President wants to use left over TARP to pay off national debt

[AllentownJake]

The Obama administration is poised to extend the life of the highly unpopular $700 billion financial bailout and, to display a commitment to fiscal responsibility, is planning to use much of the leftover funds to reduce the national debt, government sources said.

Administration officials are grappling with how best to announce the extension of the Troubled Assets Relief Program at a time when the economy is struggling and the unemployment rate is at its highest point in 26 years. The officials are hoping that by putting roughly $200 billion toward paying down the $12 trillion national debt, they could mitigate the political fallout, the sources said.

No final decision about the fate of the bailout has been made, and officials are keenly aware that their preferred course contains risks. Officials worry that lawmakers, seeking to fund their own projects, may try to tap any large sum of unused money set aside for debt reduction, the sources said, speaking on condition of anonymity because the internal deliberations were private.

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/18/AR2009111803986.html

[kentuck]

1. What a wasteful idea!

I could think of a better way to spend it. Pay down the debt and the next Republican will only double it again. It would be better to spend it on something that will survive the next Republican Administration, for example, infrastructure.

[ProdigalJunkMail]

2. maybe i am missing something here

but how do you pay down debt with borrowed money? and 200billion against 12trillion is NOTHING. The only way to pay it down is to not spend it...

sP

[Romulox]

4. Just like GM "paying back" borrowed money with borrowed money--it's a hokey PR stunt. nt

[ProdigalJunkMail]

7. indeed ...

we want to slam the banks for shuffling money around and cooking the books...but our gov't does it better than ANY corporation out there and they do it with PRIDE!

it's hopeless...

sP

edited to fix something...this in no way implies correctness...

[Moondog]

23. +1

[anigbrowl]

39. Wrong, completely wrong

In the case of GM, they were paying off private debt with new money borrowed from the taxpayer, ie socializing the risks. In this case, the Treasury is proposing to return money which it has already borrowed from the fed, ie returning it to the original lender and reducing its obligation. The treausry has not issued $200 billion of new debt in order to finance this.

[Statistical]

43. Yes it did. Federal regulations required the Treasury to issue new deb when TARP was signed.

That debt was issued and auctioned a long time ago.

[anigbrowl]

49. we seem to be talking at cross purposes here

I don't disagree with you, but in practice paying down $200b means not rolling over existing debt, no? Put another way, if this scheme goes ahead, who is the recipient of the $200 billion? And getting back to the main point, why would it be preferable to keep paying interest on that sum? I'm willing to agree with you if you can suggest where we should spend the money that would give the treasury an ROI greater than the cost of the debt it's proposing to retire.

[Romulox]

44. You're simply flat out incorrect on this point. nt

[AllentownJake]

5. It is a political move

You are correct, the TARP money was borrowed to begin with, so this is more like taking a Cash Advance on your credit card and than paying back a portion of the money the next month. You still owe 200 billion less :shrug:

Of course they are about to come up with a Job's bill that might cost the same as the left over TARP.

[Dreamer Tatum]

14. I think that was a terrible slip by the Admin, alas

if that's how they view public finance...oy.

[anigbrowl]

36. You misunderstand how this works

First, it's not nothing, it's about 1.6% of debt which is not to be sneezed at. Better to pay it off than to keep paying interest on it. Now what you're missing is that the money has already been borrowed, that is to say the Treasury has it because the Federal Reserve bought treasury bills (on which interest is payable). there isn't some giant swimming pool full of dollar bills that the Fed and the Treasury have joint custody over. Financial instruments (specifically, the treasury bills) change hands in such a transaction. That's $200 billion that won't get printed as currency, and thus deflates the money supply somewhat, in turn slightly increasing the value of the US dollar.

[Romulox]

3. That's not really paying anything down--it's borrowing money to pay a different creditor

"Refinancing" to be charitable. "Kiting" if we are not.

And all of this done under "the world is going to end if we don't!" panic... :shrug:

[anigbrowl]

40. No it isn't. It's returning money to the original creditor.

you are flat wrong here. If you disagree, name the second creditor that you claim provided the money to pay $200 bn to the Federal reserve.

