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Balance Sheet, Out of Mind
(Casey Investment Reports)
Aug 5, 2009
Boise, ID –
Whoa, girl friends, pull up the floor and pour yourselves another hot cup of
Treasury's Financial Management Service recently released its monthly
Statement of Receipts and Outlays for the United States Government and it
sucks, for two reasons: (1) it’s a Big Accounting Lie, and (2) the real
U.S. Deficit is huger than huge.
first time ever, the Treasury reported a deficit above $1 trillion -- $1.086
trillion, and that’s with three big-spending months left to go in the
current fiscal year.
things in perspective, the reported federal deficit for all of 2008 was $455
billion. At the time, that was a record. But it is less than 42% of the
borrow-and-spend total at this year's nine-month mark.
as that seems, it’s not even the real deficit story. Most of the real
deficit is hidden by the Treasury's accounting methods.
thing, the annual budget deficit supposedly refers to the difference between
government receipts and outlays. But sly politicians sometimes remove a
spending item from the regular budget and then bring it back as a
supplemental appropriation. Supplementals are real costs that add to
government debt, but they don't get counted in the reported deficit. For
example, during fiscal 2008, the federal government’s net operating cost
(the government’s “bottom line” – the difference between revenue and cost)
was $1,009.1 billion, but the budget deficit was reported
as “only” $454.8 billion.
But it gets
To quote John
Shadow Government Statistics:
“Those  numbers, however, did not account
for the annual change in the net present value of unfunded Social Security
and Medicare liabilities, except in discussions and footnotes. Counting
those changes, as a corporation would for its pension and healthcare
liabilities for retirees, the 2008 annual deficit was $5.1 trillion
[compared to the reported figure of $454.8 billion], versus $1.2 trillion in
2007 [compared to the reported figure of $162.8 billion]. Such showed total
U.S. obligations – gross federal debt outstanding plus the net present value
of unfunded liabilities -- at $66 trillion, roughly 4.6 times the level of
reported U.S. GDP, and greater than total estimated global GDP.”
How is the
government able to avoid admitting such staggering real deficits?
written its own accounting rules. They call for “cash accounting,” similar
to the way you track what comes into your checking account and what goes
out. That shows how well you're handling today's bills, but it tells nothing
about how well you're preparing to pay tomorrow’s bills – especially if
you've made a lot of big
promises is one of the things governments do well, and cash accounting lets
them disregard each year's growth in the eventual cost of making good on
those promises. In the case of the U.S. government, cash accounting allows
the build-up in promised pensions for civil servants and military personnel,
to cite one giant example, to simply be ignored. Overlooked. Passed over in
silence. The build-up of future Social Security and Medicare liabilities is
handled the same silent way. For the government,
cash accounting isn't just an accounting method, it's a denial method.
Generally Accepted Accounting Principles call for companies and institutions
with annual revenue of $1 million or more to use accrual accounting, a
method that reflects the build-up of liabilities. For a public company, it
would be illegal to publish financial results based on anything else. But
for the federal government, with receipts and outlays in the multiple
trillions every year, using the no-tomorrow method of cash accounting is
business as usual.
– FM Duck
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