[Congressional Record Volume 165, Number 35 (Tuesday, February 26, 2019)]
[Senate]
[Pages S1485-S1487]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FEDERAL DEBT
Mr. PAUL. Madam President, as I stand before you, we are facing a
financial calamity that could make the last financial crisis look like
the good old days. I have become aware of a committee of respected
financial industry experts that has developed a Debt Default Clock,
which conceptualizes the risk associated with a potential Federal debt
crisis that leads to the insolvency of the government. The Debt Default
Clock is the same concept as the famous Doomsday Clock, only in this
case illustrating how close we are to fiscal meltdown.
The Debt Default Clock has 12 factors that are used to measure the
risk associated with the burgeoning Federal debt. The Clock currently
stands at 4 minutes to midnight, which means that insolvency of the
Federal Government is close at hand, and we have little time to act.
Although the 12 criteria were developed on the basis of defining the
circumstances leading to government insolvency and default, they were
also created with the idea of identifying metrics that can be measured,
watched, and compared over time to identify the time remaining before
the sequence of insolvency and default. Eight of these factors are
already in negative territory, and the others are moving in that
direction.
In 2010, I ran for the Senate out of concern that our out-of-control
debt might finally take us off the cliff. It is frustration with
rampant, deficit-financed spending that sparked the Tea Party; yet the
situation continues to get worse. So I urge my colleagues to find out
more about the Debt Default Clock and the role of Congress, the
administration, and the States as to how each of the factors might be
mitigated if the political will exists to do so before calamity hits us
square in the face.
Accordingly, I respectfully request that the following information
related to the Debt Default Clock be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Four Minutes to Midnight: The Revised ``Federal Government Debt Default
Clock''
[From the Default Clock Committee]
Beyond the troubling debt-ceiling standoffs we witness
every few years, looms a far more dire threat: a true U.S.
government default, which economists warn could lead to a
collapse of confidence in the American economy, a run on the
dollar, and perhaps even a global economic meltdown.
How close are we to such a catastrophic federal default?
To answer this question, a group of private-sector
economists and fiscal policy experts has formed a citizens'
committee, called the Debt Default Clock Review Committee, to
maintain an objective, fact-based federal government Debt
Default Clock. The Clock is designed to help the public to
see and track the nearness of the danger. On September 10,
2018, the Review Committee announced significant revisions in
the design of the Clock from its original version to make it
more accurate. This announcement is found at: https://
debtdefaultclock.us/wp-content/uploads/press-release-02a.pdf.
For the Committee's purposes, ``default'' is defined simply
as a failure by the U.S. Treasury to make a scheduled
interest payment on just one direct U.S. Government
obligation such as a Treasury note or bond. ``Insolvency'' is
defined as the point beyond which default becomes a virtual
certainty.
Since 2013, Congress has gotten into the habit of
temporarily suspending the government's statutory debt
ceiling, for a year or two at a go, during which time the
Treasury may incur unlimited amounts of debt. This practice
is dangerous. Repealing the debt ceiling does not repeal the
threat of a default. Indeed, to think that it would or could
is akin to thinking we can be assured of perpetually sunny
days if we simply destroy the barometer! Congress seems to be
telling itself: ``If I just increase the credit limit on my
credit card, I will never have to pay it off!''
The debt ceiling is our most important fiscal barometer,
and we hope our new Debt Default Clock will help the public
to read that important gauge more easily, by showing us in a
clear and simple way how close we are to midnight. Its
purpose is to spur fiscal policy makers to change course
before it's too late.
the twelve tests
The Clock continuously measures twelve of the most relevant
budget factors, or tests, each of which is framed as a simple
yes-no question. At any given moment, the status of ten of
the twelve factors collectively determines the number of
minutes from midnight the Clock stands at any point in time.
The number of minutes, of course, changes as time passes and
new data is received. Each factor assesses, not just where
things currently stand, but also where things are projected
to move over the course of the next ten years. Each of the
twelve tests is objective. None is arbitrary or influenced by
opinion.
Here are the twelve factors:
1. Do federal outlays exceed 17.5 percent of gross
domestic product (GDP)?
2. Is there a U.S. dollar-denominated debt ceiling in law
presently, and will the projected federal debt stay below
that ceiling during the ten-year budget period?
3. Does the debt held by the public exceed 70 percent of
GDP, and does the gross federal debt exceed 100 percent of
GDP?
4. Do gross federal interest payments exceed 15 percent of
federal revenues?
5. Do gross federal interest payments, on a sustained
basis, exceed 70 percent of the money the federal government
brings in through the issuance of new debt?
6. Does the debt held by the public exceed 80 percent of
the gross debt?
7. Does the debt held by foreigners exceed 50 percent of
the debt held by the public?
