Debunking the Public Debt and Deficit Rhetoric

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Notes

Notes

1 Fiscal surpluses did lead to a fall in the public debt held by the public (the Treasury bought back some Treasuries from non-federal sectors) but intragovernmental holdings grew and more than offset the decline (Government Accounting Office 2001).

2 The actual identity is (S – I) + (T – G) + Foreign NX ≡ 0 from the National Income and Product Accounts. The Financial Accounts provide a similar identity but from the perspective of balance sheets instead of national income: Net Lending of the Domestic Private Sector + Net Lending of the Government Sector + Net Lending of the Foreign Sector ≡ 0.

3 Cantor and Parker provide rare examples of governments that defaulted on debts denominated in their own unit of account and note that “Domestic currency defaults have usually been the result of an overthrow of an old political order—as in Russia and Vietnam—or the byproduct of dramatic economic adjustment programs aimed at curbing hyperinflation—as in Argentina and Brazil” (Cantor and Parker 1995, 3).

4 In 2014, the Financial Accounts stopped providing data that splits the structure of ownership of public debt within the foreign sector in 2014. Prior to that, data shows that two thirds of the US public debt held by the rest of the world is held by official foreign institutions (foreign central banks, foreign Treasuries, among many others).

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Eric Tymoigne

Eric Tymoigne is Associate Professor at Lewis & Clark College and Research Associate at the Levy Economics Institute.