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In a recent American Thinker article, "The Dollar's Inevitable Demise," author Vasko Kohlmayer compares the federal debt to the American economy, or GDP. Mr. Kohlmayer begins his article by correctly pegging GDP at "roughly $14 trillion." Then he trots out the "total public debt," which he puts at "nearly $13 trillion." That would mean the federal debt is currently equal to more than 92.8 percent of GDP.
But one must understand that the "total public debt" figure
cited consists of two parts: hard debt and soft debt. The hard debt is the real
debt. And the soft debt consists of government "trust funds," like that for
social security. The soft debt is money we "owe" ourselves, not
If one clicks on the link Kohlmayer provides, this is all broken down. The hard debt is the "Debt Held by the Public" and the soft debt is the "Intragovernmental Holdings." On the right is "Total Public Debt Outstanding," which is the sum of the other two figures and is the figure Kohlmayer uses.
Here's a link for a little research, and it's user friendly. Look up the debt for the years 1997 through 2002. What you'll find is that the debt went up from 1998 through 2001. Yet, these are the very years frequently cited as having produced record budget surpluses. How odd. We have a surplus but the debt goes up.
This anomaly is due to the merging of the on-budget and off-budget accounts, which the feds have been doing since the late 1960s. The usual off-budget surpluses offset the usual on-budget deficits. E.g., in FY 2009, the feds ran an on-budget deficit of $1.549 trillion, which was offset (lowered) by an off-budget surplus of $136B. That's how we got an official deficit of $1.412 trillion. The feds have run only two on-budget surpluses in the last 50 years: $1.9B in 1999 and $86.4B in 2000. See OMB's Table 1.1 to corroborate. (The source for all tables in this article is here.)
Liberals in and out of the media have long cited "total debt" to make the fiscal picture under Republicans appear as bad as possible. But now that Democrats control everything, we see the lapdog media citing the correct figure, the "public debt"; i.e., hard debt. Sunday morning brought two confirmations of this. In "How Much Government?" in Parade magazine, Harvard professor and CNN analyst David Gergin writes
The European Union has agreed that it is dangerous for a country to allow its publicly held debt to exceed 60% of its GDP. The Congressional Budget Office says that the U.S. could hit 60% by the end of this year, and on its current course could hit 100% by 2020. [Emphasis added.]
Then on the ABC News Sunday morning program This Week, Jake Tapper said:
TAPPER: John, I want to put up a graphic here. It shows public debt as a percentage of the gross domestic product, in
, it's 113.4 percent. In the Greece , 52.9 percent. That's still a lot, and that's only public debt. That's not including some of the shenanigans that our government -- some of the chicanery and shell game that we have going on with the Social Security trust fund and such. [Emphasis added.] United States
Finally, the media is beginning to cite the correct figure. But it takes a flailing Democrat regime to get them to do it. Here's the C.I.A. graphic Tapper put up:
Since both Kohlmayer and the Sunday news predict difficulties later this year because of federal debt, what difference does it make if they key off of different figures? One reason is that the hard debt is growing ever faster, which Table 7.1 from OMB illustrates:
Notice how the soft debt and the hard debt diverge. This is because the off-budget surpluses are drying up. This year, in fact, Social Security is predicted to run a deficit, and therefore won't be able to offset the on-budget deficit. (What we should be more concerned about than aggregate debt is yearly debt, i.e. deficits. OMB reports in its Table 1.2 that (as a percentage of GDP) the deficit for FY 2009 was the highest since 1945, clocking in at 9.9 percent. OMB estimates that the 2010 deficit will be equal to an even higher share of GDP -- 10.6 percent.)
The main reason we should key off hard debt is that citing total debt legitimizes the fraud of federal financing. It gives credence to treating federal "trust funds" as debt. They're not. Another mistake Kohlmayer makes is his treatment of "long-term liabilities":
This, however, is not the worst of it, because the national debt represents only a relatively small portion of our government's total financial obligations. The far greater bulk is made up of long-term liabilities inherent in entitlement programs [...] the combined liabilities of Medicare, Social Security, and Medicaid amount to an astounding $104 trillion.
When we add the national debt and entitlements together, we get a figure of some $117 trillion. This figure represents the amount of money the federal government will have to come up with in the years ahead in order to discharge its obligations.
This is just not true. And it's already been adjudicated in the Supreme Court. The "long-term liabilities" Kohlmayer refers to are not hard debt. Indeed, Congress could end Social Security today, and there would be no recourse for the citizen. He has no ownership of his Social Security. So, we need to forget about these "liabilities" and "trust funds" and especially "total debt." (For more on this, click here.) Mr. Kohlmayer closes:
To put it bluntly, the dollar's days are numbered and its demise is inevitable. Anyone who still hopes there may be a way around it, must answer that ultimate money question: Where in the world is the American federal government going to get $117 trillion?
The short answer is: It isn't. And that's a good thing. For any attempt to meet those "liabilities" would bring on the dollar's demise. That, however, doesn't mean America would be in default -- the "liabilities" aren't real. But the treasuries purchased freely and in good faith are real, and their default would make America a pariah state.
Kohlmayer ends his article: "Any suggestions?"
There's only space here for one: Repeal and replace Congress. From a "dollar's demise" standpoint, the current Congress, under Pelosi and Reid, is the most disastrous in history. For the dollar, November can't come soon enough. We must cashier every member who voted for the stimulus and/or ObamaCare, replace them with rock-ribbed conservatives, and tell them to do one thing: Balance the dang budget. If the budget is balanced, everything else will fall into place.
If the dollar's demise were indeed inevitable, then the "smart money" would be getting out of the dollar. But the dollar's been perking up a bit lately. Maybe it's a flight to quality, as other currencies are worse. So this hoarder of dollars thinks there's still a little time left for the dollar. The dollar's demise is ... evitable.
This article originally appeared at American Thinker.
Jon N. Hall is a programmer/analyst from Kansas City.