Fiscal Three Card Monte

Yesterday I ‘happened upon’ a couple of interesting facts. First, the total outstanding debt in the U.S. at the end of this past June is only $120.6 billion greater than it was at the end of December of 2008. This just doesn’t seem to jibe with all the wailing and gnashing of teeth over the past three years about our national debt and fiscal deficits. Second, in the three years from end of 2005 through 2008 total U.S. debt rose by $11.153 trillion!

If you open the accompanying Table Z.1B in a separate tab, you can conveniently follow along as I rattle this off. Please note that all the table values are in billions of dollars.

Line 25 contains the “Credit market instruments liability total” which shows the $11.153 trillion increase in total debt from ’05 to ’08 and the $120.6 billion change from ’08 through the 2nd qtr of ’11. Of interest are the differences in the changes between the financial and non-financial sectors. The financial sector accounted for 37% of the increase in debt from ’05 to ’08. But from ’08 through ’11 Q2, financial sector debt liabilities shrunk by $3.309 trillion (line 23), while non-financial sector debt liabilities grew by $3.429 trillion (line 8). The result was the comparatively small $120.6 billion increase in total U.S. liabilities. Essentially, the entire reduction in financial sector liabilities was made up by the $3.377 trillion (line 6) increase in U.S. government credit market instruments.

Another interesting switcheroo was the conversion of $3.135 trillion (lines 16 & 17) of “agency- and GSE-backed” mortgage pools into direct government-sponsored enterprise (GSE) credit market liabilities. Thus, the U.S. government has taken on an additional $6.512 trillion of direct credit market liabilities since the financial meltdown of 2008. All without there being any increase in total indebtedness in the U.S. Not a bad trick! – If you can get away with it.

And how do you do that? Why, blame Wall Street, of course! Blame Wall Street for holding a gun to the federal government’s head and forcing our fearless leaders to relieve the financial sector of its government-encouraged and induced excesses. Just make sure that the American voting public forgets all about the “Community Reinvestment Act”, ACORN, nearly-free money from the Federal Reserve, “liar loans”, so forth and so on, along with Rep. Barney Frank, former Fannie Mae chief Franklin Raines, a politically pusillanimous President Bush II, and a supporting cast of notoriously slippery characters that includes clueless RINOs.

There’s a lot more to be mined from the data, but you get the idea. There’s plenty to digest, but not just before Thanksgiving. I’m saving some room for turkey and all the other goodies. Mmmm.

Enjoy your holiday. You have my best wishes.


Tech Note: The information used in this analysis is found in the Federal Reserve report that details the breakdown of all U.S. debt by various classes of lenders and borrowers. It’s called the “Z.1” – for lack of a better name, I suppose. A bit of manipulation, however, is required before one can tease the significance of the information out of the innocuous looking scramble of numbers. This is a result of individual line entries being placed in the table, along with various subtotals, without any offsets or separation. However, with a bit of judicious manipulation, blank line insertion and running subtotals, the truth will out. The results are shown in here in Table Z.1A and Table Z.1B. Table Z.1A illustrates how I went about determining which numbers were in which subtotals and splitting the data into groups matching those subtotals. The business end of the analysis is in Table Z.1B. Here you will find the line entries for the years 2005, 2008 and 2011Q2 along with columns showing the differences in line entry values for the three dates.

And if I’ve made any errors, please let me know so I can correct them. Thanks.

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