8. Will short-term maturities and floating rate
obligations of the Treasury decline from the current level of
73.1 percent of all marketable Treasury debt?
9. Are federal revenues below 17.5 percent of GDP?
10. Does the rate of real U.S. economic growth, as
measured in GDP, exceed 3 percent annually?
11. Has Congress enacted a law prohibiting the Treasury
from resorting to ``extraordinary measures'' in the future?
12. Is Congress scaling back programmatic ``mandatory
spending'' and eventually phasing it out?
While economists and financial experts will readily
appreciate the relevance of each of these factors, we realize
that the lay reader may find them confusing. For everyone's
benefit, the following is a detailed, plain-English
explanation of each factor, together with all of its
underlying data and assumptions.
warning: default ahead
The United States will reach insolvency--the point of no
return--when the federal government fails at least ten of the
twelve tests set according to the questions listed above. As
of right now, the federal government is currently failing in
seven of them. These are Factors 1, 2, 3, 8, 10, 11 and 12,
but one (Factor 9) is projected to right itself before the
end of the current ten-year budget period. The design of the
Clock permits the Review Committee to discount up to two
factors at any one time. The Committee is currently
discounting Factor 9 in accordance with the design. The
federal government is passing the remaining four tests now,
but are projected to fail in all of them sometime during the
10-year budget period.
As of today, the Federal Government Default Clock stands at
just four minutes from midnight. If the federal government
remains on its currently projected fiscal trajectory, the
more politically difficult and economically painful its
choices will become as time passes.
The Default Clock is ticking.
Databases Behind Ten of the Factors of Debt Default Clock
(Note: graphs for each of the factors are shown at https://
DebtDefaultClock.us)
factor #1: do federal outlays exceed 17.5 percent of gdp?
The data associated with Factor #1 in the initial Debt
Default Clock showed that federal outlays were already well
above 17.5 percent of GDP, and peaked in the final year of
the budget period (2027) at 23.1 percent of GDP. The updated
version shows that in the final year of the current budget
period (2028) outlays will rise to 23.3 percent of GDP. Thus,
Factor #1 remains set at buying zero minutes from midnight.
The data bases for this factor are as follows: (1)
Congressional Budget Office, ``Budget and Economic Data,''
under the headings ``Historical Budget Data/ Revenues,
Outlays, Deficits, Surpluses, and Debt Held by the Public
Since 1967 to 2017,'' April 2018; and (2) ``10-Year Budget
Projections/CBO's Baseline Budget Projections, by Category,''
April 2018.
factor #2: is there a dollar-denominated debt ceiling in place, and if
so, does the debt subject to limit stay under the ceiling during the
budget period?
Currently, there is no dollar-denominated debt ceiling in
place because the debt ceiling
[[Page S1486]]
law has been suspended. Thus, Factor #2 also buys zero
minutes from midnight. Accordingly, there are no data bases
and graph associated with Factor #2 at this point. They will
appear when a dollar-denominated debt ceiling is put back
into place.
factor #3: does the debt held by the public exceed 70 percent of gdp,
and does the gross debt exceed 100 percent of gdp?
Under the initial Default Clock setting, the gross debt
peaked in the final year of the budget period (2027) at just
under 110 percent of GDP. The initial version did not include
data on the debt held by the public. The current version
shows that the gross debt will again peak in the final year
of the budget period (2028) at over 113 percent of GDP. The
debt held by the public is also projected to peak in 2028 at
over 96 percent of GDP. Since both the debt held by the
public and the gross debt exceeded 70 and 100 percent of GDP
respectively in 2012, and are projected to grow, Factor #3
will continue to buy zero minutes from midnight. The data
bases for Factor #3 are as follows: (1) Office of Management
and Budget, ``Historical Tables,'' Table 7.1, February 2018;
(2) Congressional Budget Office, ``Budget and Economic
Data,'' under the headings ``10-Year Budget Projections/
Federal Debt Projected in CBOs Baseline,'' Table 5, April
2018; and (3) Congressional Budget Office, ``Budget and
Economic Data,'' under the headings ``10-Year Economic
Projections/April 2018 Baseline Projection--Data Release
(Fiscal Year).''
factor #4: will gross interest costs exceed 15 percent of federal
revenues?