[Statistical]

45. WRONG. Federal T-bonds are non-callable.

The federal govt makes periodic interest payments for a fixed period of time (20 interest only payments on 10 year bond) and then repays the principle in full at maturity.

Neither party (federal govt, nor creditor) can call the bond (request early repayment).
Once the debt was issued the transaction is done.

In 1980s the govt issued T-bonds at 15.2% interest for 30 years. That's right some investors locked in a guaranteed 15% for next 30 years. Taxpayers are STILL paying on them (they will mature in 2013). If the govt had the legal authority to pay that debt back early don't you think they would have?

Once issued a non-callable bond will remain until maturity and govt is obligated to make every interest payments or it is considered in default.

[Romulox]

46. Your question doesn't even make any sense...

The US doesn't borrow money from "individual creditors" afaik--it issues various kinds of bonds and securities. :shrug:

[anigbrowl]

48. You're the one who suggested it was borrowin from one creditor to pay another

So when was this extra $200 billion of unfunded treasury liability issued?

[Statistical]

51. When TARP passed.

When TARP passed it created an unfunded liability for the current fiscal year which federal regulations prohibit. So the Dept of Treasury increased next few auctions to cover the $800B.

Same as any program or project. The dept of treasury is constantly balancing the balance in federal accounts with projected costs (which is why large programs are scored by CBO) and issuing new debt to ensure their is sufficient funds to cover obligations for current fiscal year.

[UndertheOcean]

6. What a stupid idea , yeah , if this flies then are we to believe that the fed can ...

just print-out the 12 trillion and pay off the debt instantly .....

[shraby]

8. That last sentence says a lot...

"the sources said, speaking on condition of anonymity" I hardly think the whole article holds water. Paying down debt with borrowed money just doesn't make sense and it sounds like some sources are trying to make trouble.

[AllentownJake]

13. It is probably an intentional leak

I don't think you understand the process, sometimes administrations float a policy move to gauge public reaction. This has been going on for 30 years.

Personally I could care less, it smells of a PR stunt, but every good or bad administration in American History has done their fare share of PR stunts. It is part of the game.

[orwell]

9. Sounds good to me...n/t

[Statistical]

10. Reall the TARP money was borrowed so we will borrow to pay down borrowed money.

Utterly stupid and pointless PR student.

How about use the $200M to build infrastructure, the worlds largest PV plant, upgrade utility lines, wire a million schools with high speed internet, give it to NASA with goal to jumpstart Ares program, repair/upgrade the 1000 oldest/worst bridges in US, start a massive TVA system program to put people to work, extend unemployment benefits for 5 million people another 6 months.

Hell I could sit here all day thinking of better ways to spend that money that would actually be stimulative rather than pay down the debt in an amount that is a rounding error.

[marketcrazy1]

11. we will not be paying down anything

we will simply be returning to the treasury unused TARP funds.. does this reduce the national debt? I guess, is it "paying down" the national debt? NO.... the difference may be subtle but it is real..........

[Statistical]

12. Not true.

The govt has $11T in debt however it is issued on a constant basis. A combination of 1, 2, 5, 7, 10, 30 year bonds are issued every year.

So at any particular month some of that debt is coming due (last month nearly $300B came due).
The govt doesn't have the money to pay it down (that would require a surplus) so they ISSUE NEW DEBT and use the new debt to pay old debt holders.

i.e. $300B in debt matured and is paid in full, to pay that govt issues $300B in new debt with a range of maturities.
They do this week in Treasury auction.

$11,000B -$300B (debt matured and paid off) + $300B (new debt issued)


So if govt had $200B next month they could retire debt without issuing new debt thus paying down the national debt.

[marketcrazy1]

18. it`s all circular

where did the TARP money come from - new debt! since this money was not spent? was that debt ever actually issued? if it was and we did not spend it then we issued more debt than we needed too so now we will buy back that over issuance with the unspent monies and retire that debt. I would not consider this "paying down" anything. even if we do this we will still be issuing a trillion in new debt this fiscal year. we will quickly refill this 200 billion dollar gap with new debt issuance with most of that money being spent right back into the U.S financial system ( we will be giving it to the banks in one form or another ) CRE will be bailed out next year and the MBS problems have still not been resolved plus there are other forms of derivatives out there ( other than CDS ) wich have the potential for huge disruptions in the world financial markets and we will be propping them up next year too! unempoyment will very likely break above 12 percent by Q3 2010. this is nothing more than a feel good proposal wich will have zero impact on our economic problems. better to use the money for a real, workable jobs program as a third stimulus will be next to impossible to get through CONgress... JMO....

