‘Clinton Surplus Myth’ Myth

There are tons of delusional things said on the airwaves these days. Most are a simple variation that rhymes with a similar doomsday theme. One example, since our federal government’s debt is so unsustainable, before the entire US economic apparatus implodes, we should abolish the Fed, and go back to a gold standard, blah, blah. Sometimes I can’t tell the difference if these people are actually serious, or are they just hoping for ‘likes’ on their Facebook page, looking for orders on their websites, playing us for ratings, or maybe even pandering for primary election votes. If that’s the case, then I think these people are brilliant marketing geniuses…

 

That is not always the case with some claims, however. A bizarre statement I heard recently to substantiate an accusation of federal financial finagling was that the Clinton surpluses were a hoax, and that instead of those four years of surpluses, each of them were deficits. If you search ‘Clinton surplus myth’, you will see that there are many people that actually believe this. The main rationale of the ‘Clinton surplus myth’ mentality (which defies accounting reality) is that in each of those four Clinton surplus years, the total public debt, commonly known as the national debt, increased, and thus, that cancels out any ‘surplus’. How could there be a federal budget surplus, they claim, if total federal gov’t debt rose? How could the gov’t borrowing more money in one year be called a surplus in that year? More specifically, they ask how can the gov’t say there was a Clinton surplus of $237 billion in fiscal year 2000, if the total national debt that year increased $18 billion?

 

I will attempt to explain why, first, with a short answer. The reason why, is that instead of the US federal gov’t borrowing that $18 billion from someone else, the US federal gov’t borrowed that $18 billion from itself. The US federal gov’t has two books, or two set of ledgers, one that counts debt borrowed from others (“on-budget”), and another that counts debt borrowed from itself (“off-budget”). Spending $18 billion that you got from someone else’s pocket in exchange for an IOU that went into someone else’s pocket (“on-budget”) is an outright loss of money, and considered a liability, but spending $18 billion from your own pocket in exchange for an IOU that went into your own pocket (“off-budget”) is considered both an asset to yourself and a liability to yourself of equal amounts that, at the present moment, cancel each other out. ‘At the present moment’ is the key to why the Clinton surpluses were real. If you spend money today, money that is in your own pocket, but money that is earmarked for something else, some future expense, then that is not deficit spending, it’s not a loss, nor a liability, not yet, not until that day, that day when that pending “off-budget” expense is realized. For example, if you won at poker, but before you spent the winnings, your wife made you write an IOU for the same amount payable to her, does that ‘intra-household’ IOU negate your winnings (?) It’s the same accounting construct on the consolidated federal balance sheets. Social Security and the federal gov’t, are two different pockets, but on the same pair of pants. That is why that “off-budget” debt in the year 2000 was not part of the “on-budget” surplus calculation, because that $18 billion increase in total national debt was not borrowed by the federal gov’t from others (which is an immediate liability), it was borrowed by the federal gov’t from itself (which isn’t yet a liability). When the federal gov’t ‘borrows’ from Social Security, it is ‘borrowing’ from itself, not from others, and why pending “off-budget” debt doesn’t negate any actual “on-budget” surplus.

 

Now here is the long answer. The US federal government has a legislated accounting construct that is quite complex. Being hard to understand, like many other issues today and throughout time, it naturally tempts a certain amount of people to be suspect of it, especially if it fits their subjective narrative. First of all, deficits and debts are two separate things. Deficits or surpluses reflect current cash flow, like entries on an income statement. Debt is a cumulative measure, like entries on a balance sheet. The US national debt ($19 trillion at this writing) is a sum of two separate things. The US national debt is the sum of public-held debt ($14 trillion) and intra-gov’t-held debt ($5 trillion). These two ‘debts’ are not both liabilities, and why they are posted separately in two different “on-budget” and “off-budget” ledger books.

