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The Myth of the Clinton Surplus - An oldie but a goodie

I was a republican from 1974 to 2004. I campaigned for Perot in 1992 because republican dishonesty about the tax cuts (the rosey scenario) and spending pissed me off. In 1996 I voted for Clinton because things were working. I campaigned for McCain in 2000 and saw the remarkable lack of values in the Bush/Rove campaign and the takeover by the "moral' majority and the Christian fundamentalist crowd. The party stands for nothing at all.

I'm a fiscal conservative, but recognize that it is good business to stabilize the economy. We can't expect to recover if millions of people leave the economy because they have run out of money, depleted their savings, lost their homes....We cannot have a healthy economy with the kind of focus on tax cuts while ignoring the exploding payments for interest on the debt. We cannot ignore the worst excesses of the tax code allowing the wealthy or business to hide income overseas or even rewarding them for investments in other countries. That is what I see the republican party doing so as to garner financial support from those interests.

A couple of examples. Wendy Gramm, former chair of the CFTC, changed the rules for energy future trading just as she left office in 1993. She then became chair of the audit committee as a member of the board at Enron.....it seems the changes she made pretty much were exactly what Enron wanted....and she was rewarded for the work. Later her husband, Phil Gramm, as senator from Texas, put his name on a bill written to repeal Glass-Steagal. Then he left office to take a job as a senior VP at UBS. You tell me. How do two former economics professors become millionaires based on government "service". They embody what the republican party has become. Influence for sale. They may not be cheap, but they can be had.
Every claim you've made here is true of government as a whole whether the individuals are Republican or Democrat. For just one example - does Corzine ring a bell? Do you think Frank-Dodd exonerates Chris Dodd and what he has done for Connecticut financial guys? How about Rangel? How is that man still in office and not in jail?

So you see the original Tea Party was upset with both sides of government not just the left.
 
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middleview

President
Supporting Member
Every claim you've made here is true of government as a whole whether the individuals are Republican or Democrat. For just one example - does Corzine ring a bell? Do you think Frank-Dodd exonerates Chris Dodd and what he has done for Connecticut financial guys? How about Rangel? How is that man still in office and not in jail?

So you see the original Tea Party was upset with both sides of government not just the left.
What did Corzine do as a government official to make himself rich? How about Dodd? Rangel seemed to have stretched the tax code to the breaking point to avoid paying taxes, but what abuse of his office did he commit that was to the detriment of the rest of us? He tried to dodge taxes on his income. Guess what? Mitt Romney makes Rangel look like a petty thief in comparison.

I don't know what Rangel's status with his tax issues would be....he should certainly be paying the back taxes and penalties if not serving time.
 

Arkady

President
So this economic miracle was manufactured in a two year period, by a Democrat president and congress, that somehow survived the Gingrich years (your relatively balanced view also makes no allowance for the peace dividend earned even earlier in the timeline)?

The facts remain that government never did its job to secure our future. The years of "surplus" were government manufactured propaganda. We were defrauded by the left and the right.

AND SOMEONE IS GOING TO HAVE TO EXPLAIN KEYNESIAN ECONOMICS TO ME-

How did we ever enter into a grand recession when government (under Bush) was spending money hand over fist before the crash. You'd think that all these countries around the world would be flush with cash given how their whole fiscal history is of year on year Keynesian economics. Spend, spend, spend.
Not all spending is created equal. Spend a billion bucks digging holes and filling them back in and the only benefit is the immediate stimulus -- and if you were near full employment, anyway, it's barely even worth that, since you're just diverting resources from private to public sector. By comparison, spend the same billion bucks financing R&D, or educating people, or building infrastructure, and you get that immediate stimulus plus the long term return of enhanced economic potential. Such stimulus is particularly valuable when you're well short of full employment, such that the money you're spending wouldn't necessarily otherwise be spent.

That's why Bush's deficit spending was economically inert. First, hundreds of billions were wasted on blowing crap up in Iraq and Afghanistan and building showpiece arsenals we didn't need. Second, much of the deficit was attributable to upper-class tax cuts, at a time when the upper-class was already super-saturated with capital, so you were just building up the pile of under-utilized cash they were sitting on, towards no economic purpose.

The biggest problem with the Bush era, though, was under-regulation of the "shadow banking system," which inefficiently allocated national resources on a grand scale.
 

