ATS, I could use your help: Treasury Securities, The Fed, and Public Debt

I've been soaking a lot of my thoughts lately with the Federal Reserve and the debt that our country is in, which a lot of recent problems have root in (for example the recent USPS budget problems). The public debt is practically $16 trillion to date, all in unredeemed Treasury bonds and securities. It's come to my recent attention through some research that significant portions of government programs and trust funds are required to be invested in these securities, such as SS trust funds, medicare trust funds, and various government retirement funds.

Now are these programs not initially funded by taxes? These are programs included in the "entitlements" portion of the government budget, right? Yet, the government's borrowing against these programs for other means. That's not even the issue I'm mainly interested in though.

The Mission

All of this brought me to question: how are these securities repaid? I've had difficulty tracking down that information, though. Of course, I'm under the impression that the primary funds for repayment come from more taxpayer dollars, which would mean we're being taxed a second time over for these programs, and with interest at that. I have no concrete resources to back that up though. I've been scouring the sites of the Treasury and their Bureau of Public Debt, but I've come up with little to nothing besides that I can donate by check or credit card to help alleviate public debt (You can visit my laugh of a thread about that here).

So can you, fine members of ATS, help me track down official documents on the funding of the Treasury, or more importantly the securities?

Additional Info I've Gathered So Far

1) I know the Treasury receives some funds annually from the Federal Reserve, which is supposed to allocate whatever profits are left over after deducting it's "operating costs." $75.4bn went to the Treasury from the Fed's income in 2011 (source). Apparently, this money came from interest income on the Fed's own Treasury securities, as well as GSE debt securities and mortgage-backed securities. If the majority of this money came from Treasury security income, who paid them the interest? Surely, it wasn't coming from the Treasury just to be returned?


2) I've found this(pp.25-26):

The primary market in Treasury securities, where new debt instruments are sold to fund
government operations, is also relatively unregulated. A principal channel for the distribution of
new Treasuries is a group of firms called primary dealers, who purchase securities at auction for
their own accounts and for their customers. The primary dealers are 19 commercial and
investment banks, both foreign and domestic. The primary dealer list is maintained by the Federal Reserve Bank of New York, which conducts auctions for the Treasury, but its relationship to the dealers is commercial, rather than regulatory. The New York Fed does, however, collect certain data about primary dealers’ transactions in government securities.

So while the securities are available by other means, apparently the "principal channel" of buyers are private institutions; the selection of which are "maintained" by the Federal Reserve System (which is already essentially a system of private banks, so we have a system of private banks auctioning off Treasury securities to other private financial firms, where I'm assuming the securities are more-than-likely sold for less than face value! )



More to come as I organize my resources here...

I'll have to provide more in the morning. My resources are a jumbled mess. I'd mainly like to uncover how these treasury securities are redeemed/who pays the interest.

We've got the Fed auctioning off fresh securities, buying back from secondary sources, and meanwhile collecting interest on what they already hold, just to turn around and give it back to the treasury...

I'm tired. I think I'm mind-#ed for now...

At this point, I'm beginning to think that the idea that the Treasury itself backs it's securities is just so widely understood to be true that it's unwritten. So putting aside the endless numbers of budget records and plans, I have this article from 2010, about the issues of trust fund bonds, specifically those held by SS trust fund.

Why the Social Security Trust Fund is Useless

a quote from the introduction to the 2009 Social Security trustees report...

"Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public."

In other words, the trust fund is of no economic value.

There has been fuss over the recent years of the SS and Medicare trust funds running dry. We're most definitely going to see major implementation of the above "combination" in the next 2-3 decades, but I guess we'll just have to see how our future President and Congress choose to deal with the situation.



On general funding of the Treasury's redemption of securities, we can take a look at the Treasury's 2012 Budget and find that it's federally given budget is $14bn. However, I'm not even sure it's relevant.

I think where we need to be looking specifically at the Bureau of Public Debt's books, right? After all, they're the folks who handle the securities. Here's their balance sheet from June. I'm sure that's where the key to how the securities are currently being handled. I'm a little rusty on my accounting skills so it may take me a while. If someone a little more knowledgeable can take a look that would be awesome, but I'm pretty sure at this point it's a matter of circular accounting. Seems they have income from assets generating numbers larger than the federal budget allocated for the entire Dept. of the Treasury.

