Using TARP to pay down deficit? The math doesn’t add up
First, the nub of the WH idea:
The White House is looking to cut its budget deficit by using some unspent funds from the U.S. government’s Troubled Asset Relief Program (TARP), the Wall Street Journal said, citing people familiar with the matter.
Members of the Obama administration are still debating the idea, the paper said, adding that the administration would still like to keep some of the unspent money in case of emergencies.
A U.S. Treasury source told Reuters that it was shifting the focus of the TARP program toward helping small business and the housing sector rather than large banks.
“As that focus shifts, we expect to use significantly less TARP funding than authorized,” the source said. “We will maintain the flexibility to deal with a future crisis, and uninvested TARP money is dedicated to reducing the debt.”
But as my pal Dan Clifton of the Strategas Group points out, this idea neglects certain budget realities:
Is this really news? The US government has already issued the debt for the funds and any unused money would logically be used to retire that debt. There is about $300bn in unspent TARP funds now. But none of that can be used as deficit reduction. Why? Because the money has not been spent yet. And is it really $300bn? Absolutely not, the administration decided to change the accounting to a net present value basis. So any savings would be negligible. The punchline: This story makes a great headline against the concerns over deficits, but will have zero impact on debt issuance and the deficit.