ARMCX1

Mayor
And Clinton's last budget proposal for FY2001, which ended in September 2001, generated a $133.29 billion deficit. The growing deficits started in the year of the last Clinton budget, not in the first year of the Bush administration.

http://www.craigsteiner.us/articles/16
It's a minor point but the federal budget ran a $127 billion surplus in 2001. The public debt increased in 2001 but the federals ran a surplus the last year of a Clinton budget.

http://money.cnn.com/2001/10/29/economy/budget/

aupload.wikimedia.org_wikipedia_en_f_fc_U.S._Total_Deficits_vs2705aa58c4e5799038282841a465c658.png
The blue bar shows a negative value for the federal budget deficit in 2001 (in other words, a surplus) and an increase in the public debt. Lest you be tempted to believe the negative blue bar means something other than a federal budget surplus, look at the blue bars for the subsequent years.
 
It's a minor point but the federal budget ran a $127 billion surplus in 2001. The public debt increased in 2001 but the federals ran a surplus the last year of a Clinton budget.
Let me help you out there and Heimlich maneuver that propaganda they fed you out of your craw

Go to this link http://www.treasurydirect.gov/NP/debt/current and you too can generate the following chart:

FiscalYear, YearEnding, National Debt, Deficit
FY1993 09/30/1993 $4.411488 trillion
FY1994 09/30/1994 $4.692749 trillion $281.26 billion
FY1995 09/29/1995 $4.973982 trillion $281.23 billion
FY1996 09/30/1996 $5.224810 trillion $250.83 billion
FY1997 09/30/1997 $5.413146 trillion $188.34 billion
FY1998 09/30/1998 $5.526193 trillion $113.05 billion
FY1999 09/30/1999 $5.656270 trillion $130.08 billion
FY2000 09/29/2000 $5.674178 trillion $17.91 billion
FY2001 09/28/2001 $5.807463 trillion $133.29 billion


Now take $5.807463T and substract $5.674178T and you get $133.29B for your deficit. If you have an increasing debt year after year you have NO surplus. This type of subterfuge (i.e. propaganda) is what the Tea Party was and I suppose is still against.

ARMie boy be part of the solution, please read the article that the OP proffered.

http://www.craigsteiner.us/articles/16
 
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Not all spending is created equal. Spend a billion bucks digging holes and filling them back in and the only benefit is the immediate stimulus -- and if you were near full employment, anyway, it's barely even worth that, since you're just diverting resources from private to public sector. By comparison, spend the same billion bucks financing R&D, or educating people, or building infrastructure, and you get that immediate stimulus plus the long term return of enhanced economic potential. Such stimulus is particularly valuable when you're well short of full employment, such that the money you're spending wouldn't necessarily otherwise be spent.

That's why Bush's deficit spending was economically inert. First, hundreds of billions were wasted on blowing crap up in Iraq and Afghanistan and building showpiece arsenals we didn't need. Second, much of the deficit was attributable to upper-class tax cuts, at a time when the upper-class was already super-saturated with capital, so you were just building up the pile of under-utilized cash they were sitting on, towards no economic purpose.

The biggest problem with the Bush era, though, was under-regulation of the "shadow banking system," which inefficiently allocated national resources on a grand scale.

Hmmm... yummy.

Where to start my lesson plan, Arkady?

1) So filling the donut hole for medical prescription didn't lead to more R&D into new drugs by big Pharma? Isn't that supposed to be a big chunk of change?

2) And those wars didn't lead to more manufacturing? No, R&D in there at all? No improved employment figures with the citizens off to war? Why is building tanks, planes, UAV's and armored pesonnel carriers not as economically useful as building cars, planes, trains?

3) The huge homeland security industry spending didn't contribute positively to our economy?

Now those kind of spending are not the good kind of spending by government? What directions did Keynes leave us as to how to spend government money? Can you give me some actual examples of good and successful non-inert spending that speaks well of Keynesian economics? Preferably since 2008. Obama stuff in order to contrast with that wasteful Bush spending.

I do take exception to the idea that you don't define upper-class, super-saturated with capital, and under utilized cash. And an implication that they weren't carrying their fair share.
 