 

The facts:

 

The US federal gov’t fiscal year begins on October 1st and ends on September 30th. In the fiscal year ending September 30, 2000, the US federal govt had a surplus of $237 billion, as per the front page of the Treasury Department’s ‘Monthly Treasury Statement of Receipts and Outlays of the United States Government’:  https://www.fiscal.treasury.gov/fsreports/rpt/mthTreasStmt/mts0900.pdf

The total US national debt was $ 5.655 trillion on September 30, 1999 and $ 5.673 trillion on September 30, 2000, so that was an annual increase of $18 trillion:         https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

The total US national debt is the sum of the debt held by the public (“on-budget”) and the debt held by the gov’t (“off-budget”). The debt held by the public (owed to others) was $ 3.232 trillion on September 30, 1999 and it was $ 2.992 on September 30, 2000, so that was an “on-budget” decrease of $240 billion (The Clinton surplus). The debt held by the gov’t (‘owed’ to itself) was $ 2.423 on September 30, 1999 and $ 2.681 on September 30, 2000, so that was an “off-budget” increase of $258 billion, meaning a net $18 billion increase of both together, or, an $18 billion increase in the total US national debt:   ftp://ftp.publicdebt.treas.gov/opd/opds092000.pdf (if that link doesn’t work try https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm or just google search “monthly statement of the public debt of the united states september 30, 2000” and in the TreasuryDirect website click 1999, click September, click Summary Adobe Acrobat, repeat for 2000)

The ‘Clinton surplus myth’ movement points out this net $18 billion increase in total debt, and of that total $258 billion increase in govt-held debt, they specifically finger a $246 billion entry figure found in the same Monthly Treasury Statement. To find it, scroll to ‘Table 6. Schedule D’, “Net Purchases”, “Fiscal Year to Date”, “This Year”, “Grand total”. This $246 billion is that year’s increase of intra-govt debt of off-budget items, mainly Social Security. What that means is the US Treasury took that year’s “off-budget” Social Security surplus, gave the Social Security trust fund an IOU in exchange for that cash money, and spent that cash money for other “on-budget” expenditures. The myth movement says that the federal gov’t surplus of $237 billion in 2000 would not have been possible without ‘borrowing’ the Social Security surplus. Only by ‘borrowing’ that fiscal year’s $246 billion off-budget surplus and by Treasury ‘trickery’ could that be called a fiscal year ‘surplus’. According to them, if there was an actual surplus, the national debt in 2000 would have come down, instead of going up $18 billion.

 

There is a difference when the federal gov’t has borrowed from itself (isn’t a liability), and when the federal gov’t has borrowed from others (is a liability), or more specifically, there’s a difference between “on-budget” and “off-budget” federal gov’t debt. What confuses everybody is that these two different types of debt are added together and called the national debt which makes them seem like the same types of debt. How are these debts different? During current “on-budget” operations, if the federal govt receives less money from individual federal tax withholding, corporate federal tax, etc., than it pays out while provisioning itself, running the country, etc., that “on-budget” deficit spending is financed with newly-created money. That newly-created money was approved by Congress and also was accounted for to the penny by selling additional “marketable” securities, or Treasury bonds, to the public. These additional Treasury bonds increase the federal gov’t debt “held by the public”. Furthermore, when the federal gov’t receives more money from “off-budget” operations, like Social Security payments deducted from paychecks, above what it pays out to those “off-budget” operations, like Social Security recipients, by law it must use that surplus to buy “non-marketable” Government Account Series securities, or what I personally like to call ‘pending’ Treasury bonds. These ‘pending’ Treasury bonds increase the federal gov’t debt “held by the govt”. These ‘pending’ Treasury bonds are placed in the corresponding trust fund for future redemption, and that surplus off-budget cash money is promptly spent on current on-budget expenditures. The sum of both those Treasury bonds issued and sold by the Treasury to finance on-budget deficit spending (debt held by the public), plus all those ‘pending’ Treasury bonds posted in off-budget trust funds (debt held by the gov’t) is the total public debt, or the national debt. The key difference is, only the marketable Treasury bonds issued that coincided with the newly created money to finance on-budget deficit spending are liabilities (because they already monetized an on-budget deficit). The non-marketable securities, or ‘pending’ Treasury bonds that are sitting in trust funds like the Social Security trust fund are not liabilities until they are redeemed by the trust fund (because they have not yet monetized an off-budget deficit)…

 

In other words, Treasury bonds held by the public and ‘pending’ Treasury bonds held within the federal government are both considered a debt, but both are not a liability. Only debt held by the public that financed on-budget deficit spending is reported just as a liability on the consolidated financial statements, the balance sheet of the United States government. Debt held by government accounts, or the intra-gov’t-held debt, is not (yet) reported just as a liability on the consolidated balance sheet of the United States government (not until it is redeemed by the trust fund). Using basic rules of accounting, not trickery, debt held by government accounts, or the intra-gov’t-held debt, is at the moment both an asset (to those trust funds) and a liability (to the Treasury), so they presently offset each other on the consolidated balance sheet, and why that fiscal year 2000 off-budget debt is separate from that fiscal year 2000 on-budget surplus.

