Long ago, the government found a new way to run a deficit: Create a nominally private business with government appointed management, to carry out a government directed mission. The entity borrows money like a private entity, but since its political missions require it to lose money in large amounts, by throwing money at strategic voting blocks and special interest groups, the lenders lend not in expectation that the business will be able to repay, but that the business will eventually be bailed out.
“Think Markets†recently spotted nefarious activity by the PBGC:
the PBGC’s decision with respect to Delphi raises the government’s GM bailout to about $70 billion in taxpayer liability. So far, that’s about $2.3 million per active GM employee or $24,000 per vote Obama garnered in Michigan.
When the bailout finally happens many years down the line, it is part of a general crisis that the current governing party quite truthfully blames on the previous governing party, while itself making even bigger off budget expenditures.
In the recent crisis, the bailouts were so huge that they were done not by the Treasury, but by the biggest off budget entity of them all, the Federal Reserve, which has incurred liabilities of about two times GDP in the recent crisis.
It is impossible to say how big the off budget deficit is, since these entities are structured like a game of three card monte, to hide what is going on. It is hard to structure entities so that they are accountable and you can follow where the money goes, easy to structure entities so that they are unaccountable and money just quietly evaporates unseen.
However, the unthinkably huge amounts of Federal Reserve off budget activity suggests that the off budget deficit is many times greater than the on budget deficit – and the on budget deficit alone is barely sustainable.