7/27/2019 Economists Say U.S. Debt May Not Be as High as You Think

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Economists say U.S. debt may not be as high as you think

By James Rosen | McClatchy Newspapers

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WASHINGTON Economists dismayed by the debt-ceiling pyrotechnics on Capitol Hill and at theWhite House say that political leaders' failure to deal with the short-term crisis bodes poorly for their ability to confront another looming fiscal disaster.

And the problem is compounded, many economists say, by how the United States calculates itsdebt.

In trying to understand the debt ceiling a subject many people had never considered before thissummer it helps to know a few things about the layers that make up the United States' $14.34trillion mountain of debt.

The U.S. blends two kinds of debt, and some economists say that makes little sense. Moreover, wedon't even have a good way of paying back one of those types of debt. More on that later.

The first type of debt is what the government owes to outside bondholders: individuals, pensionfunds, other groups and foreign governments. The second type is a sizable amount of intra-governmental debt, or obligations of the Treasury Department to various trust funds basicallywhat we owe ourselves.

Alex Brill, an economist with the American Enterprise Institute, a conservative research center inWashington, said that counting external and internal debt together didn't make economic sense andblurred the real fiscal situation the U.S. faces.

"Not all of the debt is the same, and it doesn't all matter the same," Brill said. "What really matters isdebt held by the public."

Those are the outside bondholders, and they take up about two-thirds of the total U.S. debt. As of Monday, the most recent date for which the Treasury Department provided figures , the U.S. owed$9.75 trillion to them.

Almost one-third of the U.S. debt $4.59 trillion is in the form of IOUs dedicated to programssuch as Social Security, Medicare and the pension plans for federal workers and military personnel.That's what the United States owes its citizens.

As an analogy, Brill suggests thinking of a family that's facing medical bills now and college bills inthe future. Say the family has set aside $3,000 for college costs, encounters a $13,000 medical bill,pays $10,000 of it with a credit card and uses the college savings to pay the rest.

That family's real debt is $10,000, but the Treasury Department's method of calculation would placeit at $13,000.

While the family does need to replenish the college savings, the movement of money within itspersonal accounts doesn't affect its credit score.

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7/27/2019 Economists Say U.S. Debt May Not Be as High as You Think

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"When you blend this real debt with the kind of accounting debt where the left hand borrows from theright hand, you end up with something that's completely meaningless in economic terms," Brill said.

This practice enables some lawmakers to exaggerate the severity of the problem that underlies thedebt-limit impasse.

For example, Sen. Jeff Sessions, an Alabama Republican, told Fox News earlier this month: "Thedebt as it exists today 95 percent of GDP is so high, economists tell us it's dragging down(economic) growth at least 1 percent."

But considering only the $9.75 trillion that's owed to bondholders, the U.S. debt is 65 percent of theGDP; still worrisome, but nowhere near the 140 percent level that's fueling the Greek debt crisis or the 100 percent-plus levels of other troubled European governments.

This kind of distinction, though, provides little solace in the face of the coming entitlement crisis justa few years down the road.

President Barack Obama and lawmakers are struggling to agree on a debt-ceiling hike before next

Tuesday, which would allow the government to borrow more money in order to fund a more than $1trillion budget deficit.

As they wrangle, they're only tenuously offering solutions to entitlement obligations that are manyorders of magnitudes more. Those obligations eventually will total at least $60 trillion.

"This huge debt burden won't bankrupt the country on Aug. 3, but it does demonstrate that there isan enormous and growing problem that gets much harder to deal with the longer it is leftunaddressed," said Christopher Frenze, a former staff director of the American Action Forum, aconservative policy institute in Washington.

That coming threat stems from another issue, the IOUs to ourselves.

For years, increased spending has forced the government to raid federal trust funds. It takes payrolltax revenues earmarked for Social Security or Medicare, for instance, and uses them to cover unrelated expenses. But it doesn't have a way to pay back the money.

It would be as if a family kept a budget on paper that put aside set sums each month for definedneeds, but it spent all that money and more in its daily activities.

Kenneth Rogoff, a Harvard economist who's advised U.S. government leaders, views the debt-limitcrisis as concealing a deeper dilemma: Americans expect federal benefits they're not willing to payfor.

"We're on a completely unsustainable path," Rogoff said. "People are just convinced the governmentdoesn't need any money. They're mad at all the borrowing, but they get even madder when taxes goup or they don't get the programs they like."

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