 

So how does ‘pending’ off-budget debt (which isn’t counted in the 2000 surplus) become actual on-budget debt (that is counted in the 2000 surplus)? When any off-budget trust fund has a deficit in any given year, that trust fund needs to ‘finance’ that deficit. To finance that deficit, the trust fund will hand over some of their ‘pending’ Treasury bonds to the Treasury, and the Treasury will hand over newly created dollars. Newly created dollars means deficit spending, so just as in any on-budget federal gov’t deficit spending, those newly created dollars will be accounted for to the penny with a coinciding issuance of Treasury bonds. Those previously ‘pending’ Treasury bonds will become actual Treasury bonds. That previously ‘pending’ debt held by intra-gov’t will become actual debt held by the public. That previously ‘pending’ off-budget liability (caused by trust fund surplus savings) will become an actual on-budget liability (caused by trust fund deficit spending). Whether that given fiscal year has a total annual surplus or deficit will depend on actual liabilities (which depend on that year’s actual economic performance), not ‘pending’ liabilities (which depend on a future year’s hypothetical economic performance). To see the total debt, you look at the balance sheet, which is the entire, all-time, financial picture of the US federal gov’t from the very beginning. This total debt is the cumulative total of all the years up to the year 2000, made up of both the actual liabilities, or on-budget debt held by the public (money borrowed from others), and the ‘pending’ liabilities, the ‘pending’ off-budget debt held by gov’t (money ‘borrowed’ from itself). Conversely, to see the actual cash flow, you look at the income statement, which is the actual cash money flowing in and the actual cash money flowing out, or just the current, on-budget, actual cash flow that occurred in the year 2000. The bottom line of that US federal gov’t income statement shows that in that year 2000, the amount of actual cash money the federal gov’t took in was large enough to result in an on-budget fiscal year surplus. An increase in the total debt (+$18 billion) which includes a future-day ‘pending’ debt that is posted on the consolidated balance sheet doesn’t change the yearly income statement’s present-day bottom line cash surplus (+$237 billion). A cumulative balance sheet and a current cash flow statement are separate measures, of separate values, in separate time frames, and using separate rules of accounting. Comparing them together is like comparing apples to oranges.

 

The Clinton-surplus-myth mentality is yet another variation of the same theme, which is a gold-standard mentality that trips up many people when talking about the federal government. This outdated thinking from a bygone era contributes to a ‘federal-government-is-the-same-as-a-household’ groupthink (patterned behavioral and self-reinforcing group dynamicthat is widely pervasive today. Since leaving the gold standard for good in 1971, the federal gov’t is no longer like a household. In the post-gold standard, modern monetary system, when the federal gov’t, the issuer of dollars, ‘borrows’ dollars, it is not the same as when a household borrows dollars. As the saying goes, you can have your own opinions, but not your own facts. According to the Treasury Monthly Statement, in fiscal year 2000, the United States government had receipts of $ 2.025 trillion and outlays of $ 1.788 trillion and “the final budget results and details a surplus of $237 billion.”  As per the nonpartisan Congressional Budget Office, the US federal budget was in surplus and the Public Debt, or “debt held by the public” (money borrowed from others) was decreased during Clinton’s second term. Rather than grasping this hard reality and instead preferring to deny the accounting science, the Clinton-surplus-is-a-myth movement wants to engage you in a childish ‘What came first, the chicken or the egg’ argument. It bothers them that Clinton took a Social Security surplus and shamelessly used it to get his budget in surplus.

 

I have a compromise to offer to The-Clinton-surplus-is-a-myth folks: I’ll admit to them that Social Security being in surplus gets all the credit for putting Clinton’s budget in surplus if they’ll admit that the American economy under the leadership of President Clinton was so strong that it put Social Security in surplus. If anyone says or posts otherwise, well, they won’t get a ‘like’ on their Facebook page from me.

 

 

eddie d   <eddiedelz@gmail.com>

 

8 thoughts on “‘Clinton Surplus Myth’ Myth

  1. 1) Of course you can increase debt and create surplus in the same fiscal year…Let’s say you invest in an apartment building with a $1 million mortgage (‘increase debt’), and at the end of the year, after paying the interest, the insurance, the property taxes, and the repairs, you still have money left from rental income (‘create surplus’).

