Social Security is in the hole this year, five years ahead of when it was expected to develop a negative cash flow. As Michael Barone points out, Social Security in the first half of 2009 took in $366 billion and dispersed $334.3 billion. In the first six months of this year, it will be $346.9 in, $347.3 out.

If the economy recovers well from the recession, Social Security will go back into the black for a few years, but the coming wave of baby-boomer retirements will put it in the red permanently (under current law) by the middle of the coming decade.

That’s why the idea that the intra-governmental portion of the debt doesn’t matter is so pernicious. Vincent Fernando at Business Insider argues that:

The U.S. government’s net debt is not about to reach 100% of GDP. Hysteria about the U.S. debt/GDP ratio breaking 100% is due to a misconception regarding which figure to calculate Federal debt. You can’t count money the Federal government owed to itself . …

The national debt, as of June 10, is $8.5 trillion owed to the public and $4.7 trillion owed to branches of the federal government. Fernando argues that the intra-governmental debt doesn’t count because, while a debit at the Treasury, it is an asset at the Social Security Administration and elsewhere within the government and therefore nets out to zero, as does a debt owed by a subsidiary of a corporation to the parent company.

This is nonsense. The negative cash flow this year will be financed by the Social Security Administration’s taking federal bonds it holds to the Treasury (they cannot be sold to the public) to be redeemed for the needed cash. The Treasury will sell bonds in the market place to get the money. When Social Security goes permanently into a negative cash flow, more and more of the intra-governmental debt will be converted into public debt. (Unless, of course, Congress either reduces Social Security payments to current retirees, cuts spending elsewhere, or raises Social Security taxes. The first two of those possibilities are, to put it mildly, highly unlikely.)

So what is now intra-governmental debt will inexorably become public debt and so should be counted in calculating the total national debt. That sum is now $13.041 trillion. GDP was $14.256 trillion in 2009. That works out to 91.48 percent of GDP, which is close enough to 100 percent for government work.