Guest Post: The Burden Of Government Debt

Tyler Durden's picture

Submitted by John Aziz of Azizonomics

The Burden Of Government Debt

There has been an awful lot of discussion in recent months about whether government debt is a burden for future generations. The discussion has gone something like this: those who believe government debt is a burden claim that it is a burden because future generations have to repay taxes for present spending, those who believe that it is not claim that every debt is also credit, and so because the next generation will inherit not only the debt but also the credit, that government debt is not in itself a burden to future generations, unless it is largely owed to foreign creditors.

It is relatively easy to calculate what the monetary burden of government debt is. Credit inheritance and debt inheritance are not distributed uniformly. The credit inheritance is assumed strictly by bondholders, and the debt inheritance is assumed strictly by taxpayers. Each individual has a different burden, equalling their tax outlays, minus their income from government spending (the net tax position).

For an entire nation, everyone’s individual position is summed together. In a closed economy where the only lenders are domestic, the intergenerational monetary burden is zero. But that is by no means the entire story.

First, debts to foreign lenders are a real monetary burden, because the interest payments constitute a real transfer of money out of the nation. Second, while there may be little or no debt burden for the nation as a whole, interest constitutes a transfer of wealth between citizens of the nation, specifically as a transfer payment from future taxpayers to creditors. This adds up, at current levels, to nearly half a trillion of transfer payments per year from taxpayers to creditors. So while the intergenerational burden may technically add up to zero for the nation, it will not for individuals. The real burden is huge transfers from those who pay the tax to those who receive the spending, and those who receive the interest. So who loses out?

Here are the figures for 2009 showing net tax position for each income quintile:

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

What this data does not show are the reverse transfers via interest payments. There is no data (that I can find) on treasury interest payments received by income quintile, but assuming that the top quintile dominates income from interest (as they dominate ownership of financial assets, owning over 95% of all financial assets) this leaves the lower income quintiles benefiting from transfer payments, the top quintile benefiting from interest (as well as policies like bank bailouts, corporate subsidies, and quantitative easing, whose benefits overwhelmingly benefit the top quintile), and squeezing the taxpaying middle quintiles who receive neither the benefits of interest payments, nor significant welfare transfers.

To misquote George Orwell, when it comes to the national debt and who takes its burden, some pigs are definitely more equal than others.

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bigbwana's picture

NewScientist, using super computers, unravelled an elaborate paper-trail leading to a small conglomerate
owning 87% of the world's listed companies! This small conglomerate are mostly the major banks.
All privately owned by super rich banking families. The very core of the Illuminati. The Illuminati
have virtually controlled this planet for 200 years. The best kept secret in the world was, mercifully, exposed
by the Internet. Thank God. This dark organisation is very real. It is enmeshed in the highest levels of today's society.
They assassinate with impunity. Money, coupled with abject fear, enable them to control, and own, our governments,

for two centuries. The Illuminati wanted a NWO. Their presidents and prime ministers proudly trumpeted a NWO was needed. Especially after 9/11, when terrorists launched an attack against freedom and the West. Those with a brain know nineteen Arabs, armed with box-cutters, were not the terrorists. The real terrorists were the Illuminati. Only the world's most powerful organisation could keep a lid on what is blatantly an 'inside job'. A third building collapses, 7 hours later, without a plane crashing into it, and not one influential eyebrow was raised, anywhere around the world. With assassins at your beck and call, total control is fait accompli. And the Illuminati wanted total control of this planet. A nuclear war, faking an attack by 'aliens' from outer space, would've annihilated 6,500,000 Souls! Some 500,000 would've been enslaved. Leaving around 10,000 luxuriously rich, to enjoy a bountiful planet, that could provide abundance for billions. Such is the unalloyed greed of the Illuminati. Their heinous plans have been the Galactic Federation. Their heinous plans have also been crushed by the GF. Being direct representatives of God, they cannot tell a lie. The GF, which represents an astonishing array of wonderful civilisations, are in our skies, right now, to witness Ascension, for our planet, and ALL Souls upon her, on or about 21Dec/2012. The Illuminati are fully aware of what is about to happen. They know mankind should be informed. But their governments, and their press, stubbornly refuse Full Disclosure. With 54 days to go, this denial is demonic. The demons know they will be punished, but are too ashamed to face those they have wronged, beyond compare, for so long. Bitchez, your time to shine, like the star you really are, has come. Demand Full Disclosure. Spread the Light. The Love. It was my mission to inform you. Please inform whom you know. Peace and Abundance, for All, is literally just aound the corner. Don't you think your friends and family should know? The Illuminati sure as hell don't. Nor do they wish to be publicly shamed. It is the very least they deserve. Hasten the good news and we will see soon justice for All. Forward this e-mail to everyone you know. Thank you. God bless you.
alstry's picture

Government can't govern without consent of the governed.

Forgive the debt, and no one can milk anyone in the Udder World.

economics9698's picture

What the author does not account for is the wealth inequality created by inflation, specifically monetizing the debt.  It relatively simple to see this, a proxy for the real inflation rate for you ZH’ers,  by going to the White House Tables and opening Table 7-1.

10th column over, about 5% to 6% a year, does that seem more like the real inflation rate? 

FYI that last 2011 entry was 11.1%. 

What’s the lag time from printing press to Publix?  

In other words future generations DO NOT PAY for this debt, we do today when the Feds print money.

The top 1% will gladly play the income tax, capital gains tax game to get the desired money printing and inflation to transfer wealth to their pockets.  It’s a complex game where the theft is hidden from the public who can only fixate on what benefits they will receive from the federal government. 

A old magician (I am trying to be PC here) game where you promise $10,000 and get $50,000 in return.  The mark in this game, the bottom 90%, is clueless because they do not understand where the inflation comes from, federal government spending.

ZH has many guest post on income inequality and I have written on it.

While this is good work the other work on this subject needs to be taken into consideration as well.


Future Jim's picture

Great link, and great article.

Two things were not clear.

1. Why are you defining inflation as identical to the amount of federal debt owned by the fed as a percentage of GDP? The chart did not claim that.

2. Our money is worth less when the fed increases the money supply, but why do you say the fed gets to keep the difference? The fed gets paid back with inflated money, and the fed's charter says it has to turn over any profit to the US Treasury.


economics9698's picture

The inflation rate is not literally the amount the Fed buys from the treasury every year, there is seigniorage, currency fluctuations, economic cycles, and innumerable variables that make measuring inflation virtually impossible.

Still as a rough guide to how much money is being created above and beyond the money in circulation by the Fed and federal government.  Those numbers are as good as its going to get.

Generally there is about 2% seigniorage so 5.2 – 2 = 3.2% inflation rate for 2000, actual reported CPI was 3.4%. It’s ballpark but with the bull crap coming from Washington probably a better indicator of what the CPI is until after the election is over.  When the election is over hopefully we can get some better realistic data.

Never One Roach's picture

Thanks for the info. I noticed Shadow stats web site also shows about 6-8% inflation for 2012 and somewhere around 10-12% for 2010 and 2011.


i wonder if all those holding treasuries and CDs feel 'safer' by losing about 5% purchasing power each year?

economics9698's picture

I looked at the 2000-2011 number again and the difference between the official CPI and real CPI based on government budgets as a percent of GDP, just to compare apples to apples I used a theoretical 20% each budget year, was 1.4% higher than the official CPI.

The difference between the Fed monetization of the debt and the actual inflation rate, not the reported CPI, was, as I predicted, 2.1%.

So a rough ballpark inflation rate would be to take the number from table 7-1 and subtract 2.1%.

11.1% - 2.1% = 9.0% inflation.  Clearly this is a huge deviation from the reported 2.0%.  Williams is more technical but 9% certainly seems reasonable from what I have been seeing in the stores.

A word of caution, the BLS underreports deflation and underreports reports inflation.  There is a standard deviation from year to year.

The SD for the monetization of the debt to real measured inflation is even wider, up to 7.7%, in a single year, 2008, deflation, bankruptcies, you know the drill.

But as I said it’s a ballpark way of getting a quick fix on the real inflation rate.

monad's picture

Welcome to Earth. Sorry but the historic documents we transmitted into space are not accurate. Contact General Ham for debriefing.

JPM Hater001's picture

Some have only partly awaken to the full truth. Indeed people should at least read the Reagan Briefing if not the project Serpo info put out.

Do I believe it is all accurate? No but there is more truth in there than lies.

Honestly people do you really thing our way of life is the most advanced in the universe of trillions of stars?

ebworthen's picture

It can also be explained by individual greed.

Monkey want banana.

LetThemEatRand's picture

The fact that the middle class bears a disproportionate burden of the cost of society (which now includes things like banker bonuses funded by taxpayers) has been obvious for generations to anyone not blinded by ideology or self-interest.  The wealthy pay more in dollars but they pay out of discretionary income or idle stored wealth.  The middle class pays taxes out of money that they would otherwise use to buy perferred food items, have a better education, keep the heat above 68 in the winter, etc.  Nonetheless, the dollar contribution of the middle class is huge as a group.  But the middle class is shrinking at an ever accelerating pace as the trickle up policies of both parties become more and more ridiculous.  Soon there will be no one left from whom to funnel money up to the top.  

A Lunatic's picture

Annex Mexico. Problem solved.

traderjoe's picture

Government debt is a fiction created by the world's banking families. Sovereign governments do not need to borrow money - especially from private corporations that can fractionally create 'money' out of thin air for free and then loan it back to the sovereign at interest.

Bansters-in-my- feces's picture

Fuck YOU Bernanke...!!!

resurger's picture

Who are the fourth Quantile? The PHD's?

GS-DickinDaMuppets's picture

WTF?  Can someone please summarize the "gist" of this article?  I guess it's true what my mother always told me: "I buy you books and all you ever do is read the covers - you' re destined to be a dumby!"


Doing God's work...GS-DickinDaMuppets



LetThemEatRand's picture

The wealthy and the very poor get most of the benefit of all that government debt being piled up since Reagan took office.  The middle class gets the least benefit and pays the most by far to fund that debt.

ebworthen's picture

If you work hard to make enough money to pay taxes and exorbitant health insurance premiums - but not enough to pay for lawyers and accountants to hide your piles of money - you are screwed.

MachoMan's picture

Actually, the abundance of accountants (less) and attorneys (more) helps ensure that there are affordable services for everyone...  You can get an accountant to file your earned income credit return for less than $100...  The trick is to simply do your homework and utilize fixed or limited fee agreements so there aren't any surprises when the bill comes due.  Look at it this way, there simply aren't enough 1% to keep the multitude of professionals busy...  the bread and butter of virtually every practice is middle/upper-middle class families.

Remember, the hallmark of any good accountant or lawyer is that he MAKES you money...  regardless of your income level.  If his services are going to cost you more than you can save, then he should punt.

news printer's picture
Kurds clash with Free Syrian Army

Conflict in Syria enters new phase; and this time Kurds are taking their own side;

not Assad's not "Free" Syrian Army. But suprisly fighting rebels.

alstry's picture

It is funny how so few can manufacture so much debt....yet so many willl sit back, accept it and call it investing.

Did the slaves call themselves investors?

It's time to replace the slaves we call financial services workers with technology in the

I am Jobe's picture

Sheeples are too busy watching American Idol and buying IPADS. Fuck the sheeples are stupid in Amerika. Too many inbred fucks walking around thingking they walk on water.  Yeah that make up bitchess ain't gonna save you.

WhiteChrist's picture

Fear naught, o man, for whether Romney or Obama, or any other, be the kithhead of the Banded Rikes of Wineland, he will be fully owned of the Lord. Fear not that much be owed, for the Lord can rear fee from naught. All is unfrozen and the world as fine as a new blank at GS, a diamond at JPM or any of His iMains that be. He hath spared His Street. Its iGrowth shall know no bounds. Indeed, the Lord's Kingdom is like an endless spring. His iStock waxeth forever. No more needeth to be done. Fear naught, though thou wert not deemed worthy enough to abide His Street. His great men will take care of thee. The naughts and ones shall never end. There is no need to work, think or be green of heart. Instead, be in the green. Borrow and buy homeloan-backed sickerhoods and all that is brought forth from them. These are the true sicker haven. In them, there will be no meltdown, nor loss of steering, but unbounded growth. Yet what of the homeless man, ye ax? He shall own deals of deals of a thousand homes and all that is of them. He shall live as a king, but he seek to move in or sell what the Lord axeth him to buy. No other help is needed.

