The New Washington “Speak”

Washington has come up with some “new” terms to use when they talk about our Nation’s Finances. They talk about “Primary Deficit” and “Publicly Held Debt”. What are they and why are they using them?

Primary Deficit is a term they’ve invented for the difference between Receipts and Outlays WITHOUT including Net Interest Expense. Seems a little crazy to me? Isn’t that like me talking about my budget without including payments on my credit cards? Or Mortgage? Why would they be talking about “Primary Deficit” at this time?

It’s pretty easy to see through what they’re doing. Interest rates are extremely low right now. It is allowing us to have Net Interest Expense that’s lower than what we averaged during the 1990’s, but with three times the debt.

90's Average: $216 billion Net Interest on $4.6 trillion debt (Fed Fund Rate of 5.2%)
2010: $197 billion Net Interest on $13.4 trillion debt (Fed Fund Rate of 0.18%)

The Fed Fund rate is near zero which keeps short term treasury rates very low. That allows them to finance a considerable amount of our debt with short term treasuries. The problem with that is interest rates won’t remain this low forever. At some time the Fed Fund will return to “normal” levels and the Net Interest we pay on our National Debt will explode. So they invent a new term that excludes Net Interest Expense so as to ignore that reality.

Publicly Held Debt is a term that defines one portion of our National Debt. It’s actually not a new term, just being talked about more at this time. There are two components to our debt. The first is the portion owned by individuals, organizations and foreign countries known as Public Debt. The other portion is the debt owed to other parts of the government known as Intra-Governmental Debt. Coming out of WWII publicly held debt accounted for 90% of our total debt. But as Congress used the surplus in trust funds (i.e. Social Security Trust Fund) for other purposes, publicly held debt dropped to as low as 55% of total debt.

So talking about Publicly Held Debt instead of Total National Debt allows them to ignore a growing and sizable problem. But now that Social Security is “in the red” and needs to be paid back for the I.O.U.’s it has accumulated, the issue is being brought to the forefront.

So when we hear Washington speak in new terms like “Primary Deficit” or “Publicly Held” Debt we can assume they are trying to ignore the reality of some important problem, just like they're trying to ignore that fact we are out of money! Broke!