Wednesday, June 6, 2012

The "Surplus" was a lie.

One thing that often came up when I was younger, and still comes up intermittently, is who owned the surplus at the turn of the millennium. Democrats would contend that the strong leadership and bipartisan ability of President Clinton was the result of our financial windfall. Republicans contested that it was the voter revolution of '94 and that the president would never have balanced the budget without a republican congress that held his feet to the fire.  The fact is that neither statement is correct, because the surplus never existed.  Now that may seems an outlandish statement given this chart.

By all accounts that 1990s show a decreasing deficit along with a surplus in the finals years of the last millennium. Many millennials will not remember this, or were simply not old enough to be aware, of the furor this caused.  Everyone had an idea on what we should do with our new budget surplus, it even took hold of presidential debates. Vice President Gore, being the populist that he was wanted to spend it on education and tax cuts. President Bush, being the compassionate conservative he was, wanted to give tax cuts and spend it on education.  As you can see the two had drastically two different views on what we should do. Few understood the truth, the media never bothered to search for it, and the politicians were content to not say anything about it (for the most part there were a few on both sides of the isle that spoke up, but of course they were ignored)

That truth was that there was no surplus.  While it appeared on the surface that our financial situation was improving, beneath the facade it crumbled on.

The chart shows that US Federal Debt never decreased during Clintons Presidency/Republican control of congress.  To further illustrate the difference is another chart.

This chart shows the gross public debt of the United States.  As you can see, there was an increase of the Federal debt every year.  It stands to reason that if we had a budget surplus then we should have either, seen a reduction in the Federal debt as more funds were used to pay down our debt, or, debt levels held steady since no new debt would need to be issued to fund government activities?  What happened?  This happened.

The red line shows the yearly increase to the federal debt, and the green bars shows the difference between the debt and deficit, in other words I.O.Us the federal government wrote out.  The government writes I.O.Us all the time, treasury bonds and treasury bills are I.O.Us.  But there is another I.O.U that I am talking about.

Every American knows that Social Security is a trust fund for the American people. Now trust does not mean trust in the normal sense, it is a legal term.  A trust is a piece of property, or an object, that is held in by another party for the benefit of the principal party.  The logic of a social security trust is that the government will hold on a portion of your paycheck for you.  Now I find the entire concept of social security condescending to the average American, as if they are incapable of saving any money without big daddy government telling them to, but that is a different post. What many Americans do not know is that do to having a large and youthful population we ran large social security surplus. Ideally the government would have left his money alone and saved it for a future when receipts from paychecks alone wouldn't be able to pay promised obligations.  But like a fat kid and cake, the government couldn't keep its hands off of that sweet cash.

The government took the surplus and used it to cover its budget shortfalls.  In return the government wrote IOUs to the American people.  They simply used long term debt, social security IOUs, to pay short term debt. Or to relate it to the lives of everyday Americans; they mortgaged their house to pay their credit card debt.  When viewed in this light it makes the "surplus" squabble of the early millennium look as foolish as a married couple with a 500k mortgage over their heads squabbling on what they should do with the thousand dollars they realized they had in their sons college fund.

To summarize, your government stole, and continues to steal, from you.  I say steal because there is no way the government can pay all of our debts Our social security I.O.Us alone are equal to our entire national debt, and that doesn't include the other 40+ trillion of unfunded liabilities, meaning their are no backing assets behind these debts, outside of social security.  There is no way the government can pay these debts. They will either, default, which means even the illusion of a social security trust fund is no longer maintained, or, they will inflate the money supply to pay the debts. Which is stealing away the value of your dollars ability to pay for the things you need.  There can be no such thing as a surplus when you have debts in excess of your liabilities.  Private finance doesn't work this way, so why do we think government finance does?

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Seattle resident whose real name is Kevin Daniels. This blog covers the following topics, libertarian philosophy, realpolitik, western culture, history and the pursuit of truth from the perspective of a libertarian traditionalist.