How to Stop Politicians From Cooking the Books

Link: https://www.wsj.com/articles/budget-reform-deficit-government-spending-3-5-trillion-reconciliation-bill-fasb-biden-11631465087

Excerpt:

The federal government ran budget surpluses from 1998 to 2001. Yet the national debt went up in every one of those four years. How can debt go up when you’re running surpluses? Easy, borrow the surpluses then flowing into the Social Security Trust Fund and call it income. Any corporate CEO who tried this stunt would go to jail. But no CEO would try because Wall Street made such boldface accounting fraud impossible more than a century ago.

…..

How can we stop politicians from so casually lying to their stockholders (you and me) for their own short-term political benefit and to the country’s long-term financial detriment? What’s needed is the equivalent of the reforms forced on corporations 140 years ago.

One justification for the Federal Reserve is to keep the power to print money out of the hands of politicians. A Federal Accounting Board would keep the power to cook the books out of their hands as well. Like the Fed, it would be run by a board of seven members, all professional accountants of long experience, serving 14-year terms. They could be removed only for cause. One member would be appointed chairman, serving a four-year term.

The board would take over the duties of the Congressional Budget Office, and the White House Office of Management and Budget would be reduced to formulating the annual budget. The board would estimate future revenue and the costs of all legislation. It would also set the rules for how the federal books must be kept (no calling borrowed money “income”), and would determine if they are accurate and complete, as a CPA does for corporate books.

Author(s): John Steele Gordon

Publication Date: 12 September 2021

Publication Site: Wall Street Journal

The problem with a 100-year US government bond

Link: https://qz.com/1962075/the-problem-with-janet-yellens-100-year-treasury-bond/

Excerpt:

The US is running up debt like never before, and one of the reasons Washington can get away with it is because interest rates are hovering around their lowest levels ever. This raises the question—should the Treasury lock in these rates for 50 years? How about a century?

Government borrowing is under renewed scrutiny as politicians consider their third mega-spending package to support the US economy, adding to more than $3 trillion already earmarked since the onset of the Covid-19 pandemic. Federal debt owned by the public is expected to ramp up from 81% of GDP this year to nearly 100% in 2030, the highest ratio since 1946, according to Congressional Budget Office (CBO) projections in December. That ratio could hit 180% by 2050, by far the highest debt burden the US has ever had.

Debt levels are high, but the government’s borrowing cost is low. In March, 10-year Treasury bond yields fell below 1% for the first time and they’ve only ticked up modestly since, rising to about 1.1%. That helps explain why the US has amassed so much debt and, yet, is spending less on interest expense than it did in the 1980s and 1990s. The worry is that the unprecedented mountain of debt could have to be refinanced at higher yields down the road.

Author(s): John Detrixhe

Publication Date: 27 January 2021

Publication Site: Quartz