Department of Stupid: Congress to consider a bill comparing public and private lending

Via Center on Budget and Policy Priorities: 

The House will consider three bills in the coming weeks that would make the budget process more complicated, less transparent, and less credible. One of these is the Budget and Accounting Transparency Act (H.R. 1872), which would add an extra amount to the recorded budgetary cost of federal credit programs, beyond their actual cost to the government, to reflect what private lenders would charge if they issued the loans and loan guarantees.  By artificially inflating federal lending costs, this change would disadvantage direct loans and loan guarantees relative to other federal programs and expose them to a greater likelihood of cuts.

H.R. 1872 would change the accounting for credit programs such as Federal Housing Administration and veterans’ mortgage guarantees, student loans, small business loans, and rural electric loan guarantees by adding anextra amount to their recorded budgetary cost.  This extra amount would reflect what private lenders would charge if they, rather than the federal government, issued the loans or loan guarantees.  

The proposal is not based on a contention that current estimates of federal credit programs understate their cost to the government.  Therefore, the proposal would distort the budget by making federal credit programs appear more expensive than their actual cost to the government.  It would also undercut one of the key purposes of the budget, which is to provide a meaningful comparison of the cost to the federal Treasury of different programs.  

The bill also would make federal loan programs likelier targets for deficit reduction measures, since they would appear to cost more than unbiased projections show they actually would cost.  In the area of student loans, for example, this could result in higher costs for borrowers or less access to loans.  The size of the student loan program and how much of the cost students should bear are valid policy questions, but policymakers should not distort these issues by artificially inflating the program’s cost.

This idea is dumb enough even for those who don't understand monetary sovereignty...but for those of us that do, its just mind mindbogglingly stupid. CBPP does state that:

The concerns for the federal budget, however, are different from the concerns of private-sector investors.  The federal budget is a straight record of the cash flowing into and out of the Treasury; the deficit or surplus equals the difference between the money actually spent and the money actually collected.  That is what the existing credit rules ask the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) to estimate.  If the estimates are unbiased and take all possible factors into account, including expected defaults and their likelihood, then the overestimates and underestimates should net to zero over the long term.  Adding a penalty because private investors are loss averse should have nothing to do with government budgeting and accounting. 

However, they don't go far enough, and say that the government's risk of default as a currency issuer is zero, and thus should never be compared to any private entity with inherent, nonzero credit risk. If a borrower of a federal loan defaults, this does not affect the federal government's credit/spending ability by one penny. There is therefore no reason to price this risk in any federal budget-scoring mechanism.