ARMCX1

Mayor
Let me help you out there and Heimlich maneuver that propaganda they fed you out of your craw

Go to this link http://www.treasurydirect.gov/NP/debt/current and you too can generate the following chart:

FiscalYear, YearEnding, National Debt, Deficit
FY1993 09/30/1993 $4.411488 trillion
FY1994 09/30/1994 $4.692749 trillion $281.26 billion
FY1995 09/29/1995 $4.973982 trillion $281.23 billion
FY1996 09/30/1996 $5.224810 trillion $250.83 billion
FY1997 09/30/1997 $5.413146 trillion $188.34 billion
FY1998 09/30/1998 $5.526193 trillion $113.05 billion
FY1999 09/30/1999 $5.656270 trillion $130.08 billion
FY2000 09/29/2000 $5.674178 trillion $17.91 billion
FY2001 09/28/2001 $5.807463 trillion $133.29 billion


Now take $5.807463T and substract $5.674178T and you get $133.29B for your deficit. If you have an increasing debt year after year you have NO surplus. This type of subterfuge (i.e. propaganda) is what the Tea Party was and I suppose is still against.

ARMie boy be part of the solution, please read the article that the OP proffered.

http://www.craigsteiner.us/articles/16
You would still need to answer the CBO final document for FY2001 which states the surplus was $127 billion.

CBO or Craig Steiner -- which is the go to for analysis?

You (and Steiner) are equating the annual federal budget deficit with the public debt. Public debt went up in 2001 but FY2001 ran a federal budget surplus. Steiner (and most of the rightwing) is flummoxed by a FY2001 budget surplus and an increase in the national debt.

How could that be they ask?

Because Social Security and Medicare/Medicaid expenses, among others, are mandated by law and not included in annual federal budgets expenses but are included in the total public debt. Total debt and annual federal budget surplus/debt are not the same thing and the same variables don't factor into both numbers.

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/31xx/doc3152/oct-mbr.pdf
 
You would still need to answer the CBO final document for FY2001 which states the surplus was $127 billion.
You need to explain why you shamelessly accept their definitions.

CBO or Craig Steiner -- which is the go to for analysis?
Easy. Steiner.

You (and Steiner) are equating the annual federal budget deficit with the public debt. Public debt went up in 2001 but FY2001 ran a federal budget surplus. Steiner (and most of the rightwing) is flummoxed by a FY2001 budget surplus and an increase in the national debt.
Flummoxed? Hardly, pissed off wondering why you aren't.
Because Social Security and Medicare/Medicaid expenses, among others, are mandated by law and not included in annual federal budgets expenses but are included in the total public debt. Total debt and annual federal budget surplus/debt are not the same thing and the same variables don't factor into both numbers.
Belabor the obvious often?

See that's the problem, either Social Security, Medicare, and Medicaid are part of the whole or they are not (lock box? Hello!?!). You swallow what they say hook, line and sinker. You got to ask yourself why you do that. If it doesn't piss you off it's because you have a thieving nature much like any money grubber you might bitch and moan about. You know that 1%? Wonder what percent that makes you? Either way equivalent Ponzi schemers the both of you. Middle percenters (i.e. Tea Partiers) are pissed off and rightly so.
 

middleview

President
Supporting Member
Hmmm... yummy.

Where to start my lesson plan, Arkady?

1) So filling the donut hole for medical prescription didn't lead to more R&D into new drugs by big Pharma? Isn't that supposed to be a big chunk of change?

2) And those wars didn't lead to more manufacturing? No, R&D in there at all? No improved employment figures with the citizens off to war? Why is building tanks, planes, UAV's and armored pesonnel carriers not as economically useful as building cars, planes, trains?

3) The huge homeland security industry spending didn't contribute positively to our economy?

Now those kind of spending are not the good kind of spending by government? What directions did Keynes leave us as to how to spend government money? Can you give me some actual examples of good and successful non-inert spending that speaks well of Keynesian economics? Preferably since 2008. Obama stuff in order to contrast with that wasteful Bush spending.

I do take exception to the idea that you don't define upper-class, super-saturated with capital, and under utilized cash. And an implication that they weren't carrying their fair share.
1. While the Medicare Part D bill could have resulted in higher R&D, you've offered no evidence that it did. It probably did result in higher manufacturing levels, but since the Caribean Basin Initiative rewarded Big Pharma for moving drug manufacturing to Puerto Rico...the jobs would have been there, not here.