[Statistical]

21. US Treausry bills are not callable by either the holder or the US govt.

When the govt runs out of cash (which lately is on a near continuous basis) the Treasury sells bonds. It then uses the cash received from those bond auctions to pay (and set aside funds) for programs like TARP or building a new aircraft carrier.

So the debt WAS already issued. The debt was autctioned and sold as soon as TARP passed because the Treasury is obligated to sell bonds to cover shortfall in revenue (deficit spending). That debt can NEVER be called (paid early), undone, or erased. The bonds we issued in 2009 will not be repaid until 2014 (for 5 year bonds) and 2019 (for 10 year bonds). Even if the US govt suddenly has a $2T surplus that debt can't be "undone".

So the debt exists. The "good news" is since we have so MUCH debt we have hundreds of billions of dollars coming due each month and we can paid down the national debt by using this cash to pay those bonds and not issue new ones.

BTW: I am against repaying this debt because it is stupid and a PR student however it is possible to pay down the debt which is why I corrected you.

[marketcrazy1]

27. thanks for that

I do understand how the U.S debt market works but my main point is that this is nothing more than a PR stunt as you seem to believe also. and I also agree that there are better things we can do with this money.. there may be other reasons for taking this approach not readily apparent to most. see if you can figure out what they might be.... you seem pretty sharp! kudos to you for taking the time to understand how things work....

[AllentownJake]

16. The administration is taking the debt talking points seriously

They have already moved to cut budgets in all departments by 5% next year.

[TexasObserver]

15. That has to be the dumbest idea they've had yet.

We have Americans out of work, Americans in trouble, the banking system still broken, and they're going to pay down the national debt by paying the interest on the debt for a few months? Ridiculous.

[AllentownJake]

17. I can think of a few stupider things

but, yes, this is a PR stunt.

[kentuck]

19. It indicates a reality that is out of touch...

with the rest of America, in my opinion.

[rucky]

20. This makes sense to me.

I don't see the controversy in this. If the money is left sitting out, there's a good chance it'll get as mishandled as a bulk of the rest of the TARP money.

[AllentownJake]

22. That is a decent argument

and it shows the amount of faith the President has of the legislators in his own party to behave themselves or do the right thing in any given situation.

[Statistical]

26. Congress already controls the purse string though.

Congress has given Treasury the authority to increase federal national debt up to a ceiling of $12.104
Of course even that "limit" isn't much of a barrier because Congress has the sole authority in raising the limit (which they have done 26 times in the past, and never decreased it one time).

Excluding TARP we are CURRENTLY spending more money then we have and issuing debt on a weekly basis (I listen to treasury auctions every week).
The idea of paying down $200B to turn right around next week and borrow another $150B, and then $125B the week after that and the next week, and the next week etc is stupid.


The CBO projection is the US federal govt will spend more than it takes in revenue each month until year 2019. There is no a single year (based on current budget & projections) in which the govt will take in more revenue than it has is projected costs.

[AllentownJake]

29. Give them an excuse to spend another 200 billion

they will do it, the question is what will they spend it on.

[jpak]

56. Yes - we were better off during the Golden Age of GWB and the vibrant GOP economy

that never had any deficit spending - and who always did the right thing.

What horseshit

[Statistical]

24. It would only make sense if we had a balanced budget and surplus projected for next couple years.

Even if we use the $200B to pay off (which is really not issuing new debt because it is impossible to payoff T-bonds early) part of national debt we will simply borrow $200B more next month.

We are running a $1.5T deficit which means we are issuing over $100B in net debt each month.

It would be like you have an income of $30K, but you are charging $40K each year on your credit card. Doesn't make much sense to "pay down the credit card $200" if next month you are simply (as part of general spending) going to charge more than you pay down (and next month, and next month, and next month, and next month).

