Federal debt – funded and unfunded

According to the US Treasury Dept., the face amount of federal debt is 31.5 trillion—which expressed in other ways could be thirty-one thousand, five-hundred billion. This means that the debt to-GDP ratio sits at 120%.

This is considered “funded” debt, meaning there is both the collateral and the agreement to pay the principal back plus interest payments. Interest payments are now $530 billion per year, more than almost any other budget line item.

“Congress needs to understand that this is about paying bills that have already been incurred by decisions with this and past Congresses and it’s not about new spending,” Sect. Yellen told AP recently. This alone highlights gross negligence by both this and past Congresses, and the American people.

The recent spending packages include a $1.7 trillion Omnibus spending bill, the $740 billion Inflation Reduction Act, the $280 billion CHIPS Act, Biden’s $1.2 trillion infrastructure bill, $108 billion in total assistance to Ukraine, and the $1.9 – $3.5 trillion American Rescue Plan.

If any of these would have exceeded the Congressional debt ceiling, the Congressional Budget Office would have had the obligation to project that information to them. The fact that all these bills were passed without the arithmetic showing how they would lead to this outcome highlights how flawed accounting is in the people’s house.

Along with $31.5 trillion in funded debt, there exists an extraordinary amount of “unfunded debt” meaning liabilities that have no resources to cover them.

These include Social Security, Medicare sections A, B, and D, Federal employee and Veterans benefits, and a class referred to as “Debt Held by the Public” which consists of all $31 trillion in securitized US debt instruments such as Treasury Bills, Notes, and Bonds, Treasury Inflation-Protected Securities (TIPS), Floating Rate Notes (FRNs), Domestic, Foreign, and State and Local Government Series (SLGS), and United States Savings Securities.

US Debt Clock, which uses data from the US Treasury Dept. estimates this haul to be $181.4 trillion. That is to say, one-hundred eighty-one thousand four-hundred billion. Combined with the outstanding funded debt, the total is $221.9 trillion.

Federal debt – seen and unseen

That monstrous sum, which no one beyond perhaps Sect. Yellen herself believes the US will ever pay back, is not even the full amount. There is a further class of debt held irresponsibly by the US federal government, which is called “contingent liabilities” which simply mean liabilities that come to be so upon certain contingencies.

A Google front page search reveals three reports on total US contingent liabilities; one published in 2016 by Scopes rating agency, one dated to 1973, and a third dated to 1947.

The Scopes report, being the most recent is the only relevant dataset, and calculates contingent liabilities at upwards of $15 trillion. Their three line items include unfunded state and local government debt, unfunded state and local government pensions, and housing GSE liabilities. The last class represents entities such as Fannie Mae, Freddie Mac, and Federal Home Loans Banks—in other words the total US involvement in the housing market.

The contingency here, explains Scopes, is that many state and local governments have constitutional statutes for a balanced budget, and so the existing unfunded liabilities of their debt and pensions need to become funded by tax or other revenue increases lest they be cut. Scopes anticipates any such clashes will be taken on as debt by the Federal government.

This sort of debt is what the International Monetary Fund described as a “hidden fiscal risk,” reasoning that “because their fiscal cost is invisible until they come due, they represent a hidden subsidy and a drain on future government finances, and complicate fiscal analysis”.

“Contingent implicit liabilities are not officially recognized until after a failure occurs. The triggering event, the value at risk, and the amount of the government outlay that could eventually be required are all uncertain,” writes Hana Polackova.

Of the contingent liabilities that the US holds around the world, very little data exists. Through its Sovereign Bond Guarantee program, the US has taken on tens, perhaps over $100 billion in liabilities over the years to guarantee private sector loans to foreign governments such as Israel, Jordan, Egypt, Tunisia, Ukraine, and others. How much of this debt is outstanding isn’t quantified.

The contingent here is that these economies might default on their loans, especially if they sign financing agreements with countries more politically-attuned to their goals than the US, who would then be on the hook for the defaulted amount.

Adding some of this unseen debt, the US is potentially on the hook for a fifth to a quarter-quadrillion dollars over the next two generations.

This is entirely missing from the discussions on the House floor, but nevertheless is obviously a catastrophic situation that removes any hope of the US to retain its creditworthiness into the long term. WaL