2. We did build more trucks and humvees. Bought a lot of ammo. We also spent a lot of money in Iraq and Afghanistan....a lot of money for oil and gas. A lot of money for food for the troops. That money was great for the economies of other countries....not this one. The reason why building solar panels in the US is a better investment than building M1A1 tanks is that the solar panels would result in eventually not importing oil to produce electricity.

3. Homeland security contribution to the economy would be pretty hard to measure. You'd have to take a flying leap at the possible losses due to terror attacks
 

ARMCX1

Mayor
You need to explain why you shamelessly accept their definitions.


Easy. Steiner.


Flummoxed? Hardly, pissed off wondering why you aren't.

Belabor the obvious often?

See that's the problem, either Social Security, Medicare, and Medicaid are part of the whole or they are not (lock box? Hello!?!). You swallow what they say hook, line and sinker. You got to ask yourself why you do that. If it doesn't piss you off it's because you have a thieving nature much like any money grubber you might bitch and moan about. You know that 1%? Wonder what percent that makes you? Either way equivalent Ponzi schemers the both of you. Middle percenters (i.e. Tea Partiers) are pissed off and rightly so.
To accomplish your aims, you would need to start a new language of economics in which old defintions are thrown out in favor of new definitions that you favor.

Steiner's complaint is that if the federal budget ran a surplus, how come the national debt went up instead of down?

I explained my opinion regarding FY2001 using standard definitions that admittedly are often the source of confusion.
 
1. While the Medicare Part D bill could have resulted in higher R&D, you've offered no evidence that it did. It probably did result in higher manufacturing levels, but since the Caribean Basin Initiative rewarded Big Pharma for moving drug manufacturing to Puerto Rico...the jobs would have been there, not here.
Never really said more Pharma R&D happened. I was asking if merely abundance of government money would get you what you wanted (i.e. R&D) which I don't think it did.

2. We did build more trucks and humvees. Bought a lot of ammo. We also spent a lot of money in Iraq and Afghanistan....a lot of money for oil and gas. A lot of money for food for the troops. That money was great for the economies of other countries....not this one. The reason why building solar panels in the US is a better investment than building M1A1 tanks is that the solar panels would result in eventually not importing oil to produce electricity.
The money spent in Iraq mostly went to contractors. Much like when foreign food aid is used to directly buy U.S. agricultural products. In other words that idea of spending multiples still applies. That money wasn't just spent once in Afghanistan/Iraq it came back to Americuh.

All or most of our solar panel manufacturing plants are tits up as are most Chinese solar panel manufacturers.

3. Homeland security contribution to the economy would be pretty hard to measure. You'd have to take a flying leap at the possible losses due to terror attacks
Salaries spent here on U.S. employees and spent again here in the U.S. by those employees?

I'm only asking if Keynes really makes any sense in light of how much spending was done pre-recession and early recession. Why are we still in a fairly bad economic position? Krugman, another faux nobel laureate, and his 'we should have spent more' smells of a turd to me. :0)

Peace Middleviewer
 
I explained my opinion regarding FY2001 using standard definitions that admittedly are often the source of confusion.
Not confusion but rather obfuscation.

Among many similar things you do know how they (govt) manhandle CPI/inflation rate reporting, right? Do you see how you're being manipulated by these guys (politicians and not economists per se)?

Wtf don't we have our own sovereign fund? China should be working for us. The UAW should have retired on Chinese stocks. We won the ideology war supposedly.
 

Arkady

President
Let me help you out there and Heimlich maneuver that propaganda they fed you out of your craw

Go to this link http://www.treasurydirect.gov/NP/debt/current and you too can generate the following chart:

FiscalYear, YearEnding, National Debt, Deficit
FY1993 09/30/1993 $4.411488 trillion
FY1994 09/30/1994 $4.692749 trillion $281.26 billion
FY1995 09/29/1995 $4.973982 trillion $281.23 billion
FY1996 09/30/1996 $5.224810 trillion $250.83 billion
FY1997 09/30/1997 $5.413146 trillion $188.34 billion
FY1998 09/30/1998 $5.526193 trillion $113.05 billion
FY1999 09/30/1999 $5.656270 trillion $130.08 billion
FY2000 09/29/2000 $5.674178 trillion $17.91 billion
FY2001 09/28/2001 $5.807463 trillion $133.29 billion


Now take $5.807463T and substract $5.674178T and you get $133.29B for your deficit. If you have an increasing debt year after year you have NO surplus. This type of subterfuge (i.e. propaganda) is what the Tea Party was and I suppose is still against.

