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Did Clinton Really Create a Budget Surplus?

Updated on February 14, 2012

The Debt in Clinton's Final Years of Office

Bill Clinton was hailed as the president that brought down the both the deficit and ultimately the debt of the United States. That he balanced the budget and had the United States in a surplus. Did he? Let's take a look:

  • 09/30/1997 Debt: $5,413,146,011,397.34
  • 09/30/1998 Debt: $5,526,193,008,897.62
  • 09/30/1999 Debt: $5,656,270,901,633.43
  • 09/29/2000 Debt: $5,674,178,209,886.86

This information can be found here. U.S. Treasury.

Well, look at that. The national debt went up every year. Not only that, it was already over 5 trillion even back then. It also means that President Bush did not enter office with a balanced budget and blew it to kingdom come with his tax and spend policies (let's be clear, I am not defending Bush. He was just as irresponsible with budgetary matters as other presidents). But we were told that Clinton did lower the debt. How can this be?

Deficits and Intragovernmental Holdings

How Clinton and his administration was able to make these claims was because of the use of deficits and intergovernmental holdings. Deficits are what happens when revenues do not match expenses, and therefore are what adds to the debt. By reducing the deficit, it can look like we are getting closer to matching expenses with revenue. It does not mean the debt is being paid down. For example, if you make $30,000 a year and you spend $40,000 in one year, you are running a $10,000 deficit for that year (and a $10,000 debt). If the following year you still make $30,000.00 but you spend $35,000.00, you are running a $5,000.00 deficit for that year. However, now you have a debt of $15,000.00. So when someone says that the deficit went down, it sounds good, and it is a step in the right direction, but it does not necessarily mean we are paying down the debt. Later on I will show how this inter played with intragovernmental holdings.

The national debt is made up of public debt and intragovernmental holdings. The public debt is money owed to individual and institutional investors who bought and hold U.S. Treasuries. Intragovernmental holdings is when the government borrows money from itself (?), mainly from Social Security but also from other government funds that run at a surplus.

Intragovernmantal holdings and the Clinton Years

Now let's expand the picture and see where these discrepancies are:

[Year] [Claimed Surplus] [Public Debt] [Intra gov holdings] [Total debt]

[1997] [ 0 ] [$3.789667T] [ $1.623478T ] [ $5.413146T]

[1998] [ $69.2B ] [$3.733864T] [ $1.792328T ] [ $5.526193T]

[1999] [ $122.7B ] [$3.636104T ] [ $2.020166T ] [ $5.656270T]

[2000] [ $230.0B ] [$3.405303T ] [ $2.268874T ] [ $5.674178T]

(I apologize for the colums not aligning properly. This is the best I could do)

Numbers are from here: Myth of the Clinton Years.

If you will notice, during these 4 years the public debt did go down (good), but the intragovernmental holdings went up (bad). And more importantly, the total debt went up every year, even though the government claims there was a surplus. Look at the year 2000. The national debt went up by 17,908,000.00, and yet they claim they had a 230 billion surplus. What does that mean? Government accounts that were running at a surplus were using the excess monies to buy U.S. Treasuries as an investment. The economy was running hot during the Clinton years. Employment was high, the baby boomers were still in their peak working years, the internet bubble was in full force, and extra money was flowing into Social Security. It was at a surplus. So how did they make the claim that the debt was paid down? A little trickery. By intragovernmental holdings contributing more money to the government, the portion of public debt was paid down. This was done by borrowing more from Social Security and other government pension programs. As can be witnessed from the data, the government still did not cut back spending. It still increased year over year along with the national debt. Therein lies the trickery to make it seem the national debt was going down, when in fact it was still on an upward swing.

Social Security and U.S. Treasuries

Truth be told, Clinton did not have anything to do with this process anyway. By law, the United States trust funds are supposed to buy U.S. Treasuries by law with the surplus. It happened automatically. Looking at it from a prospective investor, this is not good. What if the manager of the Social Security fund looks at the underlying fundamentals of U.S. Treasuries for the next 10 years and realizes that as an investment, U.S. Treasuries will lose value in relation to inflation, and that real estate or precious metals would be a better investment instead? Can't do it. It has to buy U.S. Treasuries only.

"We Owe It To Ourself"

It's all right they say. The debt is not a problem. After all, "we owe it to our-self". This statement always confuses me. First of all, how can we "owe it to our-self"? Either we have it, or we do not. For example, how can a family owe money to itself? The only way is if the family has the money to begin with and "borrows" it for a purchase. This means the family still had to save money and have reserves. It is the same thing with government debt. U. S. Treasuries are a promise to pay in the future with interest. If the Social Security Trust fund buys U.S. Treasuries, it is lending it's surplus to the government. When the baby boomers retire, the Social Security trust fund expects to be paid back. But as we all know, the government does not have it. It is spent as fast as it comes in, and every year the government still runs up more debt. The Clinton years were no exception. Just as a family that spends their savings now even when they claim to "owe it to their self", will still not have the money in the future for emergencies or other future spending if they overspend now.

Why Bring This Up Now?

It has been 12 years since Bill Clinton left office, so why do I think this is important to bring up now? For a couple of reasons. First of all is that the government lies. It has done it in the past. It has done it no matter which party was in office. It does it to serve it's own ends. It does not care about you or me, just what it takes to make whoever is in office look good. Secondly, the more we know what is going on as individuals, the more we can prepare for own own security. In the case of Social Security, it is quite clear that we cannot count on it for meaningful retirement income because of what is going on. We can better prepare by using other means to secure our retirement. Thirdly, I think it is important to see the big picture of what is going on with our nation. The national debt keeps going up. It used to be recorded in millions, then billions, now trillions. This happened in a very short period of time. One way or another, it cannot continue. If we as a people really understand what is happening with our national finances, we can put pressure on our elected officials to make better policy decisions.


Most of the information for this article was from The Myth of the Clinton Years. I urge you to read his article, for it goes into greater detail than I laid out here.


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