NCPA - National Center for Policy Analysis

Make the Treasury Responsible for "Unofficial" Debt

November 2, 2011

The huge debt of Fannie Mae, Freddie Mac, other government-sponsored enterprises and Ginnie Mae fully relies on the credit of the United States.  It is in fact government debt, but it is not accounted for as government debt.  It is not "considered officially to be part of the total debt of the federal government," the Federal Reserve notes.  Not "considered officially" -- but agency debt has proven its ability to generate huge losses for the taxpayers.  It is off-balance sheet debt and hidden leverage for the government, says Alex J. Pollock, a resident fellow at the American Enterprise Institute.

  • In 1970, Treasury debt held by the public was $290 billion.
  • Agency debt was minor by comparison: it totaled only $44 billion.
  • But by 2006, at the height of the housing bubble, while Treasury debt was up to $4.9 trillion, agency debt has inflated to $6.5 trillion.
  • Treasury debt had increased 17 times during these years, but agency debt had multiplied 148 times!
  • In 1970, agency debt represented only 15 percent of Treasuries.
  • By 2006, this had inflated to 133 percent.

Effective government debt -- adding the on- and off-balance sheet debt together -- held by the public now totals nearly $17 trillion (this is not counting the intra-government debt held by the Social Security and other "trust funds").

What should be done now?

  • Make the Treasury Department truly responsible for managing all the government's debt.
  • In addition, Treasury should be responsible for reporting to Congress on the cost to the Treasury created by the use of agency debt.

In this way, we could help control, for the future, the use of the government's credit card by agency debt, the consequent possibility of huge taxpayer losses, and the overleveraging of the housing sector which uncontrolled agency debt aggressively promotes.

Source: Alex J. Pollock, "Make the Treasury Responsible for 'Unofficial' Debt," American Banker, October 25, 2011.

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