In conclusion, if we look at the entire budget for 2013 and the projected numbers therein for federal debt, there doesn't seem to be any effort being put towards lessening any of the debt. The big issue is going to come in how they handle the trust fund bonds. Massive redemption could cause quite an uproar. In reference to the three options spoke of above, higher taxes aren't exactly going to be welcomed by the public (when is it ever?), borrowing more money through issuing more securities could cause a huge stink in relation to the debt ceiling, which comes to reductions in other areas of government spending... Geez, overall it seems like they're just putting the debt issues off onto the future generations.

Two 's for our proactive government.

Interesting revelation:

The quote from the above article, attributed to the 2009 OASDI Trustees Report, is spouted numerous places on the internet, directly quoted from Allen Smith's book The Big Lie.

However, I've tracked down the actual report in search of more detail, and surprisingly enough, the quote isn't there!

I'm not sure what to think of that. Did Smith fabricate the quote for his book? Or has it been subsequently edited out of the report? It's disappointing, but an important reminder to avoid secondary sources and keep my sources primary.

I'm not certain about what you are asking...I read your posts twice but maybe I just need more coffee.

Are you asking what the nature is of the investments in which the trust funds are put into, to earn interest?
That is, just exactly is this money invested in?

So with the above information of the redemption of the trust fund securities now in dispute as fact, I can only consider it the opinion of an expert at best, seeing as Smith is an economics professor, I'm urged to put more importance on tracking down how exactly the securities are currently funded.

I've found this vague explanation on where the Bureau of Public Debt gets it's funding for operations...

Our operations are funded by an annual appropriation for administering the public debt and permanent-indefinite appropriations for Federal Reserve Bank services and interest on the public debt. The services that we provide to our franchise customers are self-funded.

(Source)

From what I understand about appropriations, they're withdrawals from the General Fund of the Treasury, permitted only through legislation and outside of the realm of the federal budget(obviously), which explains the numbers on the balance sheets being in the range of hundreds of billions in comparison to the $14bn that the treasury receives from the federal budget.

What legislation provides this annual appropriation for public debt, and more importantly, the permanent-indefinite appropriations for Federal Reserve Bank services? This is my next task, along with (hopefully) hunting down a report from the General Fund of the Treasury, if one even exists.



BTW, still openly accepting help, ATS...

reply to post by queenannie38


I'm specifically looking for where the finances for payment of Treasury securities and their interest originate.


ETA: See, my original thought was that the financing of these securities from the government's end, including the trust fund bonds, comes directly from taxpayer money. I'm searching for definitive proof of whether or not it is true.

reply to post by queenannie38


Upon rereading your post.... yes... in a sense.

The more I dig, the more complicated it is becoming, and it's difficult not to get side-tracked. There was more than $300 billion in interest payments on securities made in June by the bureau of public debt. I'm not finding any indication of where those funds came from, or any specific appropriations made for anywhere near that amount.

Scratch that $300 billion number specifically in interest payments, but according to June's balance sheet, total outlays (expenditures) equaled $375bn+.

The government pays and collects interest in various
ways; its net interest outlays are equal to interest paid
minus interest received. Net interest outlays are dominated
by the interest paid to holders of the debt that the
Department of the Treasury issues to the public. The
Treasury also issues debt to trust funds and other federal
government accounts, but the payment of interest to
those accounts is an intragovernmental transaction that
has no effect on net interest and no effect on the budget
deficit. Other federal accounts also pay and receive
interest for a variety of reasons.

CBO- Federal Debt and Interest Cost

Well, now I know for sure I'm looking for more than one way that these securities are paid for.

reply to post by jlm912


Yes...it is quite the tangled web, is it not?
I have a rather avid interest in such issues, myself...and gave up on trying to find too much information at government sourced sites...not because it isn't available...it is there...it is just so bleepin' complex that it makes my head spin...and it takes a lot for that, to be honest. I feel the data is somewhat, if not all, deliberately obfuscated.

This is what I found recently for the last thread I started...#100 since I started in July 2005...I'm not a thread starter, obviously. Anyway, if it isn't what you are looking for, then let me know and I'll see what else I have...I have a lot of research piled up the same as you do and maybe if we put our heads together...

The Guardian

The bulk of the actual information is in image format so you'll have to go there to see the numbers and details.

It also says this, as a summary:

The key findings are:
• As of April this year, US Treasury bonds owned overseas accounted for $4.7tn of the national debt - up 8% on last year. That's not everything - the US now owes over $14tn.
• China is the biggest owner of US Trasury bonds - over $1.14tn by September this year - down -0.3% on last year
• Bonds bought in the UK (mainly private investors and pension funds) are third on the list at $421.6bn - up 120.7%, which is the biggest increase
• Russia saw the biggest decrease, down 45.3% since last year to $94.6bn

It reflects a US national debt which has grown starkly, from $7.8tn in 2005 to busting through the US debt ceiling $14.294tn earlier this year - according to these day by day figures.