ARMie boy be part of the solution, please read the article that the OP proffered.

http://www.craigsteiner.us/articles/16
On what planet are deficits and surpluses calculated by measuring the change in debt from year to year?
 

Arkady

President
Hmmm... yummy.

Where to start my lesson plan, Arkady?

1) So filling the donut hole for medical prescription didn't lead to more R&D into new drugs by big Pharma? Isn't that supposed to be a big chunk of change?

2) And those wars didn't lead to more manufacturing? No, R&D in there at all? No improved employment figures with the citizens off to war? Why is building tanks, planes, UAV's and armored pesonnel carriers not as economically useful as building cars, planes, trains?

3) The huge homeland security industry spending didn't contribute positively to our economy?

Now those kind of spending are not the good kind of spending by government? What directions did Keynes leave us as to how to spend government money? Can you give me some actual examples of good and successful non-inert spending that speaks well of Keynesian economics? Preferably since 2008. Obama stuff in order to contrast with that wasteful Bush spending.

I do take exception to the idea that you don't define upper-class, super-saturated with capital, and under utilized cash. And an implication that they weren't carrying their fair share.
All government spending leads to the kinds of things you're talking about, at some level. If we spent a billion dollars to employ a bunch of people to dig holes out in the desert somewhere and then fill them back in, it might result in R&D into healing the kinds of injuries suffered by hole-diggers. It might lead to some random archaeological discoveries. It might lead to manufacturing more shovels. It might lead to a whole ecosystem of goods and service providers out in the middle of the desert, to provide for the needs of those diggers (the same way boom towns popped up around gold and silver mines in the Old West). All those things would be stimulus. But, in the big picture, we'd still just be wasting capital and labor digging holes and filling them back in. That's pretty much what we did with the phenomenally wasteful Bush spending -- we issued a bunch of pointless IOUs to finance a lot of pointless economic churning.

Of course, not all Bush-era spending falls into that category. As in any era, we did some spending that would ultimately more than pay for itself through enhanced economic potential (or by reducing future costs associated with problems that spending nipped in the bud). It's just that the Bush era had relatively less than that, and relatively more "digging holes and filling them back in" spending than a typical era. And that includes not just wasteful government spending, but wasteful private spending fueled by the tax cuts for the wealthy -- luxuries bought by the rich that created some short-term economic churning for the benefit of more than just their social caste, but which didn't help the nation enhance its economic potential in a way that would have made the corresponding debt easier to pay.

As for successful Keynesian spending, it's hard to find in the Obama era because the stimulus spending was so small relative to the need, and so much of it took the form of pointless tax cuts, or social spending that, while arguably valuable, was not likely to create much economic enhancement (e.g., extended unemployment benefits). It's much easier to point to things during the FDR era. Take the Rural Electrification Project. That stimulated the economy in the short term, by employing a lot of people to build that electric infrastructure. But, just as importantly, it more than paid for itself in the long term, because of the rural economic development that was only possible, a generation later, because the countryside had been prepped with the electric supply that modern economic development requires.

As I said, it's tougher to find good examples in the Obama era, but one would be the investments into Smartgrid technology. In the short term, encouraging the deployment of Smartgrid systems created jobs that wouldn't otherwise have been needed, but in the long term, those Smartgrid systems are going to result in more efficient use of electricity, giving us more economic bang per unit of energy, which enhances our economic potential. There were a number of other infrastructure improvements, like broadening roads and doing maintenance on bridges that will also help, long term, by either enhancing economic potential or by helping us avoid higher future costs that would have resulted in that maintenance being deferred.
 

Arkady

President
In a clear eyed one. You don't have a surplus if you've spent it.
Check out the 10-k here:

http://www.microsoft.com/investor/SEC/default.aspx

That's Microsoft's annual report. If you go to item 6, financial highlights, you'll see that in 2013, They had net income of $21.863 billion. Net income is the excess of revenues over outlays in the year (including depreciation and other non-cash expenses). This is another way of saying Microsoft ran a surplus of $21.863 billion.

