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tazzygirl -> RE: How the Deficit Got This Big???? (9/17/2011 9:50:19 PM)
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~FR
As we recently reported in our Performance and Accountability Series,
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budget surpluses over the past 3 years have resulted in Treasury reducing
debt held by the public. Treasury has reduced this debt by redeeming
maturing debt, reducing the number of auctions and size of new debt
issues, eliminating the 3-year note, conducting “buybacks” of debt before
its maturity date, and redeeming callable securities when the opportunities
arose.
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As a result of Treasury’s actions, debt held by the public and
managed by the Bureau of the Public Debt, has been reduced by
approximately $376 billion since September 30, 1997, with about
$229 billion of this decrease occurring in fiscal year 2000.
Intragovernmental holdings represent balances of Treasury securities held
by individual funds, primarily trust funds, that typically have an obligation
to invest their excess annual receipts over disbursements in federal
securities. Most federal trust funds invest in special U.S. Treasury
securities that are guaranteed for principal and interest by the full faith and
credit of the U.S. government. These securities are nonmarketable,
however, they represent a priority call on future budgetary resources.
Certain of these trust funds such as the Social Security and federal civilian
employee and military retirement trust funds, have been running annual
surpluses, which are loaned to the Treasury and reduce the current need
for the government to borrow from the public. Primarily as a result of such
trust fund surpluses, intragovernmental holdings have increased by
approximately $637 billion since September 30, 1997, with about
$247 billion of this increase occurring in fiscal year 2000.
The transactions relating to the use of the funds’ surpluses net out on the
government’s consolidated financial statements because, in effect, they
represent loans from one part of the government to another. Importantly,
these intragovernmental holdings also constitute future obligations of the
Treasury since the Treasury must provide cash to redeem these securities
in order for the funds to pay their benefits or other obligations as they
come due. When this occurs, the government must fund these redemptions
through some combination of reduced future surpluses, if available; lower
relative spending for federal programs; higher relative taxes; and/or greater
relative borrowing from the public.
Debt held by the public and intragovernmental holdings are very different.
Debt held by the public approximates the federal government’s competition
with other sectors in the credit markets. This competition affects current
interest rates and private capital accumulation. In addition, interest on debt
held by the public is a current burden on taxpayers. In contrast,
intragovernmental holdings perform an accounting function but typically
do not constitute the government’s total future commitment to trust fund
financed programs. They primarily represent the cumulative annual
surpluses of those trust funds and also reflect future claims on the U.S.
Treasury. They do not have the current economic effects of borrowing from
the public and do not currently compete with the private sector for
available funds in the credit markets. However, when trust funds redeem
Treasury securities to obtain cash to fund expenditures, they compete with
the private sector and thus have an effect on the economy.
Even after 3 years of budgetary surpluses, debt held by the public stands at
about $3.4 trillion, or 35 percent of the annual size of the U.S. economy, a
level that the United States rarely exceeded before 1940. However, the
projected surpluses, if they materialize and depending on how much is
saved, could lead to a dramatic reduction in or potential elimination of debt
held by the public. Over the longer term, the retirement of the baby boom
generation will place significant pressures on the federal budget. These
pressures—including, for example, increasing demand for health
services—will require reform of existing entitlement programs and/or other
policy actions to prevent debt held by the public from dramatically rising
again in future decades.
We are sending copies of this report to Senator Max Baucus, Senator
Robert Byrd, Senator Ben Nighthorse Campbell, Senator Kent Conrad,
Senator Pete Domenici, Senator Byron Dorgan, Senator Charles Grassley,
Senator Joseph Lieberman, Senator Ted Stevens, Senator Fred Thompson,
and to Representative Dan Burton, Representative Stephen Horn,
Representative Steny Hoyer, Representative Ernest Istook, Representative
Jim Nussle, Representative David Obey, Representative Charles Rangel,
Representative Janice Schakowsky, Representative John Spratt,
Representative William Thomas, Representative Henry Waxman, and
Representative C.W. Bill Young in their capacities as Chairmen, Ranking
Members, or Ranking Minority Members of Senate or House Committees
and Subcommittees. We are also sending copies of this report to Van Zeck,
Commissioner, Bureau of the Public Debt; the Honorable Jeffrey Rush, Jr.,
Inspector General, Department of the Treasury; the Honorable Mitchell
Daniels, Jr., Director, Office of Management and Budget; and other agency
officials. Copies will be made available to others upon request.