Then there are a couple more images, graphs, and then a table with the facts and figures...there is a link there that allows you to download the data as a spreadsheet which you might be interested in. I had a fetish for spreadsheets a while back and so I'm wondering if I should indulge that again now that I've got somewhat of a handle on it.

What I have found in my own investigation, is that there are two forms of government debt...and you may know all this already...if so, forgive me if I sound condescending or like a know-it-all...it might be helpful for readers, though, so I thought it would be good to share anyway...these are things I was not aware of so I bet a lot of people don't know it, either.

Intragovernmental debt and public debt.

The first is what the government owes the trust funds and such after borrowing off the interest accumulated in those funds, by these securities in question...I'm sort of assuming this last part. The money is invested somewhere, as you have pointed out, and the so-called entitlement programs earn pretty fair interest yearly.

According to Wiki...which some people hold in derision as far as being a valid source...but which I find to be a good jumping off place and only go by the information that is legitimately sourced, as this information I'm sharing does seem to be, from the citations given...

Anyway, the full details are here and indicate that the interest earned by the SS fund in 2011 was 4.4%.

It also says that intragovernmental debt accounted for $4.8 trillion of the $15.7 national debt as of April 2012.

Public debt, then, is the money borrowed from sources other than our own government, which would then come out to $10.9 trillion...that is distributed, apparently, according to the data published by the Guardian I mentioned in my previous post.



Circular bookkeeping in some portion, but I think that it would not be a problem at all if spending were curbed and curbed drastically.

And contrary to what everyone is led to believe and what the pundits so blatantly declare as the source of the problem...it is NOT entitlement programs...and they are not a source of higher income tax rates as they come from payroll deductions and matching employer contributions.

However...when the US borrows from itself by using the interest these funds earn for other purposes, it also requires itself to pay it back with interest...or at least that is the intention. So...the interest that is accumulated on these loans as well as the interest adding up on the money borrowed as public debt, from elsewhere than the government's trust funds/entitlement programs, then becomes a part of the steadily increasing national debt because it is added into the increasingly escalating deficit in the yearly federal budget. And THAT is where our income tax dollars go...

So...the government borrows on the interest earned by our payroll deduction-funded trust funds...and then has to pay it back with interest...and the expense of that interest is added to the burden placed on the collection of our yearly income taxes.

And since interest on a signature-type loan is always higher than interest earned on a savings account...or at least that is what I understand...then we can only assume that the money borrowed on the 4.4% interest revenue from trusts is going to have to be paid back with an even higher rate of interest.

Even if not...it is definitely not wise budgeting. And it pretty much sticks the shaft you-know-where.


So why are they borrowing from these trust fund interest surpluses if not for the so-called entitlement programs that they claim are gobbling up our economy?

Ahh, a partial answer I have found. It seems that "net interest" is accounted for in the federal budget, if you take a look at the budget above (the "2013" link) you can see it towards the end within the tables. However, as was covered in the CBO report above, "net interest" doesn't include that paid to trust funds, nor do interest payments in general cover complete redemption of securities. The search goes on...

reply to post by queenannie38


Yes, it is a rather large web of confusion. Deliberately obfuscated? Wouldn't doubt it

Thank you for the link. It seems pathetic, the amount of debt the government's in. I see a lot of people saying "The amount isn't as important as the percent of GDP," which is a logical concept, but there are multiple ways of measuring GDP, and some of the more popular measurements include some ridiculous elements, but that's another topic, huh?

Treasury Direct is a pretty informative site overall. You can find a daily updated Debt to the Penny and Who Holds It that gives you the amount of outstanding debt held by the public, intragovernmental holdings, and then the combined total outstanding public debt.

There's also the Monthly Debt Position and Activity Reports which give some good graphs and tables of the debt and financial flow of issuing and redeeming securities. It's mind-boggling that while maintaining debt but a few hundred billion away from the debt ceiling, a total of $112 trillion has moved through the Bureau of Public Debt in issuance and redemption of securities in this fiscal year alone as of July 31.

reply to post by jlm912


Yes, that's a pretty clear source, actually. I was looking at the site and found this: Investment Funds Summary Holdings Reports.

Does that have the sort of information you are looking for?

I don't always understand the terms they use, myself. But stumble around pretty well in spite of that.

