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Peter G. Peterson is the former commerce secretary under President Nixon, as well as the co-founder of The Blackstone Group, who took his fortune and started the Peter G. Peterson Foundation, whose mission is to promote responsibility and accountability in government. Where he has gained the most fame in recent years, though, is in discussing the massive deficits the government has been piling up and the dangers these present to our financial future.
Mr. Peterson, in his frequent media appearances, also urges viewers to check out his foundation’s Web site so seeing as the deficit topic is often a leading one these days, the following is gleaned from the site’s section titled:
“How exactly does a $56.4 trillion bill [ed. a/o 1/09] add up?” you ask. We know that the federal government carries both publicly held debt and debt for money it has borrowed from itself. Together, these sums are closing in on $11 trillion [ed. now more like $11.5 trillion.] This is the figure most commonly cited as our “national debt,” but actually, that’s only the start of the REAL national debt.
Right now, you are carrying a burden of about $184,000. That is each and every American’s share of the U.S. government’s approximated $56.4 trillion in current obligations. And every year in which no down payments or reforms are made to these obligations, the total grows by $2 trillion to $3 trillion – or $6,600 to $10,000 per person – on autopilot.
How exactly does this $56.4 trillion bill add up? First, there are the federal government’s known liabilities that it is legally obliged to fulfill. These include publicly held debt, military and civilian pensions and retiree health benefits. As of Sept. 30, 2008, these liabilities added up to $13.5 trillion.
Then there are various commitments and contingencies – i.e., contractual requirements that the government is expected to fulfill. These include publicly held debt, military and civilian pensions and retiree health benefits. As of Sept. 30, 2008, they added up to $1.4 trillion.
So where does the remaining $43 trillion or so come from? That’s what the government has promised to pay in Social Security and Medicare benefits in excess of related revenues. As of January 1, 2008, current and promised future Social Security benefits amounted to $6.6 trillion. And between Medicare’s three programs (hospital insurance, outpatient, and prescription drug), current and future promised Medicare benefits amounted to $36.3 trillion.
Keep in mind that although people rely on the promise of these benefits, the government can – and does – change these programs in ways that increase or decrease the value of the expected benefits, which has the effect of expanding or shrinking the total amount of obligations. Such changes can be made to the size of payroll tax contributions, cost-of-living adjustments, beneficiary premiums, eligibility ages and benefit levels, among other examples.
That’s how you get to $56.4 trillion. And remember, every year in which no down payments or reforms are made to any of the obligations above, this total grows by $2 trillion to $3 trillion.
Now just this year, the national, or public, debt has grown from $10,699,804,864,612 to $11,545,275,346,431 as of June 30, 2009. Astounding. You can see this figure at the following:
What upsets some of us, including Mr. Peterson, is how the terms for our deficits and debts are tossed around casually and often not used properly.
So what is the difference between the debt and the deficit?
The deficit is the fiscal year difference between what the United States Government takes in from taxes and other revenues, called receipts, and the amount of money the Government spends, called outlays. The items included in the deficit are considered either on-budget or off-budget.
You can think of the total debt as accumulated deficits plus accumulated off-budget surpluses. The on-budget deficits require the U.S. Treasury to borrow money to raise cash needed to keep the Government operating. We borrow the money by selling securities like Treasury bills, notes, bonds and savings bonds to the public.
The Treasury securities issued to the public and to the Government Trust Funds (Intragovernmental Holdings) then become part of the total debt.
This year’s projected budget deficit, once forecast by the Obama administration to be in the $1.84 trillion ballpark, is now estimated to be closer to $2 trillion for the fiscal year ending 9/30. For political reasons, the administration, which normally releases an update in mid-July, is holding off until mid-August because it doesn’t want the worsening picture to further impede progress on its legislative agenda.