    2) Agreed that the middle class is disappearing, that fiscal policymaking (in the US, the EZ, and Japan) is appalling, and that S’pore has a well run gov’t (I live in Bangkok, their fiscal policymakers are extremely good and definitely on the same page with their central bankers as well).

    Just like you still have a curved spine (because we used to walk on all fours), it’s gonna take some time before they stop recording federal ‘debt’ or issuing federal ‘debt’ or bickering over raising the federal ‘debt ceiling’ and all the rest of the out-dated, idiosyncratic, relics of that bygone gold-standard era. Rather than apologize for policymakers, I just prefer to be one step ahead of them. I want you to be as well.

  2. 1. You say that I am “co-mingling” them but it’s not me, they are “com-mingled” by design because every dollar in the Balance Sheet is identifiable in the Income & Expense statements and vice verse. And you don’t even need the Balance Sheet to know that y2000 ”surplus” was borrowed money (debt), it says so clearly in the Treasury statement and you are not denying it. It’s just that the government likes to redefine “borrowing” to mean “income” so that it can pretend that budget deficit is surplus. But if “borrowing” is “income” then we’ve never had any deficits because ALL deficits are payed for by BORROWING, which according to government is INCOME.

    Debt is a subtotal of deficits and Clinton’s debt is subtotal of Clinton’s deficits.
    You see, it’s impossible to increase debt and create surplus in the same fiscal year because those two conditions are mutually exclusive and this fact is provable with mathematical certainty but you can not mathematical prove that “borrowing” equals “income”, that’s more like an opinion you are talking about. Your explanation that intargovernmental debt is not a “liability” because the payoff is not due in the same year must be applied to public debt not payable in the same year too in order to be logically consistent, again the implication is that no deficits can ever exist which is silly.

    2. “this is accounting. NET worth means $85 trillion in household surplus savings AFTER household debts”
    I know but the fact that 50% of households have nothing is hurting overall solvency and it reveals disappearing middle class. More importantly, private net worth and government debt are not related because if government will confiscate property to pay off the national debt there will likely be another revolution. You make too many apologies for irresponsible government fiscal and monetary policy and are not really good at holding official responsible. It does not have to be that way, look at Singapore to get an idea of what a well run government looks like.

    If government debt is “debit” as you propose and so the size of the national Debt does not matter under ANY circumstances then why bother recording it? Why even bother issuing debt instead of printing dollars and paying for the government expenses? Is all this just a coverup for inflation?

  3. 1) In accounting, there is a big reason why the Income Statement and the Balance Sheet are separate reports. Cash flow on the Income Statement in any given period just means cash flow, how much came in, and how much went out, period. You are co-mingling the Income Statement (deficits vs. surpluses) with the Balance Sheet (debts vs. assets) and then saying that the change in notional amount of debt posted on the balance sheet also changes the Income Statement’s bottom line. It doesn’t.

    2) Again, this is accounting. NET worth means $85 trillion in household surplus savings AFTER household debts, AFTER the 50% with no or negative net worth (Gross household assets are over $100 trillion).

    Click the EXCERPT tab above…If it makes any sense, get the book.

  4. You did not answer my question. You made an assumption above that $20B less borrowed would result in $20B less spent. That does not add up as I said and it reveals that you are equating borrowing with spending. Spending is a cause and borrowing is the effect but your assumption confuses the cause (spending) with the effect (borrowing).

    1) In government’s case $2000 were not lottery revenues as you suggest, money came from issuing new bonds owed to trust fund beneficiaries, that’s why the total debt went up and even government does not agree with you on that one that’s why they included the trust fund loans in a total debt figure. The supposed surplus only exists in your off-budget accounting category but not in your bank account.

    “In fiscal year 2000, the United States government had receipts of $ 2.025 trillion and outlays of $ 1.788 trillion and the final budget results in a surplus of $237 billion.”

    You keep repeating this as if it proves the surplus existed but it proves the exact opposite, the report clearly shows that the surplus was borrowed money and even you admit that to be true.

    2 “US Household NET Worth just hit $85 trillion”
    That in no way cancels government debt and about 50% of americans have a negative net worth. If government debt does not matter why are we keeping record of it? If you are correct we can have surplus every year by increasing debt every year and government need not wast time reporting debt.

