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Can the Government Forgive Itself of Intragovernmental Debt?

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  • Tue, Sep 08, 2009 - 10:20am

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    okubow

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    Can the Government Forgive Itself of Intragovernmental Debt?

Excluding the entitlement programs, can the government continually forgive itself of debt? If the Pentagon were to borrow $10m from the department of forestry could the department of forestry just say, “oh never mind, we don’t need that $10m anyway. The debt is forgiven?”

I understand that this would be $10m less for the department of forestry to work with,  but what’s to stop the government from moving money around like this for eternity? In this example, if the deptartment of forestry were able to tighten its belt and spend $10m less than usual, everything would balance out, right?

I’m sorry if this is a remedial question, but I just don’t understand this idea. If I lend my brother $10.00 and then tell him not to worry about it, I lose ten dollars of purchasing power that week, but the debt gets wiped out between us. What stops the government from just wiping out a bunch of its internal debt the same way?

 

 

  • Tue, Sep 08, 2009 - 02:38pm

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    Peak Prosperity Admin

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    Re: Can the Government Forgive Itself of Intragovernmental …

 

Interesting concept, governments probably do this when it comes to the black budget.  I don’t know why the government Borrows it’s own money from the fed at interest, when they can create money debt free.  

Money creation should not be loaned into the economy but spent into existence. 

 

When was the last time you voted someone out of office at the Fed?  (rhetorical)

  • Tue, Sep 08, 2009 - 06:25pm

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    Peak Prosperity Admin

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    Re: Can the Government Forgive Itself of Intragovernmental …

okubow and JK121

I’m very glad you brought up this subject.  I have wondered for a long time what will happen about the box full of IOU’s that the congress has “borrowed” from the Social Security Fund.  I’ve been told, and I don’t know if its true, that if all the money that has been “borrowed” from SS were back in there, SS would last much longer.  Does anybody know about this,  as well as the answer to okubow’s question?

Thank you.

  • Wed, Sep 09, 2009 - 07:21pm

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    Peak Prosperity Admin

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    Re: Can the Government Forgive Itself of Intragovernmental …

Anybody . . . ?Cry

  • Wed, Sep 09, 2009 - 10:14pm

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    Re: Can the Government Forgive Itself of Intragovernmental …

okubow –

Here’s a shot.  Short answer – yes they could, but no they won’t.

The majority of the Intragovernmental debt portion of the national debt has historically been funded by the government raiding/borrowing/stealing from Social Security Administration account.  So there is money on the books, the government just transfers the debt from SSA to thier coffers – but the debt still exists and has to get paid at some point, likely by my great-great-grandchildren.

About 85% (from a 2007 source, http://ivesaidenoughtalready.blogspot.com/2008/06/growth-in-intragovernmental-debt.html) of the intragovernmental debt is distributed among 5 programs as follows:

Federal Old-Age and Survivors Insurance Trust Fund (Social Security) – 50%

Civil Service Retirement and Disability Fund – 17%

Federal Hospital Insurance Trust Fund – 8%

Federal Disability Insurance Trust Fund – 5%

Military Retirment Fund – 5%

These programs are debts that the government ‘owes’ – forgiving themselves of these debts would be a huge breach of faith (what a surprise) and would be political suicide (perhaps not such a bad idea).  Debt forgiveness without curbing spending idiocy only pushes the intercept point out a couple of decades.

Again, I think the short answer is yes the government could forgive portions of the intragovernmental debt, but only the small programs, so no they wouldn’t. 

Now that’s not to say that some future administration couldn’t come forward with courage and visionary leadership and tells the truth – that we are broken and can’t be fixed.  Social Security is broken folks, thanks for paying in, but it’s over and done.  No more SS witholdings from your paycheck, but you now have to figure something else out when you ‘retire’ because there’s nothing there.

Now we only have to get the spending part of the equation under control.

Here’s another link to a pretty good article about the dynamics of the National debt, the site is kind of right leaning, but the message is on the mark. 

http://www.craigsteiner.us/articles/16

 

Anybody else want to strap this one on?

  • Wed, Sep 09, 2009 - 10:36pm

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    Re: Can the Government Forgive Itself of Intragovernmental …

okubow wrote:

Can the Government Forgive Itself of Intragovernmental Debt?

Great question!  The short answer is “yes” but the mechanics would be different than simply “forgiving debt.”

For example, if the U.S. wanted to it could pay the $6 trillion it owes to the people (social security fund, medicare, pensions, etc).  As a soveirgn nation, the U.S. has the power to issue it’s own money, the treasury could issue the money free from debt.

This would not be inflationary as the government would be retiring debt.

Larry

  • Wed, Sep 09, 2009 - 10:44pm

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    Re: Can the Government Forgive Itself of Intragovernmental …

Great question!  The short answer is “yes” but the mechanics would be different than simply “forgiving debt.”

For example, if the U.S. wanted to it could pay the $6 trillion it owes to the people (social security fund, medicare, pensions, etc).  As a soveirgn nation, the U.S. has the power to issue it’s own money, the treasury could issue the money free from debt.

This would not be inflationary as the government would be retiring debt.

Larry

Larry,

Are you really saying the government could issue $6 trillion in paper money and there would be no inflation?  I would follow that up with, “you cannot be serious”, but somehow I get the feeling you are. 

Please explain how issuing and introducing $6 trillion into the economy would not be inflationary.  If it wouldn’t be, why not make it $12 trillion, or heck, let’s just go for the full $60-$80 trillion we have in debt or unfunded liabilities?

  • Wed, Sep 09, 2009 - 10:45pm

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    Peak Prosperity Admin

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    Re: Can the Government Forgive Itself of Intragovernmental …

[quote=DrKrbyLuv]

Great question!  The short answer is “yes” but the mechanics would be different than simply “forgiving debt.”

For example, if the U.S. wanted to it could pay the $6 trillion it owes to the people (social security fund, medicare, pensions, etc).  As a soveirgn nation, the U.S. has the power to issue it’s own money, the treasury could issue the money free from debt.

This would not be inflationary as the government would be retiring debt.

Larry

[/quote]

But Larry –

Wouldn’t the government be following the Constitution?  We can’t have that.

You run for Congress and make that your platform and I’ll move to PA so I can vote for you.

  • Thu, Sep 10, 2009 - 12:54am

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    Re: Can the Government Forgive Itself of Intragovernmental …

[quote=DrKrbyLuv]

okubow wrote:

Can the Government Forgive Itself of Intragovernmental Debt?

Great question!  The short answer is “yes” but the mechanics would be different than simply “forgiving debt.”

For example, if the U.S. wanted to it could pay the $6 trillion it owes to the people (social security fund, medicare, pensions, etc).  As a soveirgn nation, the U.S. has the power to issue it’s own money, the treasury could issue the money free from debt.

This would not be inflationary as the government would be retiring debt.

Larry

[/quote]

I don’t agree there Larry…if/when the government prints money to “retire” the SS debt, what it will be doing is paying off SS claims with freshly printed money. 

The “debt” we are talking about is not like a banking debt, it is a bookkeeping entry signifying a liability from the government to itself.

In incurring that specific liability the government already took in and spent money and then recorded the difference as an “intragovernmental holding,” a misnomer if ever there was one.  It is not a holding.  It is an IOU representing missing funds.

Because the retirement of this “debt” is precisely synonymous with printing money and handing it out into circulation via SS checks, I am 100% certain that it will be inflationary as it will represent an increase in money without a corresponding increase in goods and services.

No doubt in my mind at all about this.

More generally, the government can do anything it wants with respect to intragovernmental holdings, including declaring that they no longer apply but that won’t fix the issue which is that all intragovernmental holdings represent a liability from one portion of the government to another.  If anybody here can figure out how my left pocket can owe my right pocket some money and I can gain value to myself in repeating that process, I need to talk to you immediately .  We’ll go into business!

Because it is not possible for a subsidiary to owe money to a parent corporation in a way that make them both worth more, such accounting gimmicks are thoroughly illegal in the world of private business.  It is considered fraud to engage in such accounting (see also: Enron) and can invoke both criminal and civil penalties if discovered.

For a variety of reasons, mainly that it makes the laws, government has granted itself a pass on the necessity of proper accounting that conforms to reality or makes any sense at all to a rational person.

So “intragovernmental holdings” cannot really be made to disappear without some pretty extensive impacts to the world’s perception of the viability of doing business with the US.

  • Thu, Sep 10, 2009 - 10:17am

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    Re: Can the Government Forgive Itself of Intragovernmental …

Okay, it seems like we’re talking about two different forms of “intragovernmental debt.” I was asking about type B below, which I’m not even sure exists (since I’m a novice at intragovernmental accounting).

Types A and B

A. A government department raids a pension or entitlement program (like SS) to the tune of $25m and spends all the money. The $25m in this example represents money that was put aside for a later payment to tax payers or a social program.

B. A non-pension/entitlement department (Dept. 1) borrows $10m from a different non-pension/entitlement department (Dept. 2). Dept. 2 cuts spending by $10m for the year. No harm no foul. In this case it’s not the government dipping into a fund, rather it’s ‘money being moved from one pocket to the other.’ (Maybe this never even gets chalked up as intragovernmental debt?)

I asked this question because I want to know if type B debt even exists on the government books, and if it does, what percentage of intragovernmental debt it accounts for? I understand why writing off type A would be political suicide, but forgiving type B seems entirely possible. Dogs_In_A_Pile’s response shed a lot of light on this for me. I still need to do more of my own research, but from a quick skim through the link on his posting it seems like type B is a non issue.

[quote=Dogs_In_A_Pile]

About 85% (from a 2007 source, http://ivesaidenoughtalready.blogspot.com/2008/06/growth-in-intragovernmental-debt.html) of the intragovernmental debt is distributed among 5 programs as follows:

Federal Old-Age and Survivors Insurance Trust Fund (Social Security) – 50%

Civil Service Retirement and Disability Fund – 17%

Federal Hospital Insurance Trust Fund – 8%

Federal Disability Insurance Trust Fund – 5%

Military Retirment Fund – 5%

[/quote]

I appreciate all of the responses, particularly Dr. Martenson’s. I hope people don’t feel like I’m asking a stupid question or wasting time with unfounded theories. Government accounting is still very new to me and I’m trying to understand it. I’m trying to “resist the call to be a believer” and ask for explanation when I don’t understand how certain figures were calculated.

Based on DIAP’s response it looks like pretty much all intragovernmental debt is made up of Type A. Is this a fair assessment?

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