Something’s Wrong: Very, Very Wrong

Ed Henry

Posted Sep 24, 2005      •Permalink      • Printer-Friendly Version
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By: Ed Henry

It hurts to say this, but it looks like the federal government is deliberately holding back relief funds and therefore efforts for Katrina victims because it�s September, the last month in the government�s fiscal year.

With homes and businesses destroyed, survivors spread all over the country, families split apart, efforts to reunite children with their parents while we�re still counting the dead in New Orleans as the city drains, and other tasks resulting from one of the greatest natural disasters ever to hit this country and including campaigns to raise donations, a president who is trying to make up for the government�s slow response, promises to investigate and correct things, makes trips to the Gulf Coast to sympathize with and encourage people, delivers nationally televised speeches from ground zero, and takes full responsibility for shortcomings and promising to rebuild � it looks like the government is deliberately holding back desperately needed money only to make their books look better as they close out the fiscal year on September thirtieth.

Such an accusation requires explanation and it�s going to require that people look at unpleasant things they would normally avoid. Bear with me on this.

First of all, let�s look at the timeline.

As I write this article, it�s September 19th, three weeks after hurricane Katrina came ashore in the Gulf Coast on Monday, August 29th. There are now only eleven days left before the end of fiscal 2005.

Ten days ago, I wrote an article titled �When In A Hole � Stop Digging� that outlined the government�s only means of raising revenue and proclaimed that the only immediate source the federal government now has for relief and rebuilding is to �borrow� the necessary money. I will not repeat this argument here.


At the close of August, 2005, the national debt stood at $7.926 trillion (seven trillion, nine hundred twenty-six billion), an increase so far in the fiscal year of $547.8 billion.

As of the last report, August 15, 2005 , the U.S. Treasury and its Bureau of Public Debt reported the national debt standing at $7.918 trillion. That�s a decrease of $8 billion, not an increase.

At a time when John Snow, Secretary of the Treasury, and particularly Van Zeff who works under him and runs the Bureau of Public Debt with the responsibility of selling treasuries should be working their butts off to raise disaster funds, just the opposite is happening. Instead, they�re paying down the national debt.

Again, we need more explanation.

Other than recalling treasuries, the only way to �pay down� the national debt is to pay off securities as they mature and not renew them. And, of course, it takes money to pay them off.

Because treasuries come in more flavors than Baskin-Robbins, and because our national debt is so large, we have these obligations maturing at the rate of several billion a day, every day of the year with the possible exception of Christmas, December 25th. It�s a monstrous effort just to keep the national debt from rising, much less pay it off. Knowing exactly when each treasury is going to mature, Mr. Zeff is continually busy selling replacement treasuries even before, but not always ahead of those due to mature. This causes a lot of fluctuation or up and down movement of a few billion in daily reports of the national debt. On his website, Mr. Zeff even claims to be borrowing about two trillion a year, most of which is to replace expiring treasuries.

Those of us who follow the announcements and results of Treasury �auctions� (they�re not really auctions) know that the month of September this year has not been an unusual month for borrowing �new� money. Not so far anyway.

In fact, last month wasn�t typical either. In the ten months that preceded August, the government borrowed additional money to the tune of fifty to sixty billion a month. That�s how we got a debt increase of $547.8 billion. But in August, we borrowed only about $40 billion, $34 billion of which came from foreign countries like China and Japan .

It�s not unusual for the Treasury to begin holding back on borrowing prior to the close of the fiscal year just to make the books look better. Then sock it to us once the fiscal year is over and we enter a new fiscal year.

However, it�s very unusual if not downright callous to be doing this in the face of an enormous disaster that�s going to require a great deal of money.

A little history

When Osama been forgotten hit the World Trade Center and the Pentagon on September 11, 2001, we immediately threw caution to the wind to borrow in the last month of the fiscal year to end the year with a total debt increase of $133 billion, nothing like today�s yearly increases now that we went into a never ending war against an adjective.

Still, the government closed out of fiscal 2001 claiming the second largest surplus in U.S. history, a surplus of $127.2 billion according to the �unified budget� way of accounting.

What they didn�t tell you was �where� this second largest surplus came from. Social Security produced a $98.7 billion surplus in payroll over-taxation that year and other entitlements came up with another $60 billion for a grand total of $160.7 billion in entitlement surpluses that the government stole while pretending to �borrow� it and adding to the national debt.

At the same time, the federal government had a budget shortfall of $33.5 billion to end up with a budget deficit. Yes, it�s possible to have both a deficit and a surplus in the same year when separating sources. A $160.7 billion entitlement surplus minus a $33.5 billion budget deficit equals a $127.2 billion surplus. Bush even put some of this surplus against the national debt before 9/11.

Back to today

The federal government has only three sources of revenue and they all come from taxpayers. These three sources are (1) taxes (2) borrowing or (3) taking money from established programs by robbing Peter to pay Paul. Borrowing is nothing more than a tax on your future.

Bush continues to adamantly claim he will not raise taxes, so that�s out.

Taking money from other programs is impossible in the last month of the fiscal year when every department is in the �red� and has been running for some time on borrowed money. All talk about trimming the fat or �pork� in the transportation bill or postponing the Medicare prescription drug program only affects next year�s budget when these programs are scheduled to begin. There�s nothing there for fiscal 2005 or this month when money is desperately needed. Forget it.

That only leaves borrowing. And we�ve already seen that the government is not borrowing. In fact, the national debt has been going down just to make the books look better closing out the fiscal year.

Is this really the time to be spending $8 billion to pay down the national debt, even on a temporary basis? If the government has the power to borrow, this would seem to be the time to use that power. The Constitution established it for emergencies.

On Sunday, September 18, the Washington Post published an article titled �Lack of Cohesion Bedevils Recovery� which illustrated how hurricane victims are wandering aimlessly in shock and trying to bring some semblance of order and normality to their lives, often in strange and remote locations. And they�re not getting much, if any, help.

Contributions to charities like the Red Cross, churches, and other legitimate relief agencies are continually asking people to �give all you can� and may be the major source of funding while the federal government relies on salaried troops who would otherwise be practicing war games and their costs can be put on the tab until the new budgets start taking effect in October.

All while the federal government twiddles its thumbs and tries to fudge the books � again.

I leave it up to you to infer the ramifications, but if you think waiting four or five days to initially respond to a crisis � think what more than a month does to promised funding.


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