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Opinion

The real cost of US debt

At least $8.3 trillion of the national debt is missing from the government’s books.

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The second rule is that even if a shareholder has less than 50 percent ownership, if it is the beneficiary of most of the company’s future profits, consolidation is appropriate. This may also cover the government’s stock, warrants, and debt interest in Citigroup and some of the other banks.

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Counting only outstanding debt of these five TARP companies (out of more than 600): Citigroup has $1.8 trillion in debt; AIG, $760 billion; Fannie and Freddie, $5.7 trillion; and GM, $43 billion. This means at least $8.3 trillion of the national debt is missing from the government’s books. If the government is able to privatize these companies, then we can remove their debt from our books, until then their debt is the government’s debt.

The statutory limit on the national debt is the one real limit on runaway government spending. Lifting that limit requires legislators to go on the record voting in favor of an increase, something they try to avoid however they can.

Congress is required to vote every few years on whether to raise the national debt ceiling. The debts of bailed-out banks, however, aren’t included. If they were, the president may have a reason to privatize banks he now controls to evade that politically inconvenient vote for his party.

When Britain recently recognized the debt from its two large bank bailouts, its national debt doubled overnight. Warnings later emerged from the credit rating agencies that the safety of British bonds was in jeopardy, unprecedented for a modern Western nation.

If Washington properly accounted for its debt and deficit, we might be in the same situation. A threat to the US credit rating may even be beneficial, a sign that we’ve hit rock bottom and need to recover from this deficit addiction. Credit warnings would result in a diminished appetite for Treasury bonds, forcing the Treasury Department to borrow at higher interest rates and curb its habit for runaway spending.

The full faith and credit of the US is not a depthless well. Future generations bear the risk of high inflation, increased taxes, and interest payments on Treasury bonds that take up an ever-increasing share of the federal budget.

It’s time to change the definition of the national debt ceiling to include the debt of companies controlled by the government via bailouts. As such, the government would have a stronger incentive not to bail out companies in the first place.

J.W. Verret is a senior scholar and member of the Financial Markets Working Group at George Mason University’s Mercatus Center. A version of this essay previously appeared at The Volokh Conspiracy blog.

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