Behold, there is no Christ but White Christ, and man is His foe. I am not He, nor is any man, but His thane will I be, and His will do. And so shouldst thou. Indeed, we have naught to say in this. May we have no self or freedom, and may we never think.

Blazed's picture

Oh yes, the nebulous "Illuminati", of course. Mr. and Mrs. Illuminati, rulers of the Galactic Empire. Could you poison the well some more, try to use somewhat novel red herrings, or perhaps just submit that script to Speilberg? Ya nevah know.

disabledvet's picture

It would appear the bulk of these Treasury purchases have been made by none other than Premier Wen and his family. how's that for illuninating your illuminati! I suspect "inefficiency"...but a lack of Super-carrier response. (and Super Duper Carrier response as well. WE KNOW YOU HAVE ONE POWERS THAT BE...) Obviously the deficit MUST BE PAID FOR RIGHT NOW. That means "cancelling programs due to deficit overload" RIGHT NOW. This is in fact happening with medicaid...RIGHT NOW. It has obviously been happening with medicare for decades...of course "blame the prescription drug benefit" if you want to substitute all that "healthcare" with "aspirin by a different name." sorry folks but nay, we are not "going to pay for this"...WE ARE PAYING FOR THIS RIGHT NOW AND THE CHAIRMAN AND HIS FAMILY THANK YOU!

oVErME's picture

I've decided that from now on, I'm going to answer every question like a presidential candidate, It's kinda fun.

"Tom, what are you going to do this weeked?

- That's a great question and a important one. And I WILL do something this weekend. But let me take a step back and answer a broader question, What are we all doing this weekeed? As a nation? As a world? This weekend I will do something comprehensive and robust, yet fun. We all should.

"But, what are you going to do?"

- What I'm going to do involves 3 things. First its going to be relaxing, Second its going to be enjoyable and lastly i'm going to make sure it is cost-effective so i dont get into a deficit. Four weeks ago, I said i was going to do something - and I did. This weekend will be no different! 

dexter_morgan's picture

You left out any references to your father being a Kenyan sheep herder, and how you'd spend your time in some way helping protect womens reproductive rights, otherwise an excellent effort.

ebworthen's picture

If you are out of work you have a lot of incentives to join the bottom quintile.

SaudiMail's picture


Things that make you go Hmmmmmm.   Massive lawsuit reported on MSM, strange murder of Chief Exec's children, Story removed.

Major Banks, Governmental Officials and Their Comrade Capitalists Targets of Spire Law Group, LLP's Racketeering and Money Laundering Lawsuit Seeking Return of $43 Trillion to the United States Treasury


then after reading that something that may be strange:


The original story was removed, but here are screenshots of the original story (halfway down the page):



JR's picture

In the fog of mumbo jumbo, the financial sector with its ever changing products and positions is the undisputed winner in America’s economic contest.

The two sides of the debt-credit divide are the central bank position and the citizen position. It seems poor timing to compare which viewpoint is best when the landslide of wealth already declares the winner.

You know, like Citigroup's $2.5 Trillion in free money from the “FED” to cover high-risk gambling losses that amounts to 31 percent of the total $8 trillion of the people's hard-earned savings in bank accounts and certificates of deposit. Now that is an intergenerational burden of leviathan cost to the present generation -- savers, pensioners, students, wage earners, newborns, the taxpayers’ Treasury, America’s current standard of living…ad infinitum…

Or, as the St. Louis Federal Reserve Bank put it in November 1975,  “The decrease in purchasing power incurred by holders of money due to inflation imparts gains to the issurers of money.”

Nick Sandberg  puts it this way: “Most governments are little more than front organizations for the elite banking cartels (Blueprint for a Prison Plant: A Brief History of Banking).”

Banks by loaning money out at 10 or more times their actual reserves means that almost all the money they loan doesn’t exist and enables them to use the money deposited with them by others to make money for themselves, as does simply printing themselves money out of thin air.