Yet, scroll down. "notice that "long-term obligations" rose? See page 36 for an explanation. Microsoft issued new debt to take advantage of low interest rates. If you think that, by definition, Microsoft didn't run a surplus because its debt rose, then you're using an invented definition of the term that isn't shared by any professional stock analysts, accountants, bankers, financiers, etc. A company, an individual, or a government can increase its outstanding debt in a year with a surplus, if it chooses to, which it may do for all sorts of reasons. Nobody says you have to devote a surplus to paying down debt (as opposed to building up cash reserves or buying up assets).

Now, picture it in the government context. Let's say that in 2000 we had a bunch of extra cash, as a nation. And let's say we had outstanding debt that we were paying 10% on (long-term treasuries we'd issued in the days of high interest rates), and we had the ability to sell treasuries at 5%. So, let's say that we used that extra cash to buy up some of those old high-rate treasuries and put them into government accounts (like the Social Security trust fund). And let's say we also issued some new long-term debt at 5%, in order to finance buying up even more of the old high-rate debt that was at 10%. Now, because of the way government accounting works, those old treasuries will still count as debt, even though they're held by the government, in government accounts.

Now, just to simply things, I'll state things in terms of smaller, human proportions: Let's say you owe $50,000, on a 20-year loan, at 10% interest with no pre-payment option (even if interest rates drop, you're stuck paying at that rate for the full 20 years, unless the other party agrees to a change). And let's say that the other side agrees to sell you back that note for $75,000, up-front. And let's further say that because interest rates have dropped, you can raise that $75,000 by borrowing money at a 20-year 4% fixed interest rate. And let's say you choose to do so.

Now, on paper, your debt has risen by $25,000, right? You used to owe $50,000, and now you owe $75,000. But was this a bad move? Of course not. Over the course of 20 years, with annual compounding, you'd have paid $286,375 in interest on that $50,000 loan, if you'd been stuck with that 10% interest rate. By comparison, at 4%, you'll pay $89,334 in interest over the course of 20 years. Even after considering the extra $25,000 in principal, you come out $172,041 ahead for having refinanced that way. It's that kind of math that causes many people, companies, and governments to increase borrowings even in years when they're running a surplus, if credit markets are such that they can refinance old debt at significantly lower rates.

Now, see here:

http://www.treasurydirect.gov/NP/debt/search?startMonth=09&startDay=30&startYear=1999&endMonth=09&endDay=30&endYear=2000

That shows the change in the debt from the last day of FY 1999 to the last day of FY 2000 (government fiscal years start on October 1). As you'll see, total public debt outstanding rose -- which is the thing you're basing your argument on. But look at the other two columns. You'll see government debt held by the public fell considerably, with the difference being the debt held in "intragovernmental holdings." In essence, what happened is what I was talking about earlier. The government ran a big surplus (revenues outstripping spending). So, it bought up some outstanding debt, previously held by the public, and put it into government accounts (where it still counted as debt, but showed up under the intragovernmental holdings heading). Those treasuries still existed -- they'd continue to exist until they reached their maturity date-- but it was now money the government owned to itself, rather than owing it to investors... primarily money used to bolster the Social Security trust fund. Meanwhile, with interest rates having falling greatly since the eighties, and some of that old debt still circulating, the government issued new, low-rate debt to use to finance the purchase of old high-rate debt, reducing what taxpayers would wind up having to pay to bondholders over the long haul.

That's how debt rose during a year when every knowledgeable person admits we had a surplus.
 
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Check out the 10-k here:

http://www.microsoft.com/investor/SEC/default.aspx

That's Microsoft's annual report. If you go to item 6, financial highlights, you'll see that in 2013, They had net income of $21.863 billion. Net income is the excess of revenues over outlays in the year (including depreciation and other non-cash expenses). This is another way of saying Microsoft ran a surplus of $21.863 billion.

Yet, scroll down. "notice that "long-term obligations" rose? See page 36 for an explanation. Microsoft issued new debt to take advantage of low interest rates. If you think that, by definition, Microsoft didn't run a surplus because its debt rose, then you're using an invented definition of the term that isn't shared by any professional stock analysts, accountants, bankers, financiers, etc. A company, an individual, or a government can increase its outstanding debt in a year with a surplus, if it chooses to, which it may do for all sorts of reasons. Nobody says you have to devote a surplus to paying down debt (as opposed to building up cash reserves or buying up assets).