  5. 1) If you took in $50,000 last year, and spent $49,000 last year, then you had a surplus, but what if part of that $50,000 you took in was from poker winnings of $2000, so would that not count, so would that mean you didn’t have a surplus last year because your wife says you ‘borrowed’ $2000 from your off-balance sheet ‘Future Poker Losses Fund’ and used it to pay household expenses, negating your ‘surplus’. Is she right? “In fiscal year 2000, the United States government had receipts of $ 2.025 trillion and outlays of $ 1.788 trillion and the final budget results in a surplus of $237 billion.” ― US Treasury Monthly Statement (“You are entitled to your opinion, but you are not entitled to your own facts.” ― Daniel Patrick Moynihan).

    2) True, the US National ‘Debt’ just hit $19 trillion, a record high, while the US Household NET Worth just hit $85 trillion, also a record high (the origin of US nonfederal gov’t surplus savings is US federal gov’t deficit spending).

    3) Happy belated Feb 2 Birthday to Ayn Rand (one of my favorite atheists).

    P.S. The answer to the above scenario is both yes & no. The wife is correct that you ‘borrowed’ the money. If during the year, you receive any ‘found’ money like poker winnings (or a ‘Social Security surplus’), as per your wife’s instructions, you must immediately take that money and put it aside in a jar marked ‘off-budget’ for the future. If you want to use it for ‘on-budget’ expenses today, then the wife makes you write an IOU and put it in the jar (that IOU is not ‘Held by the Public’ like an ‘actual’ debt, which would be a liability, rather, it is held ‘Intra-Household’, it is both a liability (to you) AND an asset (to the jar), which cancel each other out, for now (so it is not an outright liability, not yet, for now that IOU in the jar is a ‘pending’ debt, a ‘pending’ liability). So yes, you ‘borrowed’ the money according to the way your wife does the finances (the way she constructs the household Balance Sheet), however, the wife is wrong that it negates your surplus that year. Whether borrowed, whether found, or whether a surplus that will have to be returned someday, cash money is cash money, and when talking about deficit v. surplus (Income Statement) you are just talking about how much cash money flowed in and how much cash money flowed out, that year’s CURRENT cash flow (FY 2000 current year surplus of $237 billion). When talking about debt v. assets (Balance Sheet), that’s where you talk about all monies including notional changes of ‘actual’ on-budget debts (liabilities) and ‘pending’ off-budget debts (not liabilities), and not just that year, but all of the previous years combined, the CUMULATIVE balance (FY 2000 ‘actual’ plus ‘pending’ debt increased $18T). The current cash flow statement and the cumulative balance sheet are separate measures, using separate laws of accounting. Comparing them together is like comparing apples to oranges.

  6. You say that:

    “…if in fiscal year 2000 the Social Security surplus was $20 billion LESS, if the Clinton surplus was only $217 billion instead of $237 billion because gov’t took in $20 billion less money, that would satisfy the surplus myth mentality ($20 billion less ‘borrowed’ from trust funds, so $20 billion less debt held by gov’t added, resulting in a fiscal year 2000 total national debt DECREASE of $2 billion instead of an increase in $18 billion).”

    You are making an assumption that $20B less borrowed is $20B less spent. That does not add up. If total debt increased by $18B in y2000, which it did, borrowing that extra $18B was necessary to pay the bills — regardless of where the loans came from, trust fund of Treasury auction. The money had to be borrowed to prevent a default because fiscal year 2000 revenues were $18 billion short of expenditures. It is spending that necessitates borrowing, not the other way around as you propose so it would make no sense to borrowed $20B less (but we would’ve defaulted on our obligations). Only by spending $20B less would we borrow $18B less and reduce debt by $2b.

    You gets confused (or you are playing dumb) because you insists on Clinton “surplus” being real money and not a mere accounting presentation (like off-budget, on-budget categories which are made up accounting constructs vs. debt which is a real figure). If Clinton surplus had really existed we would not have borrowed $18 billion instead we would have taken that amount out of the general fund and still have surplus money to show. Total debt would then be paid down with surplus money and would reduce by $237B (that’s the only way to pay down debt, with surplus money). The fact is that the alleged surplus was only recorded against public debt which was calculated with the exclusion of intragovernmental debt. This meant that the loans deducted from the social security trust fund were recorded as revenue on budget reports. Calculating both the intragovernmental holdings from the public debt, the real deficit was $17.9 billion.

    National debt just exceeded $19 trillion for the fist time.

    “You can avoid reality, but you cannot avoid the consequences of avoiding reality .” – Ayn Rand

  7. Thank you sir…That is (supposed to be) a link to the “monthly statement of the public debt of the united states september 30, 2000”

    I added another link.

    Much appreciated,

    eddie d

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