California economist says real US debt $70 trillion

Or so claims a recent headline. But that’s not what I actually said, as I try to clarify below.

In a recent paper I examined off-balance-sheet liabilities of the U.S. federal government. I concluded that these came to $70 trillion as of 2012, or 6 times the size of net federal debt held by the public. These off-balance-sheet liabilities take the form of implicit and explicit guarantees and commitments, but should not be construed as comparable to debt obligations of the U.S. Treasury.

The first decision you have to make in deciding how much the government really “owes” is how to treat government trust funds such as Social Security. These represent sums that the U.S. Treasury has promised to pay to the trust funds. They are counted as an asset of the trust funds and a liability of the U.S. Treasury. One perspective is that these represent obligations that one part of the U.S. government– the Treasury– has promised to pay to another part– the Social Security Administration. If you view this as money that the federal government just owes to itself, you might choose to exclude it from your measure of government debt. Leaving out the sums that the Treasury owes to the various government trust funds leads to the measure known as the net federal debt, or debt owed to the public. This came to $11.3 trillion as of the end of fiscal year 2012.

On the other hand, some argue that these trust funds should not be viewed as money the government owes to itself, but instead represent an obligation of the Treasury to deliver real resources to current and future retirees. To meet these obligations the Treasury will need to raise taxes or cut spending, just as it will need to do to honor the explicit Treasury debt owed to the public. If this is your perspective, you might want to include the sums that the Treasury owes to the various government trust funds, and look at the gross debt rather than the net debt. Gross federal debt came to $16 trillion as of the end of last fiscal year.

However, if you pursue that line of reasoning, you would ask not what is the Treasury’s accounting entry for the Social Security Trust Fund, which is nothing more than the accumulated amount that Social Security in the past has contributed to the Treasury in the way of an excess of past Social Security taxes over past Social Security benefits paid out. Instead, you would want to look at how much money would be needed in order to provide the benefits scheduled to be received by current program participants, defined to be anyone currently 15 years or older, that is, anyone currently potentially paying into or receiving benefits from Social Security. You can then compare that with the sums expected to be received from future Social Security taxes. Such calculations involve a number of guesses, and can be quite sensitive to assumptions about items like the interest rate and the economic growth rate. What I did was just use the numbers reported by the Social Security trustees report (Table IV.B.7). Their report calculates the excess of the present value of expenditures over revenues for current program participants to be not the $2.6 trillion obligation officially acknowledged in the form of the Treasury debt owed to the Social Security trust fund, but instead to be $26.5 trillion.

Similar calculations from the trustees reports for Medicare report Medicare’s net unfunded liabilities for current program participants to be $27.6 trillion. For more details see Table 4 and the accompanying discussion in my paper.

Here’s how my paper summarizes the relevance of these numbers for U.S. fiscal challenges:


The federal
government might well choose to reduce payments to beneficiaries relative to those
anticipated under the program’s current practice, or might increase future payroll taxes.
But these are of course the same options that the government would consider in figuring
out how to honor its official on-balance-sheet liabilities as well. The political difficulties
that the government might face in making changes to the public’s perceived Social
Security obligations should reasonably be regarded as an important influence on the
government’s ability to honor its on-balance-sheet liabilities. For this reason it seems
entirely appropriate to include these implicit commitments in an accounting of the federal
government’s combined off-balance-sheet liabilities.

My paper also looked at a number of other off-balance-sheet obligations. One important category is assistance to housing. With Fannie Mae and Freddie Mac currently in conservatorship, it is useful to reflect on the size of their liabilities in addition to other federal housing-related agencies. The government-sponsored enterprises have issued not just sizable direct debt of their own (which is not included in the $16 trillion gross federal debt figure noted above), but have also issued guarantees on huge numbers of private mortgages. Adding together all federal off-balance-sheet liabilities associated with housing, I come up with a figure of $7.5 trillion, by itself alone 2/3 the size of the net federal debt. And here is how my paper suggests those numbers should be interpreted:

It should be recognized that such liabilities do not
have the same status as the direct debt obligations of the Treasury itself. For one thing,
there are some offsetting assets, namely the mortgages held outright. The value of the
mortgages would never fall to zero, so that using the notional exposure is a significant
overstatement of the conceivable net outlays that would ever be required from the federal
government to honor these commitments.

Instead, what these numbers do accurately convey is the huge footprint of off-balance sheet items on the housing sector, along with their enormous growth over the last several decades.

My paper also discusses a number of other significant off-balance sheet liabilities of the U.S. government. For example, FDIC deposit guarantees in 2012 came to $7.4 trillion, which I summarize this way:

the stresses of the most
recent financial crisis were not enough to cause these guarantees to result in direct cash
outflows from the U.S. Treasury, and the program seems to have worked in this instance
as intended.

My paper nonetheless also notes that earlier related FSLIC guarantees did result in a significant U.S. fiscal burden, and that the recent deposit guarantees by the Irish government contributed to a near fiscal crisis for that country.

Off-balance-sheet obligations of the U.S. government are quite substantial– 6 times the size of Treasury debt held by the public. But that does not mean that the real debt of the U.S. government is $70 trillion. Off-balance sheet commitments are of a fundamentally different character than those officially on the balance sheet.

Even so, off-balance-sheet commitments can be quite important. Here’s what I think is the correct conclusion to take away from these numbers:

…the budget impact associated with an aging population and other challenges
could turn out to have much more significant fiscal consequences than even the mountain
of on-balance-sheet debt already accumulated.

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67 thoughts on “California economist says real US debt $70 trillion

  1. jonathan

    I’ve skimmed the paper and will read it through later.
    I thought, on first read through, that it could use a section on future productive capacity. For two blunt reasons: we currently support a huge “debt”, especially if all off-sheet liabilities are included, and that should be compared to the ability to finance in the future. I think many people will simply take the debt number and assume in their heads it must be paid off instead of carried forward indefinitely. Pointing at a number empowers the people who think we should toss the elderly overboard now and in the near future because some time in the future we might have a huge problem rolling over or otherwise continuing to carry debt. I can’t help but see Cato in that; this advances their policy goals.
    Do you have children? If you do, then you know you’ve taken on huge potential liabilities which could be considered as debt. You’ll have to pay and you might be on the hook for huge dollars if one of your children is hurt or gets a chronic disease or condition. These contingencies are huge. I assume therefore you’ve either saved vast amounts of money, far beyond what you could rationally earn as an economist at a university, or chosen rationally that these costs are simply too much and you can’t take on this risk … or you’re cutting one or more of your kids loose now. Of course, if you have any faith in the productive capacity of your household and beyond that your extended family in case something bad happens to you or your partner, then maybe you can risk taking on these huge offsheet and onsheet liabilities.
    The GOP loves to talk about budgets and deficits through the lens of family. Well, through that lens, it is a gigantic step into the whirlpool of future risk for a person or 2 people to take on such massive liabilities.

  2. DeDude

    I completely agree that the treasury “loans” from the trust funds should be counted into the national debt. But it makes no sense to count future obligations to retired folks into an aggregate number that includes actual debt. Predictions of those “obligations” have to be done with a huge number of presumptions, including the absurd presumption that politicians will do absolutely nothing to change the programs. The suggestion that we also count Fannie and Freddie liabilities is even worse, we just got through a once in a hundred year housing crisis and any reasonable prediction suggest that government will be able to unwind itself from their bailout with a profit rather than a cost. Similarly with FDIC “liabilities” and banks – we already know that those bailouts, of the greatest financial crisis in 80 years, made money.
    You knew perfectly well that in the current political climate your final number would be abused politically as a tool for scaring the public. Even if you covered your professional behind with appropriate explanations, you knew that the right wing and corporate press would in no way shape or form cite anyting other than the 70 trillion. You also knew that they would not get into the difference between “off-balance sheet obligations” and actual real life “obligations” (as this term is understood by the public = being things you will have to pay because you have an obligation to do so).
    The nation has real obligations as in gross federal debt of about 16 trillion. Then it has some very difficult to calculate or predict off-balance-sheet “obligations” to social security and medicare beneficiaries. Yes, no matter how you look at those they likely will require political action that hurt some people, and for Medicare those actions would have to be taken within the next 5 years. Even discussing FDIC and F&F in the context of the word” obligations” is absurd (even if it is technically correct), They just went through the challenge of a century without appearing to end up costing the public a dime. Yes under a much less sturdy supervison banks/FDIC did cost government money in the S&L crisis but even then it was only a fraction of a trillion (0.124 trillion).
    Adding up a lot of unrelated numbers to a bit scary 70 Trillion may have gotten you publicity on Faux news and endeared you to right wing shills, but it did not help your professional reputation. The job of a scientist is to pinpoint, not to obfuscate, the differences between debt, potential real obligations, and “only on paper” obligations. Adding them up into a big scary and meaningless number simply serve to confuse people.

  3. Jay

    “However, if you pursue that line of reasoning, you would ask not what is the Treasury’s accounting entry for the Social Security Trust Fund, which is nothing more than the accumulated amount that Social Security in the past has contributed to the Treasury in the way of an excess of past Social Security taxes over past Social Security benefits paid out. Instead, you would want to look at how much money would be needed in order to provide the benefits scheduled to be received by current program participants, defined to be anyone currently 15 years or older, that is, anyone currently potentially paying into or receiving benefits from Social Security. You can then compare that with the sums expected to be received from future Social Security taxes.”
    That is great – on a cash accounting basis you have another generation of suckers tossing their salaries and wages into an employee post-retirement benefits program 100% funded by the institutions own debt – or what accountants would consider 0% funded. Those future Social Security taxes, under accrual-based accounting create a new unfunded liability as you take the cash inflows to cover cash outflows.

  4. benamery21

    Just a technical note that the “S” in OASI includes those under 15. Also, labor law in this country allows work (with restrictions) in covered employment by those under 15, so there are 14 y.o’s and a few even younger workers paying FICA this year. Unfortunately, the number doing so is a lot lower than it would be if we had been focused on employment rather than debt, during the extended period for which we’ve been at the ZLB. Here’s hoping that misguided focus doesn’t make the eventual debt even higher by wasting the available labor of the millions who would have a job and/or full time hours if we hadn’t gotten sidetracked by Mellonists.

  5. Finster

    It is a Cato Institute paper, which does not quote any discount rates used in the calculations of the NPV or aggregation of the numbers.
    A political writeup, economically irrelevant.

  6. benamery21

    “To meet these obligations the Treasury will need to raise taxes or cut spending, just as it will need to do to honor the explicit Treasury debt owed to the public.”
    You may be leaving an option or three unstated there.

  7. cfaman

    For a fair financial analysis you may want to circle back and add up all the off-balance assets, too. It’s good to be aware of the liabilities, but to the extent revenue expectations indicate the liabilities are payable, this indicates even more substantial assets available and a very considerable NPV net worth.

  8. BTF

    “It should be recognized that such liabilities do not have the same status as the direct debt obligations of the Treasury itself. For one thing, there are some offsetting assets, namely the mortgages held outright.”
    -What about some offsetting assets of the gov’t against those treasury debt obligations. Would those be netted out too.

  9. Jeffrey J. Brown

    And as usual, my 2¢ worth, regarding oil prices, oil supplies and debt. Note that by definition, the post-2005 supply of Available Cumulative Net Exports (CNE), which is Global CNE available to importers other than China & India, is declining. In my opinion, the estimated post-2005 Available CNE depletion rate has been catastrophic, but we can only deal with estimates. What we know is that the annual volume of Available Net Exports, which is GNE less CNIA (as defined below), declined from 41 mbpd in 2005 to 35 mbpd in 2012.
    GNE/CNI Ratio Vs. Annual Brent Crude Oil Prices, 2002-2011:
    http://i1095.photobucket.com/albums/i475/westexas/Slide4-4_zps9a9c4aed.jpg
    GNE/CNI ratio fell to 5.0 in 2012 (EIA), while Brent averaged $112 in 2012.
    GNE/CNI Ratio Vs. Total Global Public Debt, 2002-2011:
    http://i1095.photobucket.com/albums/i475/westexas/Slide5-3_zps9a533a56.jpg
    GNE/CNI ratio fell to 5.0 in 2012 (EIA), while total global public debt increased to $48 trillion in 2012.
    GNE = Combined net oil exports from from top 33 net exporters in 2005
    CNI = Chindia (China + India’s) Net Imports of oil
    In my opinion, the 10 year increase in global annual crude oil prices, from $25 in 2002 to $112 in 2012, was largely a result of China and India consuming an increasing percentage of GNE, which presented problems for net oil importing OECD countries like the US.
    In response to annual Brent prices more than quadrupling in 10 years, it seems that most net oil importing developed countries like the US have been running large deficits, financed by real creditors and by accommodative central bankers, trying to keep their “Wants” based economies going, in an increasingly oil constrained world. What I define as Available Net Exports, or GNE less CNI, fell from 41 mbpd in 2005 to 35 mbpd in 2012.
    In my opinion, the reality is that we are facing a relentless transformation, from an economy focused on “Wants” to one focused on “Needs,” as forced energy conservation moves up the food chain in the US.
    While currently increasing US crude oil production is very helpful on a number of fronts, it is very likely that we will continue to show the post-1970 “Undulating Decline” pattern that we have seen in US crude oil production, as new sources of oil have come on line, and then inevitably peaked and declined (US crude oil production is currently about 25% below the 1970 peak rate of 9.6 mbpd).
    For example, EIA data show that crude oil production from Alaska increased at 26%/year from 1976 to 1985, which contributed to a secondary, but lower, post-1970 US crude oil production peak of 9.0 mbpd in 1985 (up from a low of 8.1 mbpd in 1976), versus the 1970 peak rate of 9.6 mbpd. Because of the strong rate of increase in Alaskan crude oil production from 1976 to 1985, the US was actually on track, in the mid-Eighties, to become crude oil self-sufficient in about 10 years, but then the inevitable happened, and the rate of increase in Alaskan crude oil production slowed, and then started declining in 1989, resulting in a post-1970 “Undulating Decline” pattern. Note that the 1976 to 1985 rate of increase in annual Alaskan crude oil production (26%/year) exceeded the estimated 2008 to 2013 rate of increase in combined annual crude oil production from Texas + North Dakota (20%/year).
    And we are still facing high–and increasing–overall decline rates from existing oil wells in the US. At a 10%/year overall decline rate, which in my opinion is conservative, the US oil industry, in order to just maintain the 2013 crude oil production rate, would have to put online the productive equivalent of the current production from every oil field in the United States of America over the next 10 years, from the Gulf of Mexico to the Eagle Ford, to the Permian Basin, to the Bakken to Alaska. Or, at a 10%/year decline rate from existing wells, we would need the current productive equivalent of 10 Bakken Plays over the next 10 years, just to maintain current production.
    On the natural gas side, a recent Citi Research report (estimating a 24%/year decline rate in US natural gas production from existing wells), implies that the industry has to replace virtually 100% of current US gas production in four years, just to maintain a dry natural gas production rate of 66 BCF/day. Or, at a 24%/year decline rate, we would need the productive equivalent of the peak production rate of 30 Barnett Shale Plays over the next 10 years, just to maintain current production.
    The bottom line is that the dominant pattern that we have seen globally, at least through 2012, is that developed net oil importing countries like the US were gradually being forced out of the market for exported oil, via price rationing, as the developing countries, led by China, consumed an increasing share of a declining post-2005 volume of global oil exports.

  10. Ricardo

    Professor,
    Regardless how the big government Progressives may quibble with your numbers the fact that you very clearly reveal is that the fiscal problems in the United States is much greater than anyone imagines. When we see so much reported on the nearly unprecedented on-balance sheet debt as a percentage of revenue, the hidden debt makes it almost impossible. Why our “financial experts” in the government are ignoring the real disaster looming on the horizon is beyond me. You could be off by 50% and the numbers are still alarming!!
    Those of you here who are big government Progressives, doesn’t this cause you even a little discomfort?