If I can be of further assistance, please call me at (202) 512-5500. This
report was prepared under the direction of Gary T. Engel, Director,
Financial Management and Assurance. Should you or members of your
staff have any questions concerning this report, please contact Mr. Engel at
(202) 512-3406. Another key contact and staff acknowledgments are in
appendix II.
Sincerely yours,
David M. Walker
Comptroller General
of the United States
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Page 12 of the report states...
As Figure 1 illustrates, intragovernmental holdings have steadily increased over the past 5 years while debt held by the public has decreased beginning in fiscal year 1998. The primary reason for the increases in intragovernmental holdings is the annual surplus in the Federal Old Gae and Survivors Insurance, Federal Disability Insurance, Military Retirement and Civil Service Retirement and Disability Trust Funds. The decreases in held by the public during fiscal years 1999 to 2000 are due primarily to federal revenues exceeding federal spending during those years.
From page 16....
Because of the government's inproved fiscal position over the past three years, Treasury's need to borrow from the public has declined, resulting in several changes related to debt management. One such change, beginning fiscal year 2000, was Treasury's decision to buy back certain unmatured marketable securities. Debt buybacks are competitive redemption processes by which the Treasuyr accepts offers to redeem certain marketable Treasury securities prior to their maturity date. Once the securities have been redeemed from investors, they are removed from the total Treasuyr securities outstanding.
Buying back debt early is an effective tool for (1) managing excess cash when tax reveues exceed immediate spending needs to the government, (2) enhancing the liquidity of Treasury benchmark securities, which promotes overall market liquidity and helps reduce government interest costs over time, and (3) managing the average maturity of Treasury securities by paying off selected dates.
During fiscal year 2000, a total of 13 buybacks occurred involving the redemption of $21.3 billion of marketable Treasury securities at a total price of $26.7 billion.
.........
Federal debt outstanding it the largest legally binding obligation of the federal government. Nearly all the federal debt has been issued by the Treasury with a small portion being issud by other federal governments. Treasury issued debt secutities for two principal reasons, (1) to borrow needed funds to finance the operations of the federal government and (2) to issue debt to certain government accounts, primarily trust funds.
Total federal debt outstanding has dramatically increased over the past 25 years from $554 billion as of September 30, 1975 to $5,659 billion as of September 30, 2000. During the 80's, the large budget deficits emerged as the economy was disrupted by oil crises and inflation. Until a few years ago, federal deficits continued to be large and debt continued to grow substantially. As a result, total federal debt increased nearly five fold since 1980. However, by the late 1990's, the federal debt held by the public was beginning to decline. In fiscal years 1998 through 2000, the amount of debt held by the public fell by $376 billion. Despite the decline in federal debt held by the public, total federal debt increased over this same period because of increases in intragovernmental holdings of $637 billion. By law, trust funds surpluses generally must be invested in federal securities. As a result, the intragovernmental holdings balances primarily represent the cumulative surplus of funds due to the trust fund's cumulative annual excess of tax receipts, interest creditied, and other collections compared to spending.
http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2000.pdf
Amazingly enough, this is all from the Treasury Department, stating that the revenue in those years exceeded spending and that the intragovernmental excesses are to be loaned out to the Treasury Department. Now why everyone is complaining that the Treasury is showing a deficit is what I dont understand when, in their own words, they are stating the government ran surpluses in income as well as trust funds.
I now leave the more learned of the political boards to trash the Treasury report.
My health is way too important to deal with a bunch of children who cant see beyond the partisan rhetoric, so I am taking a break from these threads.
The CBO, the GOA and the Treasury all indicate a surplus.
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