NCPA - National Center for Policy Analysis

Government Debt Still Exploding

February 5, 2001

The Congressional Budget Office now projects $3.12 trillion in surpluses over the next decade, above that attributable to Social Security. The national debt will be paid off by 2006 under current tax and spending projections.

However, the national debt is only one part of the federal government's indebtedness. Other forms of federal debt are exploding.

One of the most rapidly growing elements comes from Fannie Mae and Freddie Mac -- the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, respectively. Essentially, they buy mortgages from private lenders in competition against private companies. Together with other agencies involved with student loans and farm loans, they are known as Government Sponsored Enterprises. GSEs have an unfair advantage because they pay no taxes and have implicit or explicit guarantees for their debts.

Today, Freddie and Fannie are growing out of control. Since 1997, new securities issued by federal agencies have more than doubled.

  • The Federal Reserve reports lending by Fannie Mae, Freddie Mac and other GSEs has risen from $213 billion in 1997 to $592 billion in 1999.
  • The total indebtedness of these federal agencies has risen from $2.8 trillion in 1997 to $4.2 trillion at the end of September.

Last year, in the first three quarters, $282 billion of Treasury securities were withdrawn, adding this much money to financial markets. Between 1997 and 2000 the total amount of Treasury securities declined $396 billion. But federal agencies increased their indebtedness $1.3 trillion, taking that much back out.

Ironically, the new securities fill the demand for government bonds no longer supplied by the Treasury. If there is a strong market demand for Treasury securities that will simply be satisfied by other forms of federal debt, then it greatly weakens the argument for paying down the national debt.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 5, 2001.


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