In the initial Default Clock assessment, gross federal
interest costs were projected to exceed 15 percent of federal
revenues in 2020. The revised assessment shows the threshold
will be exceeded this year. This is shown in the accompanying
graph. While the actual data is not yet available, the gross
interest costs may already be above 15 percent of revenues,
and are all but certain to remain above this threshold during
the budget period. For the time being, Factor #4 continues to
buy one minute from midnight. It remains likely, however,
that Factor #4 will buy no minutes away from midnight at the
time of the next assessment. If so, this will force the Clock
to three minutes from midnight if all the other factors
remain stable relative to their thresholds. The data bases
for this Factor are as follows: (1) Department of the
Treasury, ``Interest Expense on the Debt Outstanding,'' at
here (accessed April 12, 2018); (2) Congressional Budget
Office, ``Budget and Economic Data,'' under the headings
``Historical Budget Data/Historical Budget Data/ Revenues,
Outlays, Deficits, Surpluses, and Debt Held by the Public
Since 1967,'' April 2018, here; and (3) Congressional Budget
Office, ``Budget and Economic Data,'' under the headings
``10-Year Budget Projections/CBO's Baseline Budget
Projections by Category'' and ``Spending Projections by
Budget Account'' (specifically Line 1682, ``Interest on
Treasury Debt Securities (gross)''), April 2018, also here.
The formula for Factor #4 is: gross interest costs
federal revenues = percent of federal revenues going to cover
gross interest costs.
factor #5: do gross federal interest payments, on a sustained basis,
exceed 70 percent of the money the federal government brings in through
the issuance of new debt?
The original version of the Default Clock estimated that
the level of gross interest costs would exceed 70 percent of
the money brought in by the issuance of new debt (in net
terms) in 2023. The updated version shows the cross-over
point should be reached in the same year. Thus, Factor #5
continues to buy one minute from midnight. The data bases for
this factor are: (1) Office of Management and Budget,
``Historical Tables,'' Table 7.1, February 2018, at https://
www.whitehouse.gov/omb/historical-tables/; (2)
Congressional Budget Office, ``Budget and Economic Data,''
under the headings ``10-Year Budget Projections/Federal
Debt Projected in CBOs Baseline,'' Table 5, April 2018;
(3) Department of the Treasury, ``Interest Expense on the
Debt Outstanding,'' (accessed April 12, 2018); and (4)
Congressional Budget Office, ``Budget and Economic Data,''
under the headings ``10-Year Budget Projections/CBO's
Baseline Budget Projections by Category'' and ``Spending
Projections by Budget Account'' (specifically Line 1682,
``Interest on Treasury Debt Securities (gross)''), April
2018.
Factor #6: Does the debt held by the public exceed 80 percent of the
gross debt?
The original version of the Default Clock estimated that
the debt held by the public would exceed 80 percent of the
gross debt starting in 2025. This same year is the estimated
cross-over point for Factor #6 under the updated Default
Clock. Once again, this Factor will buy one minute from
midnight. The data bases for this factor are: 1) Office of
Management and Budget, ``Historical Tables,'' Table 7.1,
February 2018, here; and 2) Congressional Budget Office,
``Budget and Economic Data,'' under the headings ``Historical
Budget Data/Revenues, Outlays, Deficits, Surpluses, and Debt
Held by the Public Since 1967'' and ``10-Year Budget
Projections/CBO's Baseline Budget Projections, by Category,''
April 2018, here.
Factor #7: Does the debt held by foreigners exceed 50 percent of the
debt held by the public?
The original version of the Default Clock showed that the
share of the debt held by the public owned by foreigners
would exceed 50 percent in 2021. The updated version of the
Clock shows this Factor's cross-over date remains 2021. Thus,
Factor #8 continues to buy one minute from midnight. The data
bases for this Factor are: 1) here, under the heading
``Ownership of Federal Securities;'' 2) here (accessed on
April 13, 2018); and 3) here, February 2018.
Factor #8: Will short-term maturities and floating rate obligations of
the Treasury decline from the current level of 73.1 percent of all
marketable Treasury debt?
The Monthly Statement of the Public Debt of The United
States (the ``Monthly Statement'') describes six types of
securities comprising the marketable Treasury debt
outstanding. They are Treasury Bills (``Bills''), Treasury
Notes (``Notes''), Treasury Bonds (``Bonds''), Treasury
Inflation-Protected Securities (``TIPS''), Treasury Floating
Rate Notes (``FRN's'') and Federal Financing Bank (``FFB'')
securities. The Monthly Statements, including attached Excel
spreadsheets, are available at https://
www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm.
Treasury Bills are short-term obligations with a maturity
of less than one year. Treasury Notes are issued with
maturities of between one and ten years. Treasury Bonds are
issued with maturities in excess of ten years. For purposes
of the Debt Default Clock on any given date, all Bills and
previously issued Notes and Bonds maturing within five years
of that date, along with all TIPS and FRN's, which are
adjustable rate securities subject to periodic adjustments in
their interest rates, are categorized as short-term
maturities and floating rate obligations (``STMFROs''). The
Monthly Statement does not provide the maturity dates for FFB
securities, but generally describes them as long term. Thus,
they are not included in STMFROs and set aside here.
