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In Debt We Trust: How Much Public Debt? A dissenting view on US sovereign debt

The best place to start is by crunching the numbers so we can get the big picture. Which I did: US debt is now between 8 trillion and 110 trillion. Useful indication is it not? There is over a 100 trillion difference, and here officially starts the headache and worst of all, one could argue that both numbers are in some ways correct including many other between these two extremes. Gross debt, net debt, national debt, federal debt, public debt, total government obligations, unfunded obligations, U.S. debt, you name it, are some of the terminology used to simply determine how much debt is owed by the government. No wonder the subject creates feverish debate and sensationalist titles in the likes of “the U.S. has one of the lowest debt-to-GDP ratios amongst developed economies” or “the US is a Ponzi scheme ready to default”.
So before going any further let’s first try to find out how much debt there really is. I shall be focusing on the non-private debt, public debt, the one for which the sky appears to be the limit these days. In fact, public debt may be considered gross or held by the public. Gross debt includes intra-governmental debt whilst held by the public excludes it. Intra-governmental debt is federal debt held by other federal agencies. It is debt that the federal government in some way “owes to itself” and is held in more than 200 trust funds, most of it held by a very few, and in particular the Social Security Trust Fund. When a trust fund receives payroll taxes or other income that are not needed to pay benefits immediately, the Treasury credits the trust fund with nonmarketable treasury debt, “special issues”, enabling it to use the excess funds for other government expenses and/or reduce the amount of traditional Treasury debt (the one named held by the public) it shall need to issue in the credit markets

So the question we have to deal with is whether one should include the federal debt that is owed to other federal agencies (intra-governmental debt invested in “special issues” that do not compete for   buyers in the credit markets and held in the Trust funds) or only consider the federal debt that is owed to the public (bonds, notes, bills).




- The Federal Old-Age and Survivors Insurance Trust Fund          2’319 billion
- Civil Service Retirement and Disability Fund                                  750 billion
- Federal Hospital Insurance Trust Fund                                           304 billion
- Military Retirement Fund                                                                  296 billion
- Federal Disability Insurance Trust Fund                                          200 billion
Total Intra-governmental debt                                                         4’490 billion


There are a good hundred others not really worth mentioning in a world where only trillions appear to make the headlines.

There are many arguments both ways on whether one should or not consider intra-governmental debt. I believe the answer simply lies in the state of the government fiscal position. Let me explain. Intra-governmental liabilities are non tradable “special issues” guaranteed as to both principal and interest by the Federal government and issued irrespective of the government’s financial position. This implies that when the government is running fiscal surpluses, publicly held debt will be paid back but the government will need to continue to issue intra-governmental debt because these trusts have no other choice than to be invested in them. If these surpluses persist, the intra-governmental debt will continue to grow giving a misleading indication that the government is more and more forced into debt. In this case I believe that considering intra-governmental holdings provides a misleading picture of the financial situation of the government as the increasing size of the intra-governmental debt fails to reflect the improving overall fiscal situation. In times of deficit, it’s a very different story. Surplus social security taxes are used to pay other government programs, and therefore, in times of deficit, it is clear that the rise in intra-governmental debt is not the result of this forced practice of issuing special securities but the simple absence of sufficient receipts. By investing the trusts’ balances in nonmarketable treasury debt, the government needs to borrow less from the public; the debt held by the public alone therefore fails to reflect the worsening overall fiscal position of the government. Intra-governmental debt should therefore be viewed in times of surplus as excess “savings” that allow Social Security taxes collected in the past to reduce the need for taxes in the future. In times of deficit they should be considered as a current unfunded liability. 

Disclosure: No positions