The CBO estimate of Obama budget is federal deficits (spending more than we have = issuing new debt to cover difference) every year through 2019 and that includes getting out of Iraq in 2010 and Afghanistan in 2012.

100% absolutely pointless, expensive, and stupid PR stunt.

[kentuck]

25. I agree.

We have a jobs creation problem that needs to be addressed in case anyone noticed?

[JonQ]

35. Frightening that he feels the need to hide money

from his own party to avoid it being misspent.

[yurbud]

28. how can you use borrowed money to pay off the debt?

[JonQ]

30. So we borrow money to pay off our debt

on the assumption that that borrowed money will never have to be paid?

This strikes me as paying off credit cards using other credit cards.

At what point does the whole country just change it's name and appearance and skip off to a new town to start this scheme all over again?

[Statistical]

32. Many, many, many countries have done that in past.

The US never has and that is why T-bond is considered one of the premium federal debts in the world.
There is nothing the world could do if the US govt one day stopped making payments on bond debt.

Of course the high credit rating of the US is what attracts so much foreign currency and supply & demand gives US a very low interest rate compared to other countries.

[JonQ]

34. It would be devastating for economy

if we were to one day announce that we will no longer be honoring debts. Countries that default on much smaller debts are severely harmed, let alone a debt equal to around 15% of the worlds economy (depends on what criteria you use to measure, but around that).

[Statistical]

42. Oh agreed it would instantly throw us into the third world.

The scarier thing is that we float out debt. Every month about 1% of the debt comes due. We don't have the cash to pay for it so we sell new debt and use that cash to pay the old debt. The new debt will comes due in 2, 5, 10 years and we repeat the cycle all over.

The problem with that is the rate our new deficit spending is growing. Estimate is for $20T debt by 2019. The combination of $20T, and devalued dollar may make new investors demand higher interest rates.

Currently interest on national debt is 16% of entire budget. At $20T unless revenue rises substantially or expenses decline it would be 27% of budget. If interest rates on debt were to double from 3.3% average to 6.6% (still better than most countries) interest would be more than half the US budget.

Combine that with Baby Boomers retiring, shortfalls in Medicare & Medicaide, and some other future massive expense (a true lethal pandemic, natural disaster, economic collapse, a "real war with first world nation) and it may not be possible to make payments anymore.

Eventually we may reach a point where we simply can't afford the interest payments and negotiate a $0.35 on the $ principle renegotiate with our creditors or suspend interest payments.

The idea that we can borrow every increasing amounts of money endlessly is not based on any kind of economic reality. The US isn't "special" every other country in a similar situation did default.

[Tierra_y_Libertad]

31. Peter meet Paul. Or, "How to Juggle Credit Cards Made Easy."

"When politics enter . . . government, nothing resulting there from in the way of crimes and infamies is then incredible. It actually enables one to accept and believe the impossible." Mark Twain

[DU GrovelBot]

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[anigbrowl]

41. Ask the Federal Reserve, I hear they have an extra $200bn coming to them :-)

[Wapsie B]

37. I vote for infrastructure overhaul and paying off individual's mortgage debt.

If someone doesn't have a mortgage give them a check. Too simple to actually make sense to a policy wonk. Plus giving the little guy a real break just wouldn't fly well with the power brokers in this country. But just think of all the disposable income available to people. Banks would get bad loans off their books and people would have a home that's paid off.

[kentuck]

38. Unbelievably stupid!

"The officials are hoping that by putting roughly $200 billion toward paying down the $12 trillion national debt, they could mitigate the political fallout, the sources said."

[earth mom]

47. WTF?! Why the hell doesn't Obama do something directly FOR the people with that money?!

How about a tax cut for the middle class? How about some green jobs? How about giving people some money right now when we all need it?

Yeah that's some hope & change he's peddling all right! Not!

[anigbrowl]

50. Reducing the national debt means that less of your tax dollars go to interest payments

Strangely enough, I thought that paying down the debt was one of things we admired about Clinton.

You realize we already had a middle class tax cut this year, yes? http://www.irs.gov/newsroom/article/0,,id=205922,00.html

[Statistical]

52. Clinton balanced the budget WHICH lead to a surplus and allowed the debt to be paid down.

Obama has an unbalanced budget for 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019.

