It’s Called “Off Balance Sheet Financing” and It’s Coming to a Government Near You
Under the rules of some long forgotten legislative compromise, the Republican extracted a requirement that the Congress vote on a Balanced Budget Amendment (BBA). The purpose was not economics, it was political and it was an attempt to get Democrats on record as being opposed to the BBA for campaign purposes.
The Senate has now voted on two separate proposals, one from Senator Mark Udall, a Democrat and one from Senator Orrin Hatch, a Republican whose was apparently given the honor of sponsoring the BBA because he is in a tough fight with Conservatives for his re-nomination. Both measures failed, and so President Obama will not be faced with the issues of having to sign a BBA (That’s a Herman Cain joke, hopefully the last one we will make) and the eight members of the Supreme Court will not have to rule on whether or not a Constitutional amendment is Constitutional (that's a Rick Perry joke, hopefully the last one we will have to make, but probably not).
The details of the BBA are not important (they make the BBA unworkable) and the important issue here is that a Balanced Budget Amendment will not, of course, result in a balanced budget. The evidence. Almost every state has the requirement for a balanced budget, yet there are trillions of dollars of state debt currently in existence. Where did that come from if the states have a balanced budget requirement?
will not have a balanced budget, regardless of any Constitutional requirement because Americans don’t want a balanced budget. They want government spending and they don’t want to pay the taxes that would balance the budget. So this whole thing is a joke, a pretense, a way to say the government is doing something about a problem without doing anything about the problem. U. S.
How might the Federal government get around the issue? It’s very easy, there are many ways to do this. Leasing might be one of the easiest? Leasing you say, how does that work.
Let’s say the Defense Department wants a new useless aircraft carrier to go with the 14 other aircraft carriers it has and the budget has only $300 million to pay for one. Now you cannot get a good aircraft carrier for less than say $3 billion, so a group of investors buys the aircraft carrier and leases it to the government for, you guessed it, $300 million a year for 30 years. So for accounting purposes the government is spending only $300 million currently, not $3 billion.
Where do the investor’s get $3 billion? Why they borrow it of course, using as collateral the lease where the government has said they will pay $300 million a year. So at the end of the day, the government has paid $300 million a year for 30 years or $9 billion for a $3 billion aircraft carrier and the investors have made a tidy profit even after they pay interest and principal on the loan.
The loan is for all economic purposes the debt of the Federal government. But since it is legally not recognized as public debt, it doesn’t count as part of the National Debt. Investors have a great profit, politicians get to say they have cut spending and the only people harmed in all of this are the taxpayers. And who cares about them.