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What is the Gross National Debt?
It is the debt owed by the general fund of the U.S. government. It is money borrowed from and owed to: (1) various government trust funds, including Social Security, and (2) the public, including individuals, corporations, state, local and foreign governments, and the Federal Reserve, typically in the form of treasury bonds or other types of securities.
The general fund recieves personal and corporate income tax, but it is not allowed to simply take FICA taxes from the Social Security Administration—it can only borrow them and must give treasury bonds in return for security. Although CBO has argued that these are only paper transactions, every President has said these promises will be honored.
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What is the General Fund?
The General Fund of the federal government (AKA federal funds) with the $9 trillion debt. It is used to carry out the general purposes of the government, rather than the funds earmarked for a certain purpose, i.e. trust funds.
"General fund means the accounts for receipts not earmarked by law for a specific purpose, the proceeds of general borrowing, and the expenditure of these moneys." —From the Glossary of the Analytic Perspectives of the OMB Budget , FY 2005, p. 392.
"The main financing component of the Federal funds group is the general fund, which is used to carry out the general purposes of Government rather than being restricted by law to a specific program. It consists of all collections not earmarked by law to finance other funds, including virtually all income taxes and many excise taxes, and all expenditures financed by these collections and by general Treasury borrowing (OMB, p. 339).
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What Is "Total Accumulated Debt"?
The national debt (total accumulated debt) is the sum of all the annual deficits less any surpluses. The "deficit" is one-year's shortfall. This shortfall must be made up by borrowing.
The other federal government funds (Highway, Social Security, etc.) each have their own deficits or surpluses and each accumulates its own debt or trust fund. Social Security runs the biggest surplus and the General Fund (popNote) usually runs the biggest deficit.
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Who holds the "Debt Held by the Public"?
The Public Debt is held by the Federal Reserve System and 'Other,' according to Table 7.1 of the Historical Tables of OMB' Budget (p. 118). The Economic Report of the President (2004) identifies 'Other' as 'Held by Private Investors' (Table B-89, p. 388). The debt held by the FRS is purchased by printing money.
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Which is More Important, the Gross Debt or the Unified Debt?
The gross debt indicates problems of federal finances, while the unified debt indicates macroeconomic problems that can be caused by high real interest rates. Economists focus on the later.
The unified debt ignores all borrowing from the trust funds, such as the Social Security trust. If this were the only type of federal borrowing, there would be no macroeconomic effect, but a very large gross national debt would still indicate severe trouble ahead either for social security or for the general fund. When Social Security needs its money back, the general fund will have to increase borrowing or taxes, or renege on the Social Security promise.
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What is On-Budget, and what is Off-Budget?
The budget is divided between two fund groups, Federal funds and trust funds. The Federal funds grouping includes all receipts and outlays not specified by law as being trust funds. All Federal funds are on-budget except for the Postal Service fund, which is off-budget starting with fiscal year 1989. All trust funds are on-budget, except the two Social Security retirement trust funds, which are shown off-budget for all years (OMB's Budget for the Fiscal year 2005, Historical Tables, p. 3). Here is further explanation of what Social Security being "Off Budget" means.
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How Does Printing Money Affect the Debt?
The part of the debt held by the Federal Reserve System (FRS) is purchased by printing money. The purchases, termed "Open Market Operations," simply repurchase treasury bonds and bills from the public. This is done to put more currency into circulation, something a growing economy needs. This part of the debt is beneficial unless too much money is printed — this can lead to high levels of inflation (2 or 3% is generally considered safest).
The FRS earns lots of interest on the T-bonds and T-bills it owns, but it refunds almost all of this to the General Fund of the Federal Government. Consequently, this part of the debt, is essentially free and beneficial.
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What's the Social Security Trust Fund?
Right now Social Security is collecting far more money than it needs, so it saves this money in its Trust Fund so it can pay it back to those who contributed during their retirement years. It is required by law to save it by buying special T-Bonds that help finance the national debt. This would not create a problem if this money were used to responsibly pay down that debt. That happened under Clinton, but not under Reagan, Bush I or Bush II.
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What about the so-called budget surplus?
The federal debt is growing at a record pace and surpluses in the federal trust funds (Social Security and Medicare, military retirement, and federal employees retirement) hide the true size of the deficit.
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Why should other countries care about America's federal debt?
The IMF says that large U.S. deficits are risky for the whole world.
The effects could include an increase in interest rates in other industrial countries.
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Congress Was Not to Blame for Reagan's Debt (91k PDF)
The President Reagan Information Page
An attempt at defending Reagan's woeful budget record, this line of reasoning explains at most 1/9th of Reagan's journey deeper into debt. Congress only gave him $202 billion more than he requested, while the national debt increased by $1,875 billion during his years as president. Moreover, most of the extra $202B was due to the economy falling far short of Reagan's predictions, rather than fiscal irresponsibility on the part of Congress.
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http://zfacts.com/p/408.html | 01/18/12 07:17 GMT
Modified: Mon, 24 Mar 2008 15:47:06 GMT
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