This is that report for July 2012
They appear to be 'non-marketable' funds based on that column being devoid of any figures.

reply to post by queenannie38


Yeah that's the summary of accounts in the Fedinvest program- makes up a large portion of the intragovernmental holdings, but there are separate programs for the trust funds and what not.

From what I understand, all of the intragovernmental holdings are non-marketable (different "special-issue" securities not available outside of government agencies)

Unfortunately, it doesn't quite help me in the goal of tracing the payments to their source(s), but it is an interesting note to keep on hand, because I'd like to eventually get deeper into the Federal Reserve's role in all this securities business, especially on the subject of quantitative easing and their purchase of secondary marketable securities held by the public. If they are in fact a "government" entity, then 1) why are they allowed to purchase marketable securities, and 2) why are they forbidden by law to buy securities directly from the Treasury? Or if the latter's even true, because I can only remember reading that in one source, which was a news article I believe, but I'll have to backtrack to find it and cover all of that collectively in a future post.

reply to post by jlm912


Ah I retract that first statement. It does indeed include the trust funds. My mistake.
I was looking for separate account titles, when they're mostly listed beginning with "federal"

Nvm, that was from the CA State Treasury. I remember why I tossed it aside now.

I think If I don't get an answer soon, I may just have to do this the easy way and try to e-mail someone at the Bureau of Public Debt in an attempt to get direct answers.

Well, I think you should do that, then. Because I get the feeling that is a special request piece of information.

The government is the worst 'compartmental-ist' I've ever met...I mean, I like a backpack with various nooks and crannies but the government has got ways of tucking some things just out of sight but not really withheld. But if you are not even aware something exists, how can you ever know to ask for it?



The cubbyholes in which the general military/defense/weapons war machine is cleverly distributed seem more like an infestation. It is easy to find out much federal outlays were for Dept of Ag food support, for example, but it is like a needle in a haystack to find some real hardline figures on just how much was spent on endeavors related to military.

But that way, it is much easier to misrepresent the actuality when you are not forthcoming with one half of the information being compared and can easily make it seem like the lie is the truth. And if EVERYONE believes it then it IS the truth, in a very real twisted psychological sort of way.

I think that this is all related because of the difficulty you are having digging down deep in all this...it leads no where. I looked into what I could with what you've provided but I got a headache.

That's how I felt trying to find out how much was actually dedicated to military/defense...how is it that the federal budget should be so obfuscated, yet at any given moment, I can easily look up and peruse Bill and Hillary Clinton's 2008 Federal Tax Return? Or any out of 12 or 20 years, I forget which.

I like that the candidates (most of them) have always been relatively willing to share that kind of info without having to...HOWEVER I'd much rather have that kind of access to the bookkeeping record of *my shared estate with all fellow Americans*...aka the budget of the US Gov't.

If it IS *our* government, then why do THEY hold so tightly to the purse strings?

Originally posted by jlm912
reply to post by queenannie38

 

Yeah that's the summary of accounts in the Fedinvest program- makes up a large portion of the intragovernmental holdings, but there are separate programs for the trust funds and what not.

From what I understand, all of the intragovernmental holdings are non-marketable (different "special-issue" securities not available outside of government agencies)

Unfortunately, it doesn't quite help me in the goal of tracing the payments to their source(s), but it is an interesting note to keep on hand, because I'd like to eventually get deeper into the Federal Reserve's role in all this securities business, especially on the subject of quantitative easing and their purchase of secondary marketable securities held by the public. If they are in fact a "government" entity, then 1) why are they allowed to purchase marketable securities, and 2) why are they forbidden by law to buy securities directly from the Treasury? Or if the latter's even true, because I can only remember reading that in one source, which was a news article I believe, but I'll have to backtrack to find it and cover all of that collectively in a future post.

edit on 18-8-2012 by jlm912 because: (no reason given)

I'll probably get tomatoes thrown at me for saying this...but I'm of the mind that the Federal Reserve is a private entity for these very reasons/issues you mention...maybe there are others. But the whole point was to try to keep government and economics separate yet not designed as adversarial to each other, either.

So...I might be so totally dumb in this idea but it is something that I've kind of had in mind all along...I think the Fed is scrambling, itself, to try to manage the nearly exponentially growing deficit bottom line and accumulating debt incurred by mismanagement or reckless spending somewhere and of course you know what I believe that money pit is. War.

But even if not...there is a black hole into which this money is going, if you dig.

The securities and juggling and compartmentalizing all are efforts to try to somehow get a hold on things now about to go crazy.