Seventeen years ago this month, then-Federal Reserve Chairman Alan Greenspan spoke before a group of bond market executives and delivered a striking pronouncement.
The first part was common knowledge: In 2001, the economy was booming, and the government was looking forward to years of budget surpluses.
{mosads}The second part was completely out of left field; Greenspan projected that hefty tax coffers and thrifty spending would soon allow the Treasury to pay off the entire national debt, an earth-shattering development that raised unprecedented public policy questions.
How could the Federal Reserve implement monetary policy without Treasury securities? Should they consider purchasing precious paintings on the open market, instead of using Treasury debt? Economists buzzed with excitement at the previously unimaginable scenario.
The Office of Management and Budget and Congressional Budget Office were studying these very ideas, Greenspan told the crowd.
Greenspan’s remarks referred to the “paydown of the federal debt,” but in reality, he was only referring to paying down Treasury securities held by the public. He was not including special Treasury securities held by trust funds like Social Security.
In fact, while the debt held by the public decreased by $450 billion between 1997 and 2001, the national debt increased by $394 billion because $844 billion was borrowed from the trust funds.
To bring this distinction down to the personal level, let’s say your children asked you to hold on to the money they have earned doing odd jobs. But instead of putting the money into a savings account, you wrote IOUs to your children after spending some of it and using the “surplus” money to pay off some credit card debt.
In reality, workers throughout the country had money withheld from their paychecks, which the government said it would hold in a trust to pay future Social Security and other benefits.
But instead of putting all of this money into a savings account, the Treasury issued $844 billion of IOUs in the form of special Treasury securities for the Social Security trust fund and other trust funds.
The government spent $394 billion of the borrowed money. The rest of the money was considered a “surplus” and used to pay off $450 billion of the debt held by the public.
While most people focused on surpluses as far as the eye could see and the possible elimination of the debt, few people noticed Greenspan’s discussion of the true national debt, which he correctly asserted should include accruing retirement benefits that had been promised but not funded.
He rightly stated the retirement programs were accumulating deficits, and the liability for Social Security alone amounted to about $10 trillion.
But I have to admit that those were the good old days. The pay-go rules had restrained spending, and a growing economy has brought in record tax receipts.
Over the last 17 years, the federal government has found it difficult to practice anything resembling fiscal restraint. To be fair, many of the intervening events that threw us off track would have been impossible to predict in 2001.
Greenspan couldn’t have predicted the 9/11 terrorist attacks, nor the unending warfare that would ensue in the Middle East. The Great Recession and subsequent recovery spending may have been unforeseeable, but these events have made a mockery of the idea of a world without government debt.
In contrast to Greenspan’s rosy predictions, we now find ourselves in a worsening financial condition. The Treasury Department’s Debt to the Penny website shows the reported national debt stands at a staggering $21 trillion.
The “true” national debt is more than $104 trillion when you take into consideration unfunded liabilities. Just last month, President Donald Trump signed the largest spending bill in U.S. history, which includes a $716 billion boost in funding for the Pentagon.
If a “blue wave” of new congressional representatives hits Capitol Hill as anticipated in November, we could have a divided government, which historically brings with it more increases in spending.
But even if Republicans retain control and come out of the current Republican leadership shakeup unscathed following House Speaker Paul Ryan’s (R-Wis.) decision not to seek re-election, these events could alter our nation’s spending trajectory, for better or worse.
It is incumbent upon the next Speaker of the House, as well as all Republicans, Democrats and Independents seeking office this November, to commit to being forthright about our national debt.
Continuing to focus on the $21 trillion debt is an admission that the government doesn’t really owe our seniors and veterans the retirement benefits they have been promised. Not including those liabilities in the debt ceiling debate reduces the chances that the entitlement debt, including “mandatory spending,” can be effectively managed.
The cold, hard facts of our government deficits over the past two decades have shown Alan Greenspan’s idea of a world without government debt to be nothing but wishful thinking.
Now more than ever, we need leaders who will live in our reality and tell us the truth about the pressing financial challenges facing the country. We cannot afford another 17 years — or more — of lip service with no real solutions.
Sheila Weinberg, CPA, is founder and chief executive officer of Truth in Accounting, an organization that researches government financial data and promotes transparency for a better-informed citizenry. She sits on the School of Accountancy Advisory Board at the Daniels College of Business at the University of Denver.