Here’s how the sordid history of central banking began, quoting Sandberg: “Loans issued by the goldsmiths had to be paid back to them with interest, meaning non-existent money slowly became converted to tangible assets in the form of goods and labor. Should the loan be defaulted upon, the banker had the right to seize the defaulter's property. As time passed, therefore, the goldsmiths became wealthier and wealthier. They had devised a scheme to create money out of thin air and then convert this money into real goods, labor, or property. A loan of money at 12% interest recouped not merely 12% for the banker, but 112%, as it does to this day….

“As the industrial era began, so the potential for furthering this scheme increased exponentially. The goldsmiths were now fully-fledged bankers, and their ability to create money out of thin air and then convert it into tangible assets enabled them to begin to control whole industries to the point where the worlds of banking and industry became, to all intents and purposes, seamless entities. Extended family banking structures, such as the Rothschilds, acquired so much power in this manner that the various monarchies and fledgling governments of the time soon began to seem quite feeble by comparison…”

Former president of the Bank of England, Josiah Stamp, said: Bankers own the Earth.  Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again…”

“But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit.”

Stamp, who died in 1941, was reputed to be the 2nd richest man in Britain at the time.

howswave5workingforyou's picture

if you want to see some good research. log in to google trends (you will need a google account) and type in "zerohedge". you will see that the site is at 70% of peak usage. its peak usage usually represents a buying opportunity in the market. but i believe as well some people are beginning to work out the obvious. 

sunnyside's picture

If those interest payments are simply borrowed from the FED (monetized) then it really doesn't matter ......until it does.  This fiat shit really is at the core of the problem.   And by fiat I don't mean the car or the hot babe in the commercials.


JLee2027's picture

The debts are at unpayable levels, therefore the article is nonsense. 

JR's picture

Bernanke is caught with his foot in the moral hazard trap. In the end, the truth of economic reality will break this false monetary system and it will collapse.  If you take a lemon seed and plant it, you get lemons.That’s the old math, i.e., the truth.

Peter Warburton, author of Debt and Delusion, wrote on May 2005: “The most glaring examples of moral hazard excesses are to be found in emerging market bonds, corporate bonds, mortgage bonds, asset-backed securities and credit derivatives. For these are the boiler rooms of the moral hazard economy. For the past seven years, those who have understood the nature of the compromise struck by the U.S. Fed realize that an upward-sloping term structure of US interest rates is essential to the stability of the global financial system.”

He concluded: “The untold corporate governance failure that is likely to overshadow all others is that of the US Federal Reserve itself. It appears that its chairman and governors have neglected their duty to the stability of the domestic financial system and, by their neglect, have cultivated a global moral hazard economy that is nourished by cheap credit and the systematic mispricing of credit risk.”

JamesBond's picture

Japans answer to their debt problem.... more debt....

(Japan Times Online):

At the meeting, Keidanren Chairman Hiromasa Yonekura and other executives also asked the DPJ to swiftly pass the deficit-covering government bond bill and accelerate free-trade talks with other countries, the sources said.

The DPJ officials, including Secretary General Azuma Koshiishi, vowed to seek passage of the bill during the upcoming Diet session, they said. The bill would will allow the government to issue deficit-covering bonds to finance the budget for the current fiscal year.

JR's picture

“Banks lend by creating credit.  They create the means of payment out of nothing.” – Ralph M. Hawtrey, former Secretary of the British Treasury

tony bonn's picture

and then there is the problem of interest payments ipso facto - it is a cancer except to the lenders....with 16 trillion in debt taxes must rise and they should fall heavily on the wealthy - the very ones who enacted all of this spendthrift irresponsible drunken sailor spending - to protect rich people...

these are also reasons why have abandoned support for a flat tax some time ago....the benefits of government accrue to the wealthy - education, wars of foreign aggression, justice - something which only the wealthy receive - are all disproportionately in favor of the wealthy who throw bones and crumbs to the poor - and that only on a generous day....

mkhs's picture

 Highest quintile: 22 percent

Top one percent: 28 percent



The top 1 percent aren't in the highest quintile?  Is this new math or just poorly explained?