these are often also political assumptions, they form an important role in debates on U.S. fiscal policy, the most important of which is the U.S. budget deficit which is the amount of money that the government is spending, which it does not take in, in taxes or other revenue, that year. This amount increases the debt. A U.S. budget surplus, by law, must be used to pay down the debt. So these cannot be discussed separately.
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2 Impact on business 3 Political risks 4 External links |
There is no reliability to budget and debt reporting, in part because political leaders can announce official numbers that are almost meaningless, while careful analysis of implications by experts go all but unreported.
For instance, in 2003 the G. W. Bush administration announced a projected $1.4 trillion deficit over the next 10 years (to 2013) amidst disclaimers from the White House about how the numbers are unreliable and how these deficits arenıt very big relative to the size of the U.S. economy. These are examples of the types of disclaimers that are often used to 'fuzz' bad news.
By law, the budget office that prepares these numbers must assume that existing laws expire as planned, and that no new programs are added or subtracted. This permits politicians to extend laws, add programs, etc., in the period after budget announcement, for instance, to make temporary tax cuts permanent, or pass a Medicare prescription-drug package. Then they may hope that something changes in the interim that will improve the news before they (or their successors) must announce the budget numbers the next year, or simply hope for some reaction to taxes that they can exploit. For instance, if federal alternative minimum tax as projected hits 30 million taxpayers due to bracket creep, the pressure to remove it rises, and debt, being paid in the future, seems like less of an issue.
According to Economist Alan Sloan, writing in Newsweek in September 2003, if one assumes that the tax will be eliminated, the prior cuts made permanent, and the drug package passed, these changes alone add $3.6 trillion to the deficit over the same ten-year period.
Another issue is that the numbers do not count other shortfalls and leakage. For instance, in the 2003 projection, the U.S. Department of the Treasury used a $2.4 trillion Social Security surplus to offset its cash shortfall. This means that in 2013, "the government will owe Social Security about $4 trillion, just as baby boomers begin retiring en masse. I donıt see how that debt can be honored without huge borrowings from outside investors that would send rates to the moon, or huge cuts in other programs," claimed Sloan.
He thus calculates the total projected deficit using only the published numbers and limited assumptions above at more than five times the $1.4 trillion, or about $7.4 trillion. These numbers further assume spending nothing in Iraq starting Oct. 1, 2005, which seems optimistic, as there are no budgetary nor troop commitments from nations that did not invade as of his publication date.
Business confidence is a major reason to mislead about debt and deficit numbers. Wall Street in general responds poorly to growing debt. The U.S. Office of Management and Budget announcements (such as that in July 2003 that they expected a $455 billion deficit (after subtracting Social Securityıs surplus) for fiscal 2004) cause interest rates to move up.
Treasury statistics indicate that foreigners bought 58 percent of the securities that Treasury sold to investors. Some 60 percent of that 58 percent was bought by central banks. A large percentage of that went to the central banks of Japan and China. This exposes the United States to financial or political risk that either bank will stop buying Treasuries - or selling them heavily.
This is seen as a very substantial risk by some who study geopolitics and creditary economics.
Another risk of possibly even greater magnitude is the possibility that OPEC will begin to price oil in Euros, as Saddam Hussein began to do in 1998 - until this decision was reversed by the 2003 invasion of Iraq. According to economist Henry K. Liu, the 'float' achieved by the necessity of all industrial nations needing to keep a U.S. dollar reserve to hedge against rising prices of oil, is also numbered in trillions of dollars. A shift to a different reserve currency shifts that float as well, and sends those saved dollars back to U.S. shores to be redeemed for goods. This causes inflation, rises in interest rate, and increases in bankruptcy as obligations and assets are called in, to increase flow of cash or goods to the offshore buyers redeeming dollars.
The impact of this would likely be to make U.S bonds have to rise in rates to appeal to investors in a thinner market - which would trigger inflation all over the industrialized world, given the central position of the U.S. in it. A round of hyper-inflation is possible that would potentially break Bretton Woods institutions capacity to react. This would be a larger scale repeat of the George Soros attack on the British pound sterling that broke the EU fixed rate exchange system and forced creation of the Euro.
Every dollar of increased U.S. public debt, and every rise in interest rates, and every shift in pricing of a major industrial commodity, decreases the cushion available, and increases the potential that the U.S. might default on its own bonds. This would likely mean that U.S. dollar savings would be worth drastically less. Far-fetched as this seems, it happened in Argentina when International Monetary Fund-required measures forced an economic austerity regime that was widely blamed by economists as leading to a meltdown in its currency.
Far more serious than either of these questions, which involve 'only money', is the question of the triple bottom line which is the financial, social and natural debt created by exploiting systems with an internal integrity, drawing on them as if they were free. Financial capital is not in general a good guide to social or natural capital flows, and many economists claim it is a contrary - even inherently contrary - process. See uneconomic growth for this discussion in detail.
A serious failure in accountability for instance causes loss of social capital which decreases trust essential to commerce and polity, while loss of natural capital causes a reduction in nature's services (such as irrigation or flood control) that must then be made up for by human effort, stressing the human economy. There are no economists who claim that the financial debt or deficit is actually independent of these factors, and very few who claim that economic growth indicators or measures of national income work well enough to rely on them utterly.
Thus, the ultimate political risk: collapse of an entire polity, which happened for instance in the collapse of the Soviet Union, or rise of a wholly different political economy, as happened after hyper-inflation in Weimar Germany, with the rise of Nazism.
See public debt for a discussion of public debt issues in other countries, and global debt for the 'big picture'.Reliability of reporting
Impact on business
Political risks
