5 ms·

"the country has an operating cash balance of $73.7bn" How is this so? I thought the annual budget was in deficit. Quite significantly, in fact. And not to

"the country has an operating cash balance of $73.7bn" How is this so? I thought the annual budget was in deficit. Quite significantly, in fact. And not to mention the country has a massive debt. Although I understand how that may not affect the operating cash balance. The headline definitely seems like it could be used as a sound bite for corporate tax increase commentary.

JacobAldridge 15y ago
The difference (in very simplistic terms) is Budget v Cash flow. Think like a business - I might need to borrow funds to cover all my costs this year, but when I make a sale that's still cash coming in. See the graph here - http://www.slate.com/id/2299845/ http://www.slate.com/id/2299845/. "you will also see some spikes in revenue after borrowing is maxed out. This can be attributed to many things - an influx of tax revenue, profits from the Federal Reserve's holdings, and the general movement of funds and debt between accounts." Also, if the funds you borrow are sitting in an account while you wait to pay future bills, you may have a deficit but a positive cash balance. (Of course, it's not quite that simple. Borrowings in a business are normally a liability on a balance sheet, though the interest and repayments would affect the budget.)
rauljara 15y ago
To use a terrible analogy that doesn't hold up under close scrutiny but is sufficiently accurate to answer your question: Just because you spend more than you earn using your credit card doesn't mean you don't have money in the bank. You can also use your credit card to put cash in your bank account. The US doesn't hand people treasury bonds to pay them. It uses treasury bonds to put money in its treasury. Then it pays its operating expenses out of the treasury. If the treasure runs down to zero, it can't pay any of its expenses, but it will almost certainly never run down to zero. It gets in new revenues all the time (even without borrowing). Just not enough to meet all of its expenses.
hugh3 15y ago
A compulsive gambler, already hundreds of thousands of dollars in debt, goes to a loan shark to borrow another five hundred bucks. He now has an operating cash balance of five hundred dollars, while still having a net worth of minus six figures.
- grannyg00se 15y ago
  Then I agree that the number is pretty much meaningless. The government can easily increase their operating cash balance simply by incurring more debt. It's the debt, and the deficit that seem most relevant to my untrained mind. In fact, if you want to compare with a corporation, I'd compare the entity's deficit as a percentage of its revenue.
  - hugh3 15y ago
    The government can easily increase their operating cash balance simply by incurring more debt. Except, and this is the whole reason that we currently have big problems, the Government currently can't legally incur more debt, unless Congress passes an increase to the debt ceiling. So cash-on-hand is currently a serious issue.
    - jodrellblank 15y ago
      And so trillion dollar changes to a major world economy of 310 million people are made by last minute bickering. It's boggling.
      - prodigal_erik 15y ago
        Yeah, it's a titanic game of chicken between the dominant parties. As The Economist put it, "biggest unforced error in history still on schedule". http://www.economist.com/blogs/freeexchange/2011/07/democracy-america http://www.economist.com/blogs/freeexchange/2011/07/democrac...
nhaehnle 15y ago
This number (the $73.7bn) is almost entirely meaningless. If you look at it from first principles, the US federal government does not need to maintain any accounts at all, since it is the entity that controls the monetary system. When they want to spend, they can just credit bank accounts directly; the money doesn't need to come from somewhere. However, partly to make the payment systems run in a more unified manner, and partly for simple historical reasons, the Treasury does maintain accounts with a balance in them. Since the flows in and out of these accounts are important for maintaining the inter-bank interest rate, any movements there are closely coordinated with the open market operations of the Fed. In the end, the number in those accounts is basically whatever happens to satisfy the current monetary policy best. To sum it up, the comparison in the article is void of meaning. For understanding these kinds of things I found the writings of Modern Monetary Theory very interesting. See e.g. here: http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s... There is also an entire chapter in the book "Understanding modern money" by Randall Wray devoted to the accounting contortions that the Fed and Treasury do while running the payment system.

JacobAldridge 15y ago

The difference (in very simplistic terms) is Budget v Cash flow. Think like a business - I might need to borrow funds to cover all my costs this year, but when I make a sale that's still cash coming in. See the graph here - http://www.slate.com/id/2299845/ http://www.slate.com/id/2299845/. "you will also see some spikes in revenue after borrowing is maxed out. This can be attributed to many things - an influx of tax revenue, profits from the Federal Reserve's holdings, and the general movement of funds and debt between accounts." Also, if the funds you borrow are sitting in an account while you wait to pay future bills, you may have a deficit but a positive cash balance. (Of course, it's not quite that simple. Borrowings in a business are normally a liability on a balance sheet, though the interest and repayments would affect the budget.)

rauljara 15y ago

To use a terrible analogy that doesn't hold up under close scrutiny but is sufficiently accurate to answer your question: Just because you spend more than you earn using your credit card doesn't mean you don't have money in the bank. You can also use your credit card to put cash in your bank account. The US doesn't hand people treasury bonds to pay them. It uses treasury bonds to put money in its treasury. Then it pays its operating expenses out of the treasury. If the treasure runs down to zero, it can't pay any of its expenses, but it will almost certainly never run down to zero. It gets in new revenues all the time (even without borrowing). Just not enough to meet all of its expenses.

hugh3 15y ago

A compulsive gambler, already hundreds of thousands of dollars in debt, goes to a loan shark to borrow another five hundred bucks. He now has an operating cash balance of five hundred dollars, while still having a net worth of minus six figures.

grannyg00se 15y ago
Then I agree that the number is pretty much meaningless. The government can easily increase their operating cash balance simply by incurring more debt. It's the debt, and the deficit that seem most relevant to my untrained mind. In fact, if you want to compare with a corporation, I'd compare the entity's deficit as a percentage of its revenue.
- hugh3 15y ago
  The government can easily increase their operating cash balance simply by incurring more debt. Except, and this is the whole reason that we currently have big problems, the Government currently can't legally incur more debt, unless Congress passes an increase to the debt ceiling. So cash-on-hand is currently a serious issue.
  - jodrellblank 15y ago
    And so trillion dollar changes to a major world economy of 310 million people are made by last minute bickering. It's boggling.
    - prodigal_erik 15y ago
      Yeah, it's a titanic game of chicken between the dominant parties. As The Economist put it, "biggest unforced error in history still on schedule". http://www.economist.com/blogs/freeexchange/2011/07/democracy-america http://www.economist.com/blogs/freeexchange/2011/07/democrac...

nhaehnle 15y ago

This number (the $73.7bn) is almost entirely meaningless. If you look at it from first principles, the US federal government does not need to maintain any accounts at all, since it is the entity that controls the monetary system. When they want to spend, they can just credit bank accounts directly; the money doesn't need to come from somewhere. However, partly to make the payment systems run in a more unified manner, and partly for simple historical reasons, the Treasury does maintain accounts with a balance in them. Since the flows in and out of these accounts are important for maintaining the inter-bank interest rate, any movements there are closely coordinated with the open market operations of the Fed. In the end, the number in those accounts is basically whatever happens to satisfy the current monetary policy best. To sum it up, the comparison in the article is void of meaning. For understanding these kinds of things I found the writings of Modern Monetary Theory very interesting. See e.g. here: http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s... There is also an entire chapter in the book "Understanding modern money" by Randall Wray devoted to the accounting contortions that the Fed and Treasury do while running the payment system.