Federal government debt

Time magazine’s 4/25/2016 cover story is about the U.S. federal government debt. The author James Grant says the debt is $13.9 trillion, whereas the famous National Debt Clock says it is $19 trillion. The difference is what the government owes itself, especially what the General Fund owes the Social Security Administration.

Sometimes the higher number is called "gross debt", e.g. here, and the lower number called "net debt". That doesn't mean the difference is not a debt. It's a different kind of debt that could be called "unfunded obligations.” See the above link again. However, the federal government's unfunded obligations are way more than $5 trillion. To the extent the present value of future Social Security and Medicare benefits exceed the present value of future taxes and premiums dedicated to these programs (plus $5 trillion), that is also an "unfunded obligation." That amount was estimated at $45 trillion in 2009.

Another perspective is that the lower number is debt that has been monetized, and the difference is debt that hasn't yet been monetized. When it comes time that cash is needed to pay benefits promised by Social Security and Medicare, then the debt will become monetized.

Social Security is sometimes defended by appealing to the Social Security Trust Fund. The Trust Fund is projected to be depleted about 2034. However, that does not imply that Social Security and Medicare won’t be more of a financial burden before then. They will be a greater burden as soon cash outflows exceed cash inflows, which is projected to begin around 2024. A cash-flow deficit will be used to reduce the Trust Fund balance (until it is depleted). On the other hand, the U.S Treasury will need to cover that deficit by selling more Treasury securities. In other words, non-monetized debt will be converted to monetized debt.

That gives another reason to call the Trust Fund bogus, the other being that the rest of the federal government has already spent the money Social Security and Medicare (mostly the former) loaned to the General Fund in exchange for non-marketable Treasury securities. 

Addenda: Only a few hours after posting, I see unfunded liabilities addressed here by the Mercatus Center at George Mason University. The article cites two other estimates. The first says the amount is $87 trillion. The authors add federal employees' future retirement benefits to $63 trillion for Social Security and Medicare.

The $63 trillion estimate as of 2012 versus the $45 trillion estimate as of 2009 on the Wikipedia page seems huge. On the other hand, it might be largely due to different interest rates used to calculate the present values. The 30-year Treasury rate was much lower 12/31/2012 (3.08%) than 12/31/2009 (4.60%). 

The second is $222 trillion calculated by Kotlikoff. The Mercatus link only goes to Kotlikoff's home page. His Testimony to the Senate Budget Committee showing the $222 trillion ($210 trillion later) is here. I don't know what to make of such a high number now and suspect error.