  11. Anonymous

    “…the budget impact associated with an aging population and other challenges could turn out to have much more significant fiscal consequences than even the mountain of on-balance-sheet debt already accumulated.”
    That which is unsustainable will not be sustained.

  12. Anonymous

    “Pointing at a number empowers the people who think we should toss the elderly overboard now and in the near future because some time in the future we might have a huge problem rolling over or otherwise continuing to carry debt.”
    Toss them over a cliff? They’ve been riding on our backs. How about just ask them to kindly get off.

  13. Jeffrey J. Brown

    Small typo. Should read:
    What we know is that the annual volume of Available Net Exports, which is GNE less CNI (as defined below), declined from 41 mbpd in 2005 to 35 mbpd in 2012.

  14. Blissex

    «My paper also discusses a number of other significant off-balance sheet liabilities of the U.S. government. For example, FDIC deposit guarantees in 2012 came to $7.4 trillion,»
    That’s the usual huge misrepresentation of how the FDI, which is a distinct entity from the FDIC, works by law.
    The deposit guarantees are the liability of the member banks of the Federal Deposit Insurance scheme, which is a mutual insurance book run by the FDIC. The member banks have unlimited liability for the deposit guarantees of any member, and nobody else does.
    The FDIC and the US government have by law 0 (zero) liability to the FDI for deposit guarantees or any other reason, as the FDIC has stated explicit several times and on their web site too, quoting chapter and verse of the relevant federal statute.
    Furthermore the FDIC is just a commission, not an insurance scheme, that merely administers the FDI, and charges the FDI the cost of its operation.
    Confusing the FDI with the FDIC and stating the fantasy that the FDIC is liable for deposit guarantees is a mistake typically made by hack journalists, economists know better.
    The other even more grossly misleading aspects of the study have been already mentioned by other commenters. What a joke.

  15. Jeffrey J. Brown

    An example of the US government directly (via the GM bailout) and indirectly (QE) trying to keep our “Wants” based economy going:
    WSJ: Open All Night: America’s Car Factories
    (For link, search for title)

    DETROIT—More U.S. auto plants are cranking out cars around the clock like never before, a change that is driving robust profit increases at Detroit’s Big Three. . .
    Nearly 40% of car factories in North America now operate on work schedules that push production well past 80 hours a week, compared with 11% in 2008, said Ron Harbour, a senior partner with the Oliver Wyman Inc. management consulting firm. “There has never been a time in the U.S. industry that we’ve had this high a level of capacity utilization,” he said. The Detroit auto makers closed 27 factories following the financial crisis as GM and Chrysler went through government-led bankruptcies. But U.S. vehicle sales have roared back from the trough of 10.4 million in 2009. . .
    In July, U.S. car and light truck sales ran at an annualized pace of 15.8 million, up from a 14.2 million pace a year ago. Auto sales hit a peak rate of 17.5 million in 2005. The industry had 925,700 employees that year. Last year, the workforce stood at 647,600.

  16. JDH

    Blissex at August 19, 2013 12:00 PM: The Competitive Equality Banking Act of 1987 reaffirmed that “deposits up to the statutorily prescribed amount in federally insured depository institutions are backed by the full faith and credit of the United States.”

  17. Left Coast Bernard

    “…some argue that these trust funds should not be viewed as money the government owes to itself, but instead represent an obligation of the Treasury to deliver real resources to current and future retirees. To meet these obligations the Treasury will need to raise taxes or cut spending, just as it will need to do to honor the explicit Treasury debt owed to the public.”
    “[S]ome” are mistaken that Uncle Sam must raise taxes or cut spending to meet his obligations, contracted in US dollars.
    Uncle Sam is the monopoly issuer of US dollars, and he can meet any obligation in US dollars he wishes to meet. Unlike the rest of us, Uncle Sam does not have to get the dollars he spends from someone else. He has as many US dollars as he wishes to have.

  18. Blissex

    JDH seems to be providing a misquote. The USA only provide loans to the FDI (not the FDIC of course), to cover temporary issues. Such loans are specifically authorized by law up to a certain limit, and no more.
    This official FDIC press release from 2008 states the law as it is implemented by them:
    http://www.fdic.gov/news/news/press/2008/pr08084.html
    «As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments.»
    «The fund is 100 percent industry-backed. Our ability to raise premiums essentially means that the capital of the entire banking industry -
    that’s $1.3 trillion – is available for support.»
    «The FDIC receives no federal tax dollars – insured financial institutions fund its operations.»
    «And again, any money we borrow from the Treasury Department must be repaid through industry assessments.»
    That to me seems extremely clear, and even clearer is the relevant federal statute they refer to, which is online.
    The press release was addressed to untechnical journalist sources who are among the many who by mistake or for propaganda reasons state the opposite.

  19. JDH

    Blissex at August 19, 2013 12:42 PM: The full text of the Competitive Equality Banking Act of 1987 can be found here. In Title IX (page 107 of the pdf) you will find that I have quoted verbatim from the legislation itself.

  20. Blissex

    Also the previous Chairman of the FDI Commission expressed herself thus, unchallenged, in 2009, in testimony to the Senate Committee on Banking, Housing and Urban Affairs :
    http://www.fdic.gov/news/news/speeches/archives/2009/spoct1409.html
    «In the FDIC’s view, requiring that institutions prepay assessments is also preferable to borrowing from the U.S. Treasury. Prepayment of assessments ensures that the deposit insurance system remains directly industry-funded and it preserves Treasury borrowing for emergency situations. Additionally, the FDIC believes that, unlike borrowing from the Treasury or the FFB, requiring prepaid assessments would not count toward the public debt limit. Finally, collecting prepaid assessments would be the least costly option to the fund for raising liquidity as there would be no interest cost. However, the FDIC is seeking comment on these and other options in the NPR.
    The FDIC’s proposal requiring prepayment of assessments is really about how and when the industry fulfills its obligation to the insurance fund.»
    «Everyone knows that the FDIC has immediate access to a $100 billion credit line at Treasury that can be expanded to $500 billion with the concurrence of the Federal Reserve and the Treasury.»
    I think that is crystal clear as to the role of the FDI of which most banks are members, the FDIC that administers it, and the DIF that is the account into which prepaid assessments are temporarily held.

  21. Blissex

    The quotes I have provided are from “Andrew Gray
    Director Office of Public Affairs Federal Deposit Insurance Corporation” and from “Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation” from the FDIC website itself.
    JDH seems to accuse them of lying to the american voters and to the Senate itself, and on the record too. They also seem according to JDH intent on running the FDIC outside the law.
    Please ask for their impeachment or prosecution if you think they are lying scoundrels. Because it seems to me that it is either them or those who contradict them.

  22. JDH

    Blissex at August 19, 2013 12:54 PM: The FDIC uses those prepaid assessments to purchase bonds from the U.S. Treasury. These obligations of the U.S. Treasury, by the way, are not included in the $11.3 trillion net federal debt figure, and amounted to $37 B as of December 31, 2012, a sum claimed as an asset of the FDIC and liability of the U.S. Treasury. The quote you provide clearly states the intention of the FDIC to draw on huge additional sums from the Treasury or Federal Reserve if needed in an emergency.

    I suppose your point is that, after providing the $500 B, the Treasury could try to get it back from the banks, just as in principle it could try to get it back from the savings and loans in the 1980s. The experience then was that it ended up costing the Treasury $124 B.

  23. JDH

    Blissex at August 19, 2013 01:02 PM: First you flatly accuse me of “providing a misquote”. When I point you to the precise part of the legislation from which the quote can be found, you then resort to asserting that “JDH seems to accuse them of lying to the american voters and to the Senate itself, and on the record too. They also seem according to JDH intent on running the FDIC outside the law.”

    Well, my dear Blissex, that is what would accurately be described as a “misquote,” for, as everyone can plainly see, I have accused no one of lying, nor have I accused anyone of running outside the law. I have instead asserted that the statement you provide is entirely consistent with everything I have said.

  24. Blissex

    My point is that the Director of the Office of Public Affairs and The Chair of the of the FDIC are on the record stating that the by law the maximum liability of the USA Treasury to the FDI is 100 billions, not 7.4 trillions, and it can be increased to 500 billions only by executive decision, which can go either way.
    It is a very big deal, a difference of 7 trillions.

  25. JDH

    Blissex at August 19, 2013 01:23 PM: And the United States Congress is on record stating that “deposits up to the statutorily prescribed amount in federally insured depository institutions are backed by the full faith and credit of the United States”. Those deposits came to $7.4 trillion as of the end of 2012.

  26. Blissex

    So who is lying?
    * The FDIC people who state that the maximum liability of the USA to the FDI is 100 billions (and up to 500 billion discretionarily), for a bridging loan, by law enacted with great publicity (in 2009 and thus overriding any previous law on the topic as if it were necessary) and that anyhow it is the full capital of the members who are liable for the whole in the end?
    or
    * Whoever states that the liability of the USA to the FDI is 7.4 trillions and effectively unlimited in principle?

  27. JDH

    Blissex: Please use words with care. “Lying” refers to making a statement that the speaker knows to be inaccurate with the intention to mislead. Making a statement that turns out to be false is not the same thing as lying.

    And in point of fact, none of the statements you quote from Gray and Blair, nor any statements that I have made, appear to be inaccurate, let alone intentionally so.

    The only inaccuracies on the table seem to be your own paraphrases and inferences about what others have said. For example, a maximum cannot be both $100 B and $500 B, and I have made no misquotes.

  28. Blissex

    This is instead a very misleading but more carefully weasely worded misstatement:
    «trust funds should not be viewed as money the government owes to itself, but instead represent an obligation of the Treasury to deliver real resources to current and future retirees. To meet these obligations the Treasury will need to raise taxes or cut spending,»
    The OASDI laws say that in case the OASDI trustees cannot pay fully from current and accumulated payroll contributions plus the interest on the latter, they must pay them partially.
    There is no unlimited liability to the USA from any deficit between OASDI funds and maximum payment; and viceversa, when the the OASDI funds are in surplus, that does not count as assets to the general fund, which must indeed borrow them.
    Therefore at least for OASDI there cannot be any contribution to the total theoretical liabilities of USA.
    Even many hacks and propagandists know this because it is in Wikipedia! :-)
    http://en.wikipedia.org/wiki/Social_Security_Trust_Fund
    “the Fund is projected to decrease each year until being fully exhausted in 2033. At this point, if legislative action is not taken, the benefits would be reduced.[11]”

  29. Blissex

    I think that it is embarrassingly comical to believe that neither of these statements is inaccurate, at the same time:
    * “significant off-balance sheet liabilities of the U.S. government. For example, FDIC deposit guarantees in 2012 came to $7.4 trillion”
    * “The fund is 100 percent industry-backed. Our ability to raise premiums essentially means that the capital of the entire banking industry – that’s $1.3 trillion – is available for support.” and “We thank the Congress for raising our borrowing limit”.
    But any hack and propagandist is welcome to that belief. It will do good to their reputation on Fox News.
    Doublethink however does not help a lot with a reality-based rather than sensationalist discussion about the off-balance sheet liabilities of the USA, never mind the *net* liabilities as other commenters have noted.

  30. Blissex

    “for example a maximum cannot be both $100 B and $500 B”
    This point seems to me starting :-) to grasp at straws…
    The Chair of the FDIC stated accurately that:
    «Everyone knows that the FDIC has immediate access to a $100 billion credit line at Treasury that can be expanded to $500 billion with the concurrence of the Federal Reserve and the Treasury.»
    Everyone knows! :-)
    There may be a shocking failure to grasp the difference between a non-discretionary and a discretionary borrowing limit. And it is a borrowing limit, instead of the full faith and credit of the USA.
    Perceiving such a significant differences seems to me within the reach of an economist or even those of a mere commission chair. :-)
    I personally would regard the non-discretionary borrowing limit as the maximum liability of the USA, but it is moderately defensible to take the discretionary one instead.

  31. don

    “Pointing at a number empowers the people who think we should toss the elderly overboard now and in the near future because some time in the future we might have a huge problem rolling over or otherwise continuing to carry debt.”
    Our medical system is a mess. It provides the greatest resources for medical care to those with a pre-existing condition (old age) that guarantees the smallest return for the cost. Meanwhile, nothing is done on the supply side, other than to allow the AMA to restrict the supply of doctors. Small wonder that relative to other OECD countries we have the highest costs per capita for medical care, with poor results to show for it. Reading the studies by Larry Kotlikoff, it seems very likely indeed that we have a huge problem coming in the future and will be unable to continue as we have been.

  32. Blissex

    BTW as another aside, if the answer to “who is lying?” is “neither”, and neither are mistaken either as both seemingly incompatible positions are accurate, then there is a consequence:
    the maximum liability of the FDIC is the total insured deposits of the member banks (as JDH says) minus the total capital of the member banks (as the FDIC says).
    and therefore significantly lower than 7.4 trillions.
    Unless one wants to argue that the aggregate member banks capital is net 0 dollars, which is a very plausible position, but I guess not one that would be very popular with whoever funds the Cato.

  33. Wawawa

    I knew that JDH would have a post-FoxNews post. It’s too bad this is needed, in the econ blogosphere you’re by far the clearest at getting your point across.
    Also, let the record show that Blissex fails at the interwebz.

  34. Blissex

    To complement my previous note on why a very large chunk of claimed liabilities are based on weasel wording:
    «they must pay them partially. [ ... ] for OASDI there cannot be any contribution to the total theoretical liabilities of USA. [ ... ] it is in Wikipedia! :-)»
    And amazingly :-) in an article from 2010 in the “Social Security Bulletin” entitled “The Future Financial Status of the Social Security Program”:
    http://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html
    «If trust fund assets are exhausted without reform, benefits will necessarily be lowered with no effect on budget deficits.
    The author is the Chief Actuary of the Social Security Administration.»
    What do these people know? :-)

  35. ripple79

    I have made this same comparison in the past, but mostly to show the difference between net and gross debt. If current entitlement projections are to be considered debt, what about other constitutional obligations such as the provision for the common defense over the future years? We have to maintain courts, regulate interstate commerce, uphold property and human rights, and other constitutional obligations? Shall these pay-as-you-go operations also be considered as debt?

  36. benamery21

    The value of privately insured property in the U.S on which private insurance companies have promised to cover casualty losses, now exceeds $80 trillion dollars. This is far more than reflected as liabilities on insurance company balance sheets. In fact one might, if making a political point, say that these were off-balance sheet liabilities, even if it were clear that 100% losses would not occur…
    http://www.insurancejournal.com/news/national/2012/12/13/273877.htm

  37. benamery21

    I read the Fox article. I was ‘shlocked, schlocked, I tell you’ to find that your utterly apolitical and carefully caveated academic economic analysis (for Cato) would be misrepresented in such an unanticipated way. I presume you have written a sternly worded protest to Fox requiring them to cease and desist from their gross misrepresentations immediately?

  38. Blissex

    «what about other constitutional obligations such as the provision for the common defense over the future years»
    That’s another amazing thing that often jumps at me in the arguments of hacks and propagandists: that somehow all or most of the off balance sheet liabilities are found in social insurance programs and none in the largest component of the federal budget, the DOD budget.
    As if the DOD had zero potential liabilities in the future.

  39. Blissex

    The misquote here is crude bit of shysterism:
    «The Competitive Equality Banking Act of 1987 reaffirmed that “deposits up to the statutorily prescribed amount in federally insured depository institutions are backed by the full faith and credit of the United States.”»
    because the full, non-misleading, quote is here:
    http://www.fdic.gov/regulations/laws/rules/4000-2660.html
    «SEC. 901. REAFFIRMATION OF SECURITY OF FUNDS DEPOSITED
    IN FEDERALLY INSURED DEPOSITORY INSTITUTIONS.
    (a) FINDINGS.–The Congress finds and declares that–
    (1) since the 1930′s, the American people have relied upon Federal Deposit insurance to ensure the safety and security of their funds in federally insured depository institutions; and
    (2) the safety security [sic] of such funds is an essential element of the American financial system.
    (b) SENSE OF CONGRESS.–In view of the findings and declarations contained in subsection (a), it is the sense of the Congress that it should reaffirm that deposits up to the statutorily prescribed amount in federally insured depository institutions are backed by the full faith and credit of the United States.»
    The shysterism here is the clever omission of the fact that this is a “sense of Congress” piece, a so-called “non-binding resolution”, that is an empty declamation, as next paragraph from the same FDIC document states:
    «While any final conclusion on this matter rests with the Attorney General of the United States and ultimately with the courts, it is our opinion that Title IX of CEBA merely represents an expression of the intent of Congress to support the FDIC’s deposit insurance fund should the need arise.
    Title IX does not change any existing underlying law.
    It does not amend the Federal Deposit Insurance Act, nor does it or any other provision of CEBA alter the method by which the FDIC is funded. The FDIC continues to receive no government appropriations, and its funding continues to consist entirely of its income obtained from insurance assessments and from the return on investments made in government securities.»
    While there is no doubt that there has been a “reaffirmation” of some “sense of Congress”, in my opinion, that of the FDIC, and I hope that of any person reading the above the quote provided does not support in any way the fantasy that «FDIC deposit guarantees» are an «example» of «significant off-balance sheet liabilities of the U.S. government», because non-binding resolutions don’t create any liability.
    I hope that the Cato pays well their creative writers…

  40. Finster

    Exactly, ripple79.
    Taking all of these potential liabilities, which represent the very working of the US society down the 21st and 22nd century and discounting them by an arbitrary rate to arrive at a lump sum is dishonest.
    It is about as intellectually honest as discounting the wars of the 20th century and Britains Empire during the reign of Queen Victoria and lamenting that the British Empire was in debt to the tune of 100bn pounds in gold.
    My point being: This is a Cato institute paper with a very clear political thrust. If any of the programs or expenditures run by the US go against your political beliefs, lobby against them, have them abolished. Enter the political arena and contest expenditure. But do not count Uncle Sam out and bust through bizzare actuarial calculations and consider yourself scientific.

  41. Don Levit

    Ripple 79:
    Technically, there are two types of pay-as-you-go operations:
    1. Those that meed annual appropriations, such as those you cited.
    2. Entitlements which, such as Social Security, are paid without am appropriation, as long as there is a positive balance in their respective trust funds.
    So, the debt which requires appropriations, in a sense, would be more “discetionary” debt, while those not needing appropriations, would be akin to “mandatory” debt.
    You do bring up an excellentb poin: all these appropriations, whether, discretionary or mandatory, must be considered as part of our overall budget. Nothing exists in a vacuum, even those expenditures which are so-called earmarked with taxes.
    From an overall budget perspective, we have to look at each expense, and determine how much priority in our overall budget it deserves.
    Don Levit

  42. JDH

    Blissex at August 20, 2013 01:00 AM: writes that “the full, nonmisleading, quote is here”, and links not to the actual legislation (to which I provided a direct link above, along with the page number on which the passage I was quoting could be found) but instead links to an advisory opinion about the legislation issued by the FDIC, as if my quotation from the legislation itself rather than from the FDIC opinion on the legislation represented some form of “shysterism”.

    For the text of the legislation itself, I refer you again to the key phrases being “reaffirmed” and “full faith and credit of the United States.”

    As for the opinion, its relevant passage seems to be “any final conclusion on this matter rests with the Attorney General of the United States and ultimately with the courts.” Blissex’s insistence that my quotation from the legislation is somehow “shysterism” is completely inappropriate and inaccurate.

    You refer in your summary to a nonbinding resolution, by which I take it you refer to H.R. Con. Res. 290 adopted in March 1982, rather than to the Competitive Equality Banking Act, which was signed into law by President Reagan in 1987, and from which I was quoting.

    The different FDIC opinions from which you have quoted, this now being the third, are all trying to stake out the position that the FDIC can (and will) try to recoup as much of its losses as possible from the banks. I agree that this is the case.

    But this intention, nor the various legal opinions you may favor, do not alter the facts that the FSLIC guarantees ended up costing the taxpayers $124 B, nor that deposit guarantees led to a near fiscal crisis for Ireland.

    Overall, I find your insistence that the U.S. government does not stand behind the FDIC guarantees to be a very strange claim, and the vituperative invective with which you assert your beliefs on this point are quite bizarre.

    By the way, out of curiosity– by “shyster” do you mean someone who gets along by petty, sharp practices?

  43. winstongator

    Late to the party, but I don’t think you account for the assets the GSEs hold. Their mortgage insurance business has hard assets (homes) underlying that insurance. Those homes are very valuable, potentially more valuable than the amount they are insured for. This fact will be even more prevalent if inflation increases. An inflation increase that would be required to cause “interest rates to rise back to more usual historical levels over the next several years”
    Your total OBS liabilities are mostly Social Security and Medicare related – 75% of the total. Your implications lead to very clear policy choices. Reduce Social Security and Medicare benefits. One sentence. However, if you add that sentence in, you remove your veil of being non-political. You also lose any support for your future policy recommendations. See the Tea Party Mantra: ‘keep your hands off my Medicare!!!’
    You also do not do a PV analysis of all future tax flows to provide a reference point. If you think you’re ‘just presenting the numbers’, you’re lying to yourself.

  44. Alexander Hamilton

    I think it’s understandable given the abstract of your paper that they quoted you as saying the “real debt is $70 trillion”. You go back and forth between debt and liabilities, and lump them together and imply comparability several times.
    And, your paper was designed to feed irrational deficit hysteria, and succeeded. On that grounds, you should be happy your hatchet job succeeded.

  45. Anonymous

    @JDH
    “FSLIC guarantees ended up costing the taxpayers $124 B”
    And those loses to taxpayers were the result of a law being passed by congress, not an automatic “passing the buck” to taxpayers. Congress decided that rather than letting the member banks cover that $124B loss from higher fees, the taxpayers would cover it. I don’t think you can count potential future spending by congress as a “liability” or “obligation”.