As of September 30, 2018, all the STMFROs constituted 73.1
percent of all the marketable Treasury debt outstanding, as
measured in dollars. This structure of the marketable debt
jeopardizes the financial position of the Treasury by leaving
it vulnerable to increases in both the inflation rate and
interest rates. Specifically, Treasury interest costs would
rise very quickly with higher inflation and interest rates
because of the current structure of the debt. It is the view
of the Debt Default Clock Review Committee that the portion
of all Treasury marketable securities made up by the STMFROs,
as measured in dollars, should be reduced to 50 percent of
the total. Factor #8 of the Debt Default Clock will move the
minute hand one minute away from midnight for every five
percentage points reduced from the 71.3 percent of marketable
securities that constitute the STMFROs at the end of fiscal
year 2018. Currently, Factor #8 buys zero minutes from
midnight. The formula for arriving at this percentage at any
particular time is as follows: the value of the STMFROs
the total value of all marketable securities
outstanding = percent of all marketable securities in
STMFROs.
Factor #9: Are federal revenues below 17.5 percent of GDP?
The data bases for this Factor are found at: Congressional
Budget Office, ``The Budget and Economic Outlook: 2018 to
2028,'' April 9, 2018, pp. 67 and 145, here. There is no
formula for the projected data under this factor because CBO
provides the amounts directly.
Federal revenues were at 17.3 percent of GDP in 2017. CBO
projects they will fall to 16.5 percent in 2019, but grow to
the 17.5 percent of GDP in 2025 and exceed 18 percent of GDP
before the end of the budget period. Given that Factor #9 is
the only factor among the 12 that moves in the right
direction over the course of the budget period, this factor
is currently discounted by the Review Committee.
Factor #10: Does real rate of U.S. economic growth, as measured in GDP,
meet or exceed 3 percent annually?
The data bases for Factor #10 are found at: 1) Bureau of
Economic Analysis (BEA), Department of Commerce, here, Table
5 under ``Tables Only,'' under the heading ``Gross Domestic
Product'' (historical data); 2) Congressional Budget Office,
``The Budget and Economic Outlook: 2018 to 2028,'' April 9,
2018, p. 140, here (projected data). There is no formula for
either the historical or projected data on Factor #10 because
BEA and CBO provide the data directly.
GDP grew at the rate of 2.3 percent in real terms in 2017.
CBO projects will reach a rate of 3 percent in 2019, but will
fall below 3 percent in each of the remaining years of the
ten-year budget period. Therefore, Factor #10 currently buys
no minutes from midnight.
Factor #11: Has Congress enacted a law prohibiting the Treasury from
resorting to ``extraordinary measures'' in the future?
This is a purely qualitative factor. It adjusts the minute
hand on the Debt Default Clock on the basis of the
legislative actions or the lack thereof taken by Congress in
the applicable legislative period. Specifically, if either
house of Congress has passed such a bill during the current
Congress, it will buy one minute away from midnight. If such
a law is enacted and remains on the books at the time of the
applicable review by the Review Committee, it will buy two
minutes from midnight. Therefore, there are neither
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data bases, nor formulas, nor graphs associated with Factor
#11. Since current law permits the Treasury to undertake
extraordinary measures, Factor #11 buys no minutes from
midnight at this time.
Factor #12: Is Congress scaling back programmatic ``mandatory
spending'' and eventually phasing it out?
Mandatory programmatic spending, which sets aside net
interest payments, does not require the annual appropriation
of money by Congress. Effectively, these spending programs
are on autopilot. According to CBO, programmatic mandatory
spending was more than $2.5 trillion in 2017. It projects
this spending to grow to more than $4.5 trillion in 2028.
Congress needs to rein in these programs by moving them
back into the appropriated accounts of the budget. By
starting to take such steps, Congress should be able to
reduce this category of spending dramatically. In fact, it
should phase it out altogether. Under the Debt Default Clock,
if Congress returns enough of this spending to the
appropriated category so that by the end of the ten-year
budget period the mandatory category is less than what it was
in 2017, it will buy one minute away from midnight. If the
mandatory category is projected to be phased out altogether
by the end of the budget period, it will buy two minutes from
midnight. Therefore, Factor #12 currently buys no minutes
from midnight.
The data bases for Factor #12 are found at: the
Congressional Budget Office, ``The Budget and Economic
Outlook: 2018 to 2028,'' April 9, 2018, pp. 44 and 148, here.
The formula for calculating whether mandatory spending is
increasing or decreasing during the projected budget period
under Factor #12 is: mandatory outlays (less offsetting
receipts)--$2.5 trillion (mandatory spending in 2017) =
dollar level increase (decrease) in mandatory spending. If
mandatory spending is projected by CBO to be at zero dollars
before the end of the budget period, it will be considered to
have been phased out.
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