The Secret Is Out: The U.S. Government Is Broke

By Randolph T Holhut

Created Dec 21 2006 - 11:10am

DUMMERSTON, Vt. — The Financial Report of the United States Government, the summation of the 2006 fiscal year that ended on Sept. 30, found that had the federal government used the same accounting practices used by the private sector, the 2006 federal budget deficit would have been $449.5 billion, not the widely reported $247.7 billion.

Like all unpleasant news the federal government wants to downplay, it came out late last Friday afternoon. If people really knew how tapped out the federal government is, there would be panic in the streets.

Most businesses use what's known as the accrual method of accounting, which records expenses when they are incurred rather than when they are paid. This means that the costs of things such as health care and pensions are included in annual budgets.

The federal government uses the cash method of accounting, which only tracks current spending and doesn't count future liabilities that the government has promised to pay.

A decade ago, Congress ordered the government to start issuing annual reports based on accrual accounting. And this year, as in every previous year it has been issued, the Government Accountability Office would not sign off on the report because of accounting discrepancies.

Comptroller General David Walker, the head of the GAO, said that 53 percent of the government's assets were in agencies — most prominently, the Defense Department — that could not be accounted properly. There were so many discrepancies that Walker said he was "unable to express an opinion" on the financial statements.

While the official national debt is pegged at about $8.5 trillion, according to Walker, the net present value of the government's "total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the nation's total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000."

Although Walker and the GAO didn't come right out and say it, I will — the federal government cannot meet its stated obligations based on current levels of taxation and promised benefits.

In effect, the United States is insolvent.

Economic growth won't solve the problem, because the last three years were fairly good ones for economic growth, and the indebtedness still mushroomed. Lower standards of living — higher taxes and lower benefits — may make a dent in the problem, but not enough to make up a $50 trillion shortfall. The government could print more money, but that would create inflation, further lower our standard of living and prompt other countries to no longer use the U.S. dollar as a reserve currency.

So, here's the overall picture and it's not a pretty one. The Baby Boomer generation is starting to take their retirements, pushing up the costs of Medicare and Medicaid. Social Security should be solvent, but the money that was supposed to be set aside for the Boomer retirements has already been spent. We're paying hundreds of billions of dollars a year in interest payments to China, Japan and other countries that hold U.S. Treasury securities — borrowing that is covering the cost of the wars in Iraq and Afghanistan.

The unsustainable financial hole this country is in is getting deeper by the day, and few of our leaders in Washington are willing to confront it. How can the U.S. continue to be seen as a global power if we are deep in hock to the rest of the world? How can we meet our domestic budget obligations based on current levels of taxation? How can we continue to overspend now and let our children and grandchildren pay later?

These are questions must be answered honestly, and answered soon.
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About author Randolph T. Holhut has been a journalist in New England for more than 25 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at randyholhut@yahoo.com [1].

Published on The Smirking Chimp (http://www.smirkingchimp.com)