  46. Blissex

    The text I quoted earlier is the transcription of the text in the the CEBA law, Title IX, page 107, and it is followed by the opinion of FDIC’s counsel to the question «whether Congress has passed a statute that makes the United States Government legally liable for any and all obligations of the FDIC», to which the answer is that «Title IX of the Competitive Equality Banking Act of 1987 (“CEBA”), signed into law by President Reagan on August 10, 1987» does not create such liability, as I also quoted.
    Never mind that subsequent legislation has anyhow capped the USA’s liability to some (large) bridging loan as I also quoted.
    If you have read neither that page nor the page you indicated so you could not realize that the full text of Title IX of CEBA is reported in both with the same words then I reckon you are even dumber than I thought, and similarly if you have read them and failed to realize that the text in both is from the same law.
    So your argument seems based only on a “Sense of Congress” nonbinding text that does not create any liability for the USA, just as there is no liability for the USA for any future gap for OASDI funding.
    Title IX of CEBA as I wrote is pure harmless posturing, a typical Congressional shysterism, probably written into that law as a way to do a nice sounding quotable soundbite for some moneyed sponsors without creating any new liability.
    CEBA BTW is a law sponsored by none other than Rep. (D) St. Germain, who can take a large part of the credit for creating and sustaining the ideal environment for the wave of S&L frauds.
    It is such harmless posturing that even the FDIC themselves put it more or or less on their front page: http://www.fdic.gov/deposit/deposits/dis/ at the same time as their management and counsel clearly state that they think it has no legal effects.
    In general Congress loves non-binding “sense of Congress” statements precisely because they have no legal effect yet they sound really cool and reassuring.
    Do you think that none of the readers of this blog knows what a “sense of Congress” non-binding statement is?
    Do you think that the readers of this blog are stupid and cannot read and compare the quote I provided and the text on the page you cited and see they are the same?
    Do you think that those readers dismiss or misinterpret the very plain, straightfoward statements by the FDIC?
    Here are some opinions by other commenters:
    * “You knew perfectly well that in the current political climate your final number would be abused politically as a tool for scaring the public.”
    * “Adding up a lot of unrelated numbers to a bit scary 70 Trillion may have gotten you publicity on Faux news and endeared you to right wing shills, but it did not help your professional reputation.”
    * “A political writeup, economically irrelevant”
    * “I was ‘shlocked, schlocked, I tell you’ to find that your utterly apolitical and carefully caveated academic economic analysis (for Cato) would be misrepresented in such an unanticipated way”
    * “discounting them by an arbitrary rate to arrive at a lump sum is dishonest!”
    * “You also do not do a PV analysis of all future tax flows to provide a reference point. If you think you’re ‘just presenting the numbers’, you’re lying to yourself.”
    * “your paper was designed to feed irrational deficit hysteria, and succeeded. On that grounds, you should be happy your hatchet job succeeded.”
    Now these are all comments by random people on the web, but my guess is that several of your colleagues are reading this page and laughing their hearts out at the rather poor attempts at sophistry in this discussion?

  47. Blissex

    «insistence that the U.S. government does not stand behind the FDIC guarantees»
    Who has been writing this? The USA stands firmly behind the FDIC with a bridging loan facility of 100 billions extendable to 500 billions, as I have pointed out several times.
    Such a bridging loan facility is big time backing, but it is completely different from unlimited liability for insured deposits. Indeed if the USA had legal liability for the insured deposits there would be no reason for a bridging loan facility.
    Amusingly even the bridging loan facility seems to be an example of crude Congressional shysterism, like the “sense of Congress” statement, because it is not backed by any appropriation, a classic unfunded mandate; and at the very least there should be an appropriation for an actuarial reserve against potential losses on those bridging loans, in case the capital of all insured banks is wiped out by insurance losses and nearly the whole USA banking system collapses and the FDI cannot repay the loan.
    But if that happens I guess that Congress would have bigger problems than having reserves against those bridging loan losses :-).

  48. Blissex

    «Congress decided that rather than letting the member banks cover that $124B loss from higher fees, the taxpayers would cover it»
    Indeed! And CEBA it turns our was one of the instruments in this massive gift to the S&L industry, and it turns out that CEBA was sponsored by St. Germain who also sponsored the legendary and infamous Garn-St. Germain bill of 1982, and many other related shameful Congressional misdeeds.
    While the current law is very clear that the USA has no unlimited liability for future FDI deficits or for OASDI deficits, in practice:
    * It is hard to imagine that Congress would stand by while bank capital were zeroed by FDI assessments, they would likely do another massive gift like TARP, and nudge the Fed to give other massive gifts to the finance industry as in recent times.
    * It is instead easy to imagine that when the time comes around 2030-2040 that OASDI starts reduce insurance payments to the little people Congress would happily stand by and let the little people deal with it. After all the politics are that by 2030-2040 nearly all of the baby boomers will have died after getting 100% OASDI insurance payouts.
    I’ll quote David Frum’s relevant statement:
    «Rather than workable solutions, my party is offering low taxes for the currently rich and high spending for the currently old, to be followed by who-knows-what and who-the-hell-cares.
    This isn’t conservatism; it’s a going-out-of-business sale for the baby-boom generation.»

  49. Blissex

    «feed irrational deficit hysteria»
    There could be rational long-term liability hysteria instead, but more related to the enormous long-term legal liabilities of the DOD, as I mentioned before.
    Just consider the costs of environmental cleanup when disposing the rather nasty stuff that the DOD has got in large quantities, once it gets too old to use, never mind of the plants used to make that nasty stuff.
    The USSR disposed of their obsolete nasty stuff in a rather crude way, largely abandoning it in place. USA law creates expensive liabilities instead.
    Plus the long term costs of various recent wars, which may have been rather vigorously underestimated.
    Plus the potential costs of new wars, and the long term liabilities they create.
    But strangely enough few hacks and propagandists even try to estimate them, never mind with the same facile sophistry with which they estimate *potential* future ones in the social insurance part of the federal budget.

  50. Blissex

    BTW the authority for discretionary borrowing up to 500 billions expired 3 years ago, so the borrowing limit is just 100 billion. I just checked with the current text (reflecting the state of the law as of 2009) of the FDI law here:
    http://www.fdic.gov/regulations/laws/rules/1000-1600.html#fdic1000sec.14a
    Interesting parts:
    «All loans and repayments under this subsection shall be treated as public-debt transactions of the United States. The Corporation may employ any funds obtained under this section for purposes of the Deposit Insurance Fund and the borrowing shall become a liability of the Deposit Insurance Fund to the extent funds are employed therefor.»
    The “appropriation” section is quite amusingly the magical wishful thinking of “sums” into existence:
    «2) FUNDING.–There are hereby appropriated to the Secretary, for fiscal year 1989 and each fiscal year thereafter, such sums as may be necessary to carry out this subsection»

  51. benamery21

    Off-topic: Use of the term shyster used to be part of my regular vocabulary (not just for lawyers) for those tempermentally inclined to false-faced dealing and sharp business practices, even where not in their own best interests longer term. I was aware that the historical antecedants of the term (Shylock, Merchant of Venice) were sometimes considered anti-Semetic, but as I had never used it this way, had learned it at the knee of those who would never have dreamed of using it this way, and naively thought (albeit with significant cognitive dissonance) that we were past all that except among those who just didn’t know better, I continued to use it.
    Then I got a job at a multi-billion dollar corporation, quickly learned that we were NOT past all that, as I was exposed to petty racism (funny how white skin makes others think you will be sympathetic to their discriminatory tendencies) and racial tension among those who certainly should have known better, and became aware that it was better not to court misunderstanding, given the real grievances an absence of malice might not allay (my company was under a consent decree with EEOC for most of my initial period of employment). I haven’t used the word consciously in about 15 years, except to discuss the word itself.

  52. JDH

    Blissex at August 20, 2013 12:59 PM: Indeed, the opinion begins with an accurate quote from the legislation itself, but then morphs into a statement of the writer’s opinion about the legislation. It is the latter, not the former, that provides any flimsy support for your continuing strange claims. You introduce your reproduction of the opinion by claiming that “the full, nonmisleading, quote is here”, and offer it as if in support of your previous allegation that I have “misquoted” the legislation.

    The clear meaning of your words is that I have misquoted something, and that you have corrected the misquote.

    Whatever you may conclude (or pretend to have concluded) about how dumb I am, I do not suppose that you are stupid, nor do I suspect you of having made inadvertent mistakes in wording or accidental innuendo. On the contrary, I conclude you have been quite clever, but pathological, in carefully crafting each of your statements with the deliberate intention to mislead.

    In your rant from August 20, 2013 02:16 PM, you suggest that it is only political hacks who would deny that future defense obligations pose a more serious budget challenge than do future outlays for Social Security and major medical programs. According to the Congressional Budget Office, the latter amounted to 9.6% of GDP in 2012, while discretionary defense was 4.3%. The CBO forecasts that by 2023, Social Security and major medical will come to 11.6% of GDP, while defense will be down to 2.7%.

    Your own words describe the world you perceive yourself to live in as one that is populated by shysters, liars, and hacks, who are blinded by their political ideology. That is your world, but it is not mine.

    And I am sorry that you feel the need to bring your world into this forum.

  53. benamery21

    Can we all agree that the potential losses under any foreseeable circumstances, of both mortgage guarantees and deposit insurance are much less than 100%? Also, that there are both non-tax revenue and assets directly associated with these contingent liabilities which roughly match their magnitude? Can we also agree that, regardless of statute or regulation (by which future governments are not bound in any case), to the extent deposit insurance and (economy-wide) mortgage backstopping in some form is indispensible to financial crisis management, any sane U.S. government will provide it, as the cost of not doing so in a crisis will exceed the cost of doing so?
    In which case, I argue, making it explicit and charging for it is far preferable to leaving it implicit and absorbing all costs into the general fund, even given an occasional regulation failure or mispricing event for which the general fund may incur cost.
    In that event I would ask, what is the utility of representing these insured assets as liabilities or obligations at 100% of their value, other than to create fear of an over-extended federal Treasury? I can understand, while disagreeing, the argument for substituting one’s own private judgments as superior, that the ends justify the means, that even though THESE liabilities are not dangerous to sovereign solvency, en toto the situation is dire and providing academic material implicitly encouraging the public conflation of bank deposits with sovereign debt is useful politically. If the purpose is truly to improve understanding to allow considered policy decisions, rather than to propagandize, however, isn’t such activity counterproductive?
    I find (in my admittedly biased opinion) your analysis here generally useful and insightful, on a broad range of subjects. I find your writing here remarkably clear to the informed lay reader. I admire the fact that you and Menzie share a professional blog without maintaining ideological lockstep. You certainly have the right to advance your own biases on your own blog (what else are blogs for ;). This will not, of course, convince the informed reader that you are a blogger wholly without bias, but there really isn’t such an animal.
    My worldview is congruent with neither yours nor Menzie’s in every particular, if it were, what point in being here? I am clear that I have learned from both of you, and I hope (very rarely) that you may learn something from me, and hope (more often) that other commenters may do so. I don’t anticipate that this type of topic is where that will occur, but at the same time, by nature and upbringing I am inclined to point out (sharply at times) differences in perspective and opinion. Trust that this is rooted, not in animosity, but in an internalized feeling that ‘iron sharpens iron;’ nothing focuses examination of priors among those willing to engage in such examination, better than coming in contact with rational disagreement.

  54. Blissex

    «Use of the term shyster [ ... ] the historical antecedants of the term (Shylock, Merchant of Venice) were sometimes considered anti-Semetic»
    The only person that has used the term “shyster” here is JDH as you can easily verify, as perhaps he got the reasonable impression that many commenters here reckon that he is one, but I’ll let defend his use of that word.
    That the etyomology of “shyster” is from “shylock” is a complete myth that you state as a fact without checking. If you do the obvious web search the first link that comes up is:
    http://www.worldwidewords.org/qa/qa-shy1.htmschessi
    and for to help you I’ll quote here:
    «links the word to the name of the vengeful money lender Shylock in Shakespeare’s Merchant of Venice, with the occupational ending -ster added. This is untrue. [ ... ] Professor Cohen concluded the word derives from German Scheisser for an incompetent person, [ ... ] British slang at the same period included the same word, meaning a worthless person; the usual spelling was shicer, though it appeared also as sheisser, shiser and shycer.»
    So your statement that “shyster” has an “antecedant” in “Shylock” seems to be “scheisse”…

  55. Anonymous

    “Uncle Sam is the monopoly issuer of US dollars, and he can meet any obligation in US dollars he wishes to meet. Unlike the rest of us, Uncle Sam does not have to get the dollars he spends from someone else. He has as many US dollars as he wishes to have.
    Posted by: Left Coast Bernard at August 19, 2013 12:37 PM”
    This is indirectly true. But if your solution to any problem is printing more dollars, then you are done here.

  56. Anonymous

    The fiscal libs in here are seriously unhinged. Our current govt spending across broad categories is unsustainable. Printing money will not fix this problem. Arguing if the problem is 40T or 70T is really dumb.

  57. benamery21

    According to the OED, the etymology of shyster is obscure. Some less respected dictionaries do give the derivation you provide. Nonetheless, the undoubted use as an antisemitic slur for a Jewish lawyer has been common usage in the U.S. for many years. Whether this owes anything to the literary Shylock is debatable, but irrelevant.

  58. benamery21

    Anonymous of 8/21, 1009hrs. The contingent liabilities here are not actually a problem. They are basically masking that this is yet another ‘socialsecurityandmedicare’ long-run entitlement obligations paper. The argument about deposit insurance and mortgage guarantees is aimed at showing that.
    Our government non-military discretionary spending track is actually unsustainably LOW across broad categories, and has been for decades.
    Our government healthcare spending is unwarrantedly, if not unsustainably, high, due to the exorbitant healthcare costs in this country. In fact our government healthcare spending (including tax expenditures), by itself and not accounting for substantial private spending, exceeds per capita spending by single-payer plans across the world, many of which have an older citizenry. Every other developed county in the world and much of the developing world has already solved this problem. When we get serious about it, rather than about adolescent fantasies of how markets SHOULD work, we’ll fix this too. ACA is a step in that direction.
    If you are interested in the relatively minor problems facing Social Security, see my comments on the previous post regarding this paper.
    Examples of non-tax strategies (not that I don’t see a need for tax changes, but I want to get away from the dichotomy offered) to alleviate fiscal problems: 1)Raising the minimum wage, and indexing it to productivity would gradually reduce expenditures on subsidizing low-wage employers, 2)Using federal debt to finance federally owned hydro, wind, solar, geothermal power generation, sold at market rates, would create a positive revenue stream, 3)Lending federal money for energy improvements thru mortgage guarantors and utility on-bill financing would generate revenue while advancing public policy goals, 4)Paying for talented students to attend college increases speed and likelihood of graduation and dramatically increases future tax payments from beneficiaries, 5)Creating a “Strategic Gas Reserve” with federal funds would speed the rise in the price of natural gas back to non-glut levels and spur exploration and drilling, and increased collection of flared associated gas, while increasing the value of royalties, additionally it would allow control of damaging price spikes associated with the differences in short-run and long run elasticities of supply.6)etcetera

  59. Anonymous

    benamery21
    “Our government non-military discretionary spending track is actually unsustainably LOW across broad categories, and has been for decades.”
    Possibly, but this is a tiny fraction of spending that nobody is talking about in this post.
    “to alleviate fiscal problems: 1)Raising the minimum wage, and indexing it to productivity would gradually reduce expenditures on subsidizing low-wage employers, ”
    at the cost of creating more unemployed workers. Net benefit = negative.
    “2)Using federal debt to finance federally owned hydro, wind, solar, geothermal power generation, sold at market rates, would create a positive revenue stream, ”
    No, it wouldn’t. If it would, a private party would be doing it. See:
    http://www.google.com/imgres?q=ERoEI&sa=X&rls=com.microsoft:en-us:IE-SearchBox&biw=1440&bih=719&tbm=isch&tbnid=BP6iGexgeioxrM:&imgrefurl=http://deepresource.wordpress.com/category/eroi/&docid=8RrUIzfbRxVU9M&imgurl=http://deepresource.files.wordpress.com/2012/11/net_energy_cliff.gif&w=1542&h=938&ei=2xgWUqWGC-6E2gWExoGADw&zoom=1&iact=rc&page=1&tbnh=146&tbnw=253&start=0&ndsp=27&ved=1t:429,r:4,s:0,i:93&tx=139&ty=59
    3)Lending federal money for energy improvements thru mortgage guarantors and utility on-bill financing would generate revenue while advancing public policy goals,
    This is so far off base I can’t even respond.
    4)Paying for talented students to attend college increases speed and likelihood of graduation and dramatically increases future tax payments from beneficiaries,
    This is one I’d actually be on board with. The problem is we need to stop guaranteeing loans for every idiot to get a lib arts degree so they can work at starbucks and pay off their 40K in student loans, which they will inevitably default on.
    5)Creating a “Strategic Gas Reserve” with federal funds would speed the rise in the price of natural gas back to non-glut levels and spur exploration and drilling, and increased collection of flared associated gas, while increasing the value of royalties, additionally it would allow control of damaging price spikes associated with the differences in short-run and long run elasticities of supply.
    Why does every solution you have involve federal funds? So you think we have a surplus of federal funds?
    And before you try to tell me “rates are low.” Only for a limited amount of time. The world in June was, for the first time in YEARS, a net seller of USTreasuries. When Ben stops buying, our rates are going up and the interest on our debt is going to CRUSH all your little plans for federal money to “fix” our problems.

  60. don

    Blissex – your comments are amusing, but are they all as inaccurate as the one at August 21, 1:18AM? Or do distinguish so strongly between “Shyster” and “Shysterism?”
    Substantively, the question should be what is the federal government likely to be on the hook for. It wasn’t technically on the hook for the Fannie Freddie liabilities, but everyone knew what would happen if these august institutions veered dangerously close to failing. And it turns out they were right.

  61. Blissex

    «it wasn’t technically on the hook for the Fannie Freddie liabilities»
    And as I have rather strongly demonstrated, it is not on the hook in the law for them now, or for the FDIC ever, or for OASDI ever, so a paper that puts that all under “liabilities” is a big joke as I wrote, whether it misquotes aggressively (and I have explained why) a congressional shysterism.
    «but everyone knew what would happen»
    But that is both wrong and a political argument.
    For example Lehman was let to sink, even if “everyone knew” that the government would let a major bank fail.
    Also, in the absence of laws endowing the liabilities of the GSEs, FDIC/FSLIC, and Social Security with the full faith and credit of the USA. It takes new legislation for Congress to fund part or all of those liabilites, and to regard potential future Congressional spending laws as a present “liability” or a “contingent liability” seems bad faith to many other commenters.
    Also another commenter has written in the recent FSLIC case Congress did fund some of the S&L industry liabilities as a free gift to their shareholders in the occasion of the S&L fraud wave, but only on a partial and non-recurrent basis.
    Even more importantly, politics can change, and cram-downs can happen.
    For example right now many if not most swing voters are Baby Boomers, and they know that by the time OASDI starts to cram down insurance payments to 70-80% of their nominal level it will be 2030-2040 and most of them will be dead, so they don’t see any reason why they should write to their congresspeople to raise taxes or borrowing now to bridge that gap.
    Also, who knows whether in 2030 or 2080 the USA will be able to *substantialy afford* taking on any or all of the GSE/FDIC/FSLIC/OASDI liabilities. Plenty of governments of other countries when a crisis happened had to let the cram downs happen, plenty of others funded the liabilities with devalued currency.

  62. Blissex

    «you suggest that it is only political hacks who would deny that future defense obligations pose a more serious budget challenge than do future outlays for Social Security and major medical programs»
    Really? Wherever did anybody in this discussion suggest that for «major medical programs»? I think the only mentions of “Medicare”, “Medicaid” or “major medical programs” or equivalent have been made by James Hamilton and “Winstongator” and I think neither has suggested anything like that. Let’s have a quote please to support that statement.
    It can’t have been me as I have written “OASDI” systematically, and I would expect that a “Supreme Professor” who knows better than FDIC what FDI law is should know that “OASDI” does not include “major medical programs”.
    Also note that I have demonstrated that the the present or contingent *liability* of «future outlays for Social Security» is non-existent in the law, because these under the law OASDI is funded entirely by past, present and future contributions (and interest) to the (two, IIRC) OASDI funds.
    Also, I can’t find anybody in this discussion who argued or suggested that «that it is only political hacks who would deny that future defense obligations pose a more serious budget challenge than do future outlays», please provide quotes.
    But I can find myself arguing very diffently that political hacks and propagandists rarely if ever mention *any* DOD-related *liabilities*, a rather different concept from projected spending:
    «somehow all or most of the off balance sheet liabilities are found in social insurance programs and none in the largest component of the federal budget, the DOD budget. As if the DOD had zero potential liabilities in the future.»
    «the enormous long-term legal liabilities of the DOD, as I mentioned before. Just consider the costs of environmental cleanup when disposing the rather nasty stuff that the DOD has got in large quantities, once it gets too old to use, never mind of the plants used to make that nasty stuff. …. few hacks and propagandists even try to estimate them, never mind with the same facile sophistry with which they estimate *potential* future ones in the social insurance part of the federal budget.»
    JDH seems to have been addressing an imaginary “you” (not just imaginary potential future spending by Congress) who has not been participating in this discussion.
    The impression I get is of someone desperately trying to use rather poor sophistry to deflect attention from the grave twisty flaws in his arguments without realizing that people who follow this blog are not all Fox News fans and many know technical terms and concepts and recognize the big differences between the quote “the sense of Congress is X” and a misquote that just says “X”, that OASDI does not include “major medical programs”, and between off balance-sheet DOD liabilities and on budget DOD spending, never mind the general theme that potential future spending decisions by Congress are not off balance-sheet liabilities today, not merely that “Off-balance sheet commitments are of a fundamentally different character than those officially on the balance sheet”, also because they are not “commitments” of the USA under existing law, whether for FDIC, OASDI, or GSEs.

  63. mark g

    JDH,
    Do you understand the difference between a real resource and a financial resource? Real resources are the doctors, nurses, health care facilities, condos, cruise ships, golf courses (and staff), etc. that retired people want. Financial resources is the money. As Left Coast Bernard said, the govt can create all the financial resources (money) to make any payments. The question is will there be enough real resources. Care for the elderly is one of the largest demands and will require a great deal of labor. It is hard to imagine running out of this resource with world wide unemployment so high.

  64. benamery21

    If one contends that spending is generally too high, a category of spending which is too low is automatically relevant. If one contends that debt or spending is too high and that only tax rate increases or cuts in what we fund can address that, then it makes sense to point out that borrowing to invest in increased revenue is an option. The point was/is that there are ways in which the government can change revenue/GDP without raising taxes or cutting categories of spending. One way to do this is to make public investments, of which I provided some examples. Simply buying bonds and equities is another simple example. The key point here is not the specifics of the examples, but the general category of revenue and/or decreased liabilities from state lending, state ownership of capital, and state manipulation of markets. While interference in properly functioning markets is not needed, the degree to which the market is properly functioning and the degree of distortion a given intervention would cause are proper considerations. In some cases market interventions are positive, due to market failures, in others distortion will be less severe than caused by avoided taxes.
    So, in general, my overall points are:
    1)With the exception of Social Security and healthcare (for which net values are shown), the liabilities shown here have offsetting revenue and assets which make them non-issues from the standpoint of Treasury overextension.
    2)Healthcare is an issue solved by almost every other country one cares to consider, and which only poses a problem for us because of special interest lobbies, and a failure to accept market realism over market ideology. These liabilities are estimates based on a future path of healthcare costs which can be arrested when we collectively tire of subsidizing waste and rents with taxpayer funds to acheive substandard healthcare outcomes.
    3)The problems faced by Social Security are minor, and
    4)Fiscal challenges can be addressed in several ways other than raising taxes or cutting services, although raising some categories of tax is not unattractive.

  65. Anonymous

    “2)Healthcare is an issue solved by almost every other country one cares to consider”
    Yes, they ration by time instead of price. If you took obese americans and tried to get the same outcomes in their health care systems, they would be worse than those countries, as the average foreigner is in better health to begin with.

  66. benamery21

    Anonymous: Yep. You figured it out. It’s our uniquely bad health that makes everything cost more, and having to wait for healthcare that makes everyone else live longer. Wow. I bow at the feet of your canard. If only every other developed country in the world had just asked you, they could have improved outcomes, reduced costs, and reduced wait times by adopting the American healthcare system for their physically superior citizens.

  67. Leigh

    Hasn’t the Federal Reserve printed money to pay for Social Securithy Benefits and Medicare?? If so, then one would be led to believe that we have a much larger debt ceiling that 17 trillion dollars?? Somehow, I see the extra money being printed as being fake…what say you??
    Please tell me how our US Dollar will survive…in time, won’t the dollar collapse completely??

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