Wednesday, March 23, 2011
$14 trillion in debt? How about $14T in cash in our hands!
We constantly hear about the debt left to our kids from government spending. It's $14 trillion, right? They pound this figure into our heads constantly. You can even go online and look up one of those crazy "debt clock" websites. They'll break it down for you as $45,818 per citizen.
So what is the debt? It's the amount of government securities--Treasuries--outstanding. "It's what WE owe," they say. Well is it what we owe or what the government owes? Let's be clear because it makes a difference. The debt is what the government owes. It owes it to the public, foreigners and to other government agencies.
From an accounting standpoint the debt is a liability of the government. However, to the non-government (that's us) it's not a liability, it's an asset.
Treasuries are nothing more than dollar denominated liabilities that pay interest and have some term or duration, say, 2 years, 5 years, 10 years, etc.
What's is a dollar bill, then?
A dollar bill is pretty much the exact, same, thing with only a couple of small differences. A dollar bill is a dollar denominated liability of the Federal Government, but it differs in that it has no term and pays no interest.
That's it. That's the whole difference between a dollar bill and a Treasury. No big deal.
Actually, you can think of a dollar bill as being like a checking account and you can think of a Treasury as being like a savings account or Certificate of Deposit. (Would you say you're broke if you held $14 trillion in a CDs?)
So by definition, those $14 trillion of Treasuries outstanding represent the same thing as if the government just handed out $14 trillion in cash, with a slight difference in duration and interest. And really, it's only about interest because you can roll over a Treasury as many times as you want making duration a moot point.
Ask yourself or your colleagues at work...if the government had sent out an enormous mountain of cash do you think people would be going around saying that it's some kind of great, big, liability that's going to be passed down to their kids and grand kids?
On the contrary, they'd be jumping for joy saying they've just inherited a windfall...a windfall that will eventually be handed over to future generations. They'd stop calling it a burden and instead, they'd be calling it a blessing.
Believe me, this is no lottery dream. It's exactly what's been going on. That $14 trillion "debt" is actually the exact same thing as $14 trillion of cash that has been literally handed out.
The crazy part is, in order for the government to "pay its debt" it would have to take back those trillions $$. And that's precisely what we are asking it to do. That's how we think we're going to "save" future generations. How dumb is that?