Now, picture it in the government context. Let's say that in 2000 we had a bunch of extra cash, as a nation. And let's say we had outstanding debt that we were paying 10% on (long-term treasuries we'd issued in the days of high interest rates), and we had the ability to sell treasuries at 5%. So, let's say that we used that extra cash to buy up some of those old high-rate treasuries and put them into government accounts (like the Social Security trust fund). And let's say we also issued some new long-term debt at 5%, in order to finance buying up even more of the old high-rate debt that was at 10%. Now, because of the way government accounting works, those old treasuries will still count as debt, even though they're held by the government, in government accounts.

Now, just to simply things, I'll state things in terms of smaller, human proportions: Let's say you owe $50,000, on a 20-year loan, at 10% interest with no pre-payment option (even if interest rates drop, you're stuck paying at that rate for the full 20 years, unless the other party agrees to a change). And let's say that the other side agrees to sell you back that note for $75,000, up-front. And let's further say that because interest rates have dropped, you can raise that $75,000 by borrowing money at a 20-year 4% fixed interest rate. And let's say you choose to do so.

Now, on paper, your debt has risen by $25,000, right? You used to owe $50,000, and now you owe $75,000. But was this a bad move? Of course not. Over the course of 20 years, with annual compounding, you'd have paid $286,375 in interest on that $50,000 loan, if you'd been stuck with that 10% interest rate. By comparison, at 4%, you'll pay $89,334 in interest over the course of 20 years. Even after considering the extra $25,000 in principal, you come out $172,041 ahead for having refinanced that way. It's that kind of math that causes many people, companies, and governments to increase borrowings even in years when they're running a surplus, if credit markets are such that they can refinance old debt at significantly lower rates.

Now, see here:

http://www.treasurydirect.gov/NP/debt/search?startMonth=09&startDay=30&startYear=1999&endMonth=09&endDay=30&endYear=2000

That shows the change in the debt from the last day of FY 1999 to the last day of FY 2000 (government fiscal years start on October 1). As you'll see, total public debt outstanding rose -- which is the thing you're basing your argument on. But look at the other two columns. You'll see government debt held by the public fell considerably, with the difference being the debt held in "intragovernmental holdings." In essence, what happened is what I was talking about earlier. The government ran a big surplus (revenues outstripping spending). So, it bought up some outstanding debt, previously held by the public, and put it into government accounts (where it still counted as debt, but showed up under the intragovernmental holdings heading). Those treasuries still existed -- they'd continue to exist until they reached their maturity date-- but it was now money the government owned to itself, rather than owing it to investors... primarily money used to bolster the Social Security trust fund. Meanwhile, with interest rates having falling greatly since the eighties, and some of that old debt still circulating, the government issued new, low-rate debt to use to finance the purchase of old high-rate debt, reducing what taxpayers would wind up having to pay to bondholders over the long haul.

That's how debt rose during a year when every knowledgeable person admits we had a surplus.
I understood all this before but guess I was arguing propaganda. That was my mistake. I guess people like me need to change the message rather than the terms. We need to make the case that public debt rose year after year under Clinton's leadership. Thank you for beating that into me, may I have another. :0)
 

Arkady

President
I understood all this before but guess I was arguing propaganda. That was my mistake. I guess people like me need to change the message rather than the terms. We need to make the case that public debt rose year after year under Clinton's leadership. Thank you for beating that into me, may I have another. :0)
Yes, total debt rose each year. I just don't see that as a particularly important point. What's important is that we did exactly what Keynesians call for in the good times: reducing deficits, then running surpluses, such that debt as a share of GDP falls considerably. If we can reduce debt as a share of GDP as much in the good times as we increase it during the bad times, it's sustainable. That's something that we generally did before Reagan (debt as a share of GDP was on a long-term decline until he took office) and it's something we did again under Clinton. But with the massive tax cuts of Reagan and Bush, and their orgy of "defense" spending, we went the other way, even during the growth portion of their respective business cycles.
 
No, debt does matter. You can't outrun it forever and there must be times when you do pay it down significantly. Or we, Greece, Europe will continue to endure painful economic cycles that do verge on actual catastrophe because politicians simply can't be trusted.
 
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