The US govt will be spending more money then it has every single month for next decade (unless their are changes).

The administration has no indicated they have any plan to get to balanced budget in first term and likely not in next term.

We are currently increasing the national debt at a rate of around $128B per month. So "paying down" $200B and then increasing it by $128B for next 2 months is beyond stupid.

Simply leave the cash in Dept of Treasury's accounts and they will borrow slightly less. Of course if you did that then you couldn't say "we are paying DOWN the debt".

It is 100% pure PR. Nothing more.

[earth mom]

58. You mean the CHUMP CHANGE that some taxpayers now have to PAY BACK?

Glitch Could Force 15 MILLION People To Repay Obama's Stimulus Tax Credit

STEPHEN OHLEMACHER


WASHINGTON – More than 15 million taxpayers may owe the government $250 or more because of how the IRS last spring set up President Barack Obama's tax break that was designed to help consumers spend the U.S. economy out of recession.

Individuals with more than one job and married couples in which both spouses work may have to repay the government $400, either through a smaller tax refund or a larger tax bill, according to a report released Monday by the Treasury Department's inspector general for tax administration. Social Security recipients who also earn taxable wages may have to repay $250.

The tax credit, which is supposed to pay individuals up to $400 and couples up to $800, was Obama's signature tax break in the massive stimulus package enacted in February. The credit has increased weekly paychecks for 95 percent of working families, giving them cash to help boost consumer spending during the worst economic recession in decades.

<snip>

But for 15.4 million taxpayers, the new tax tables will mean an unexpected tax bill, according the IG report.


http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=389&topic_id=7031037

[L0oniX]

53. That shows a lack of understanding of just what the USD is.

You can't use the USD to pay off a debt to China. The dollar is not worth anything. The USD is a promise to pay. It's a debt.

[chill_wind]

54. Meanwhile, there's another trainwreck coming

and it's not getting a whole lot of attention.

1 Million Americans Face Loss Of Jobless Benefits In January, 3 Million by March

The organization writes “The critical benefits provided to jobless workers by the ARRA are set to expire at the end of the year, which means that even with the latest 14 to 20 week extension enacted in November, 30,000 workers a day will be left without any jobless benefits in January. By March, the number without federal jobless benefits will swell to nearly three million workers.”

(...)

The Obama Administration plans to have a jobs summit on December 3rd. The purpose of this is to draw together political and private sector leaders to discuss means for stopping the rise in joblessness which has taken national unemployment to 10.2% and which will likely stay above 10% for most if not all of next year.

The trouble is that the jobs summit comes a bit late. Any program that goes into effect will not clear Congress until early next year and the effects will almost certainly not be felt until the end of the first quarter. By that point, the economy could be in another rut caused in large part by a drop in consumer spending based on unemployment and the fear of many workers that they will join the jobless ranks soon.

There does not appear to be any solution to improving the employment situation without a second stimulus package, whether it is called that or not. Consumer spending, a rise in exports, and the $787 billion already being pumped into the economy have been inadequate. That does not leave many options beyond federal programs aimed very directly at putting people back to work.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7046755#top

I think Dems like Rep DeFazio and others will fight him on that tooth and nail.

[kentuck]

55. Yes. Be good little Democrats and pay down the debt...

So the Repubs can run it back up once they are in power. Are they really that stupid!!

[Cyrano69]

57. This is insane.....

You Can't borrow money, and use it to pay down debt! HELLO, If you didn't borrow it in the first place, your debt would not be as high as it is to require immediate pay down.

I DIsagreed with TARP, THought Bush/Paulson/Bernanke were FITH to do it. Didn't agree with Stimulus for same reason, not to mention all the congressional pork in the bill, how can you say you are borrowing a TRILLION dollars to stimulate the economy, and it has to be done immediately, no time to read the F**king bill, but you don't spend the actual money for 18 months, and even then 10% of it is on pork barrel political payoffs?

Thought the bailouts were all insane for same reason. Now the Nations liabilities are pushing $100TRILLION, about 650% of GDP. WTF?