Eric J: “A small part of your March 17 column repeated the Washington DC party line that we have a balanced budget/budget surplus. This is true if you count the Social Security money that is buying US Gov’t bonds as income. Otherwise, I believe that the deficit is still somewhere over $200 billion/year. Who says pyramid schemes are illegal?”

I know. The extra Social Security money being salted away for us Baby Boomers — though it’s more like $100 billion this year than $200 billion, I think — is counted as current revenue. That’s like counting the $1,000 your daughter earned this summer and gave you to invest for her college tuition as if it were income you could use to buy groceries. What are you going to do when it comes time to pay Princeton?

Then again, we “expense” all our capital expenditures, like the money we spend on highways. Highways last more than a year. So in an odd comedy of errors, the two accounting travesties may just balance out.

Still, there’s no question that President Clinton’s idea of using the “surplus” to save Social Security makes sense. In effect what he’s saying is: Right, we shouldn’t spend this surplus (or cut taxes to eliminate it), because we need to salt it away. It’s not really a surplus, it’s money we must save (via paying down the National Debt) for our old age.

And by paying down the debt — buying Treasury bonds (to retire them) rather than selling new ones as we have for so long — we help to damp down interest rates even further. (Did you know that from 1880 to 1965 there was no such thing in this country as a home mortgage at over 6% interest? So today’s low rates are hardly unprecedented — or even all that low by historical standards.) There’s no guarantee of low rates, of course. But with the pricing competition from the much freer trade we’ve seen from NAFTA and GATT in the last few years, with more to come, I hope . . . and with the government going into the debt markets to pay down, rather than add to, its debt . . . you have some hopeful signs.

Tomorrow: And speaking of paying down loans . . .


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