Comments on: Presidents That Have Reduced The Federal Debt

By: Joseph Scott

Joseph Scott — Tue, 07 Apr 2009 00:18:14 +0000

According to the information I linked to in the post and http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm there was no reduction of the federal debt during Nixon’s presidency.

By: schmaco

schmaco — Mon, 06 Apr 2009 19:22:01 +0000

I remember that the Last President to pay down the National Debt was Richard Nixon in 1969.

Note your spreadsheet reflects arount 11 billion dollars reduction.

Credit where Credit is due.

By: Joseph Scott

Joseph Scott — Tue, 31 Mar 2009 05:48:31 +0000

Seems there are at least some banks out there that have invested in something more risky that treasury notes, otherwise we wouldn’t have so many institutions failing :-)

By: Sam

Sam — Tue, 31 Mar 2009 03:15:10 +0000

I’m not talking about FDIC insurance, I’m talking about the interest you make in savings accounts. For an account at a bank to be FDIC insured a large portion of the your money MUST be invested in Treasury debt because it is deemed to be the safest investment there is. This prevents banks from making risky investments with money that the FDIC insures with the method you explain above. Every savings account is largely based off of Treasury debt. Insurance is a separate issue.

By: Joseph Scott

Joseph Scott — Tue, 31 Mar 2009 02:06:54 +0000

The FDIC claims that they are funded by premiums paid by insured banks:

What is the source of funding used by the FDIC to pay insured depositors of a failed bank? The FDIC’s deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved.

I believe this point was also brought up on a recent episode of 60 Minutes. According to Andrew Gray at the FDIC there is a line of credit available from the Treasury department to the FDIC, which has only been used once (this was back in September 2008, isn't clear if this has happened since) in the 1990s. From a press release dated 25 September 2008:

The fund is 100 percent industry-backed. ... As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years.

I think you are reading too much into my post. I didn't claim that all federal debt should be eliminated. My only statement beyond the facts was to wonder if the trend of only increasing and never decreasing (over the last 50 plus years) will ever change. Safe to read into that that I tend to think it wouldn't be a completely bad thing for that trend to change, at least just a little bit :-)

By: Sam

Sam — Tue, 31 Mar 2009 01:22:28 +0000

Because of Federal laws governing government trust funds, such as the various Social Security trust funds amongst many others, the gross federal debt will almost always increase even when running surpluses. By law the trust funds can only invest only in Treasury debt. This creates a situation, like the one that existed in the final years of the Clinton administration, when despite surpluses we still add to our gross national debt. Even in the one year that we ran a surplus outside of the various trusts, we added to our debt. I agree that we to live within our means and find a way to match government income with expenditures, but very few people think that we should expend considerable energy to pay off our debt. The government is not a household. As Alan Greenspan stated around the Clinton-Bush transition, having zero national debt would pose significant problems. Aside from government trust funds, many aspects of our financial system rely on Treasury debt. Without any debt the Fed could not control the money supply and therefore would be almost completely unable to control inflation. Treasury debt is also the basis for FDIC insured savings accounts. We need some Treasury debt, but not too much. Clearly we are on an unsustainable path and need to rein in spending and/or increase taxes. Unfortunately, we will probably have to do both. But for these reasons the government will almost certainly continue to issue new debt forever. All we can hope for is that it will shrink in comparison to the size of our economy and therefore not be burdensome to future generations.

By: Joseph Scott

Joseph Scott — Tue, 31 Mar 2009 00:44:33 +0000

I don’t think that I ever claimed that this was a picture of the federal government’s finances. I just wanted to see how often the debt goes up versus how often the debt goes down, in actual amounts.

Comparing the debt to GDP is indeed a common comparison. I’d argue that the GDP comparison does not show that the federal government steadily reduced the total debt, since the only way to reduce is to make payments against the principle. Just because someone gets a new job that increases their salary by 50% doesn’t mean that the principle on their mortgage was reduced. Their capacity to pay down/off that mortgage might have increased, but only if they haven’t already spent that 50% increase. In general the same seems to hold true for the federal government, even if their “income” increases they tend to spend it all instead of paying down their debt.

This comparison with the GDP also breaks down when looking at future forecasts. Relating two items is fine, spending and GDP, the problem is that they only really control one: spending. We’ve got estimates and guesses, but no one really knows what the GDP will be 5 years, let alone 10. The only factor they do have control over is spending.

By: Sam

Sam — Mon, 30 Mar 2009 17:22:40 +0000

Analyzing the debt in current dollar terms paints a highly inaccurate picture of the Federal Government’s finances. Just as prices across time cannot be compared without adjustment, nor can government deficits or debt. That is why government debt is almost always compared to GDP, the overall size of the economy, in a given year. By doing this one factors out inflation. Those same tables you mention prominently feature government debts and deficits a percentage of GDP. When looked at in this way, debt as a percentage of the value of all the good produced in the US economy in a given year, the Federal Government steadily reduced the debt almost every year until 1982, the year of Ronald Reagan became president. Increased defense spending and reduced taxes leading massive deficits and increased debt in both dollar terms and as a % of GDP. This ended a long trend of debt reduction that began immediately following WWII and began a new trend of ballooning deficits and ever increasing debt. For a few years at the end of the Clinton administration we once again paid down debt, as opposed to increasing it. However, George W. Bush quickly put an end to this and added trillions of dollars to our debt and increased its size in relation to GDP. Unfortunately, Obama’s plans as laid out in his budget proposal will only increase our debt to GDP ratio, even in the 5-10 year range when the current financial crisis is no longer an excuse.

By: Joseph Scott

Joseph Scott — Mon, 30 Mar 2009 14:38:44 +0000

There are many specific details about the federal debt that could be a concern, I was just looking to see when they last time was that we actually paid it down.

By: Nancy

Nancy — Sun, 29 Mar 2009 11:49:05 +0000

One of the things that worries me about the whole thing is how much America owes China, as it means they won’t do much to help with the human rights situation there and in Tibet as they don’t want to upset them.