Federal Deficit Becomes Nearly Indecipherable
Did you miss the “good news” on May 12?
The Treasury Department, led by tax cheat Tim Geithner, retroactively reduced the deficit through March 31, the first six months of Uncle Sam’s fiscal year, by over $175 billion.
Here’s the evidence. March’s Monthly Treasury Statement showed a year-to-date deficit of $956.8 billion — but (voila!) April’s statement showed that the deficit through March was only $781.4 billion (items in red and October-March total box added by me):
Wow. How did Treasury do that?
Before I provide the answer, let me first make clear that federal financial reporting has been much less than perfect for a long, long time. The problems started in the 1960s with President Lyndon Johnson’s “unified budget,” which combined the financial results of Social Security, the Postal Service, and the rest of the federal government into one presentation.
On the surface, that may have seemed like a good idea. But, as I’ve explained previously, Johnson’s decision ultimately enabled congresses and presidents of both parties to use Social Security collections in excess of benefits paid to paper over much higher deficits occurring in the rest of the government:
The $2.3 trillion in Social Security cash surpluses shown above has been “borrowed” from the Social Security “Trust Fund” and spent. The “Trust Fund,” far from being a stash of cash for paying out future benefits, contains almost nothing besides IOUs from the rest of the government, which is itself over $11.3 trillion in debt and counting. The “Trust Fund” can’t be paid without raising taxes, reducing benefits, or borrowing even more money. What’s more, the annual Social Security surpluses are disappearing and its cash flow may go negative as soon as 2010 or 2011. Recent news that many more workers than expected are choosing to begin collecting reduced benefits at age 62 is not helping matters in the short term, though it could be perversely helpful in the long term.
But let’s get back to Treasury’s April “magic.”
To understand it, you have to understand what Treasury says the Monthly Statement is supposed to tell us (saved here in case it gets revised or moved):
[The statement] presents a summary of:
- Receipts and outlays
- Surplus or deficit
- Means of financing on a modified cash basis
According to a 1990 law, the “means of financing on a modified cash basis” element of the statement requires certain government “investments” to be reported on a “net present value” (NPV) basis.
What’s that? Are you sure you want to know?
Well, okay. It’s the estimated value of appropriately discounted future cash flows.
Try to resist the MEGO (My Eyes Glaze Over) effect, because this will get very important pretty quickly.
Based on a discussion I had with a person in the Congressional Budget Office, the only major area where NPV accounting has been used is in the Education Department’s student loan programs.
Here is what Education does, either monthly or quarterly:
- Loans disbursed are deducted from the cash deficit; remember, they’re considered “investments.”
- Loan principal repayments are added to the deficit, because they reduce the amount “invested.”
- The interest portion of loan repayments is treated as income, reducing the deficit.
Finally, and much less frequently (either quarterly or annually), the department adjusts the value of its “investments” based on changes in interest rates and judgments regarding the loans’ ultimate collectibility:
- If rates have gone down, the loans’ “investment” value goes up and Uncle Sam’s reported deficit goes down. If rates have gone up, the opposite occurs.
- Improvements in collectibility prospects increase “investment” value and decrease the reported deficit. Deteriorating collectibility prospects have the opposite effect.
Aren’t you glad you asked?
Fortunately, student loans, though a significant problem in their own right, are a relatively small part of the leviathan known as the federal government. Thus, the difference between true cash flow reporting and Uncle Sam’s “modified cash basis” has been unimportant and the reported deficit, with the key exception of the Social Security problem previously discussed, has been a close-enough indicator of true cash flow.
That changed in October, thanks to the Troubled Asset Relief Program (TARP).
What Treasury did in April was to convert the TARP “investments” it began making in October in the country’s financial institutions, General Motors, Chrysler, and who knows what else to NPV accounting. That accounting change reduced the previously reported March deficit by $175 billion.
As you might have noticed, Barack Obama and Tim Geithner are not done “investing.” There are hundreds of billions of dollars in outlays yet to come that I anticipate Geithner will handle using NPV, including additional TARP “investments,” the toxic asset program, and perhaps the ever-expanding mortgage relief efforts. At some point, Geithner might even decide that the tens of billions disbursed to prop up Fannie Mae and Freddie Mac thus far also have “investment” value.
Mixing hundreds of billions of dollars of NPV into what has essentially been a cash flow report turns the Monthly Treasury Statement, and deficit reporting in general, into an exercise that will not only become ever more difficult to comprehend, but also be routinely subject to political manipulation. Judgments as to what discount rate to use, how collectible loans are, and even what should and should not be considered an “investment” will have multi-billion-dollar impacts on the publicly reported deficit. NPV might even directly affect policy. Why should Geithner or Obama allow banks chomping at the bit to get out from under TARP to do so, when their repayments will only increase the reported deficit? Already, the administration, which has projected a fiscal 2009 deficit of over $1.8 trillion, has avoided the political embarrassment of estimating a shortfall that would round off to $2 trillion using true cash flow reporting.
If Congress really cares about the euphemism known as transparency, it will pass legislation forcing Treasury either to change how it presents its Monthly Statement or to issue a separate all-inclusive monthly cash flow statement. Such a statement must lay out receipts and disbursements that occurred during the month, and nothing else. The difference must tie in to the net change in the national debt.
I somehow doubt that Nancy Pelosi or Harry Reid have any interest in this.
I guess in all politics they hide the real figures. Wonder what the cost of the Iraqi war would have made our national debt if it had been included in the final total.
This, to my mind, is the key:
Improvements in collectibility prospects increase “investment” value and decrease the reported deficit. Deteriorating collectibility prospects have the opposite effect.
If anything is subject to political manipulation it is the determination–in the administration’s eyes–of who will be able to repay these so-called investments. Isn’t this exactly how the “financial collapse” thing started out? By forcing lenders to give money to those someone said would be able to repay it, notwithstanding the lack, by any rational yardstick, of the means do do so.
There are a number of economic so-called experts claiming the recession will end sometime in the near future. I find this very hard to believe. Our politicians continue to spend money like the proverbial drunken sailor. The deficits are dramatically growing by the day. Any short term relief may be comparable to a guy close to bankruptcy who gets his hands on a few more credit cards. What the heck. The dude is going to declare Chapter Seven anyway. A few dollars more doesn’t make any difference. In the meantime, he does not have to immediately curtail his out of control spending habits. At the very best, the American economy may experience a short term bubble.
The returns on the Tarp investments are so speculative they should be handled by means of Accountants Note To Statement rather than estimated.
Good article, Mr. Blumer. Anything which alleviates the EGO Effect(eyes glazing over)is to be commended.
Now we know why Obama picked Geithner! A cash expenditure on a worthless asset becomes income.
Orwell would not be suprised, saddened, but not suprised.
The Obama Dollars is going to be mi amigo with the peso.
This is like the Night of the Living Pelosi.
I am positive that Pelosi hasn’t the brainpower to comprehend this, and therefore she will eventually lie about it, just like interrogations.
One thing frightens me: this kind of under-the-rug sweeping is like the lies endemic to a command economy like the Soviet Union. That was another outfit too big to fail, but it failed anyway.
Whenever you hear elected government officials, using the word “investments”, keep an eye on your purse or wallet!
“We are from the government and we are here to help you. Give us your money and we will make your lives and property better.”
What you may be suggesting, Tom, is that there should be created a truly independent office of accounting, free from political morass. Because, figures don’t lie, but liars can figure.
For now, the Stealth President can commit his big change policies with stealth taxes. Next years budget and tax codes ought to be a real hoot and stigmatically in line with the campaign promises.
Which part of “smoke and mirrors” don’t we understand?
When are we going to just admit that the US has failed. If we were a corporation we would have had to file bankruptcy decades ago. We are now undeniably moving toward triple digit trillions of debt. Probably already there. Why don’t we just default?
When the foundations of our society and institutions are laid on a bed of lies ,distortions, deceit and greed, the end isn’t far off.
The notion that we can recover and correct is itself a placating lie.
If Madoff does it – its a crime. The US government – sure, no problem.
Help me understand?
History will record (as it is now) that Geitner and Obama are key figures to America’s destruction.
14. Roark writes:
“History will record (as it is now) that Geitner and Obama are key figures to America’s destruction.”
..well, it certainly won’t be history written by the mindless butt-smooching tools of the MSM and the American [Idol] Public who has perpetuated this idiot’s honeymoon while the wheels have been coming off.
Economic collapse will inherently increase the day to day power of whoever happens to hold the reins of government on the day of the collapse.
So regardless of how messy the runup to total collapse is and regardless of the degree of the collapse (total or 73%), the power exerted by the government in the 7 days after the collapse happens will have no chance of being rolled back until the collapse has been reversed (economic recovery).
And of course, as we all know, as long as Bambi and his Bunch of Incompetent Thieves are in charge, economic recovery is not on their PERT charts in any form.
Dominating power is their goal. Not the security and stability of the United States of America.
Signs are the dollar is stufggling and yet they plan to print more money. best invest in wheelbarrows, you’ll need them to take your wages home.
What is truly stunning about this is the fact that the mainstream media (such as the TV Network news programs), along with major newspapers (such as the New York Times and the Washington Post), really don’t seem to be concerned about any of this. So when the economy finally collapses because of Obama’s insane fiscal policies, they will simply do what they always do and just blame Bush. Mark my words, that will be Obama’s mantra: “Just Blame Bush for Everything.” Forget about the fact that Obama has spent over four or five times what Bush ever dreamed of spending, forget about the fact that Obama’s spending on unnecessary programs and earmarks will destroy the economy, and forget about the fact that the increase in taxes that’s coming will make the redistribution of wealth that took place in Soviet Russia look like child’s play. Nope, they’ll just blame Bush for everything and hope the average American is dumb enough to believe him.
We are saving a trillion a year on lower crude imports. This is opportunity we didn’t have 10 months ago. Had Obama left the numbers the same, lower intrest rates also would have helped but not quickly. But no, he has to mark the territory.
Poof! Turbo Timmy is a real magician.
A $175 billion deficit disappears.
What a resume enchancer:
Tax Cheat + Book Cooker
“We are saving a trillion a year on lower crude imports.”
We are importing less oil products because of our slowing economy. The truck driver, for instance, who lost his job has indeed cut back on his purchases of fuel. Nonetheless, we have lost far more due to his lessening productivity.
With either one of these incompetents; If they were doing this for Wall Street, they’d be indicted by now and making headlines for money laundering.
GOV’T OWES RECORD $63.8 TRILLION…
After reading this article in The Wall Street I felt like I must had some simple terms even Liberals can understand .
To make those Mind Numbing Numbers far more understandable . America last year took in $ 757 Billion Dollars in Taxes . The entire American Economy in 2007 was 13.7 Trillion dollars .
The Interest on 63.8 Trillion dollars is our Current GDP is …. 10 Score and 7 approximately give or take a Dollar here and a dollar there.
___________________
Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.
The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.
That’s the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.
The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That’s quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.
“We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it’s not backed up by a house,” says David Walker, former U.S. comptroller general, the government’s top auditor.
FIND MORE STORIES IN: United States House of Representatives | Baby Boomer | Tax
USA TODAY used federal data to compute all government liabilities, from Treasury bonds to Medicare to military pensions.
Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.
The numbers measure what’s needed today — set aside in a lump sum, earning interest — to pay benefits that won’t be covered by future taxes.
Congress can reduce or increase the burden by changing laws that determine taxes and benefits for programs such as Medicare and Social Security.
Rep. Jim Cooper, D-Tenn., says exploding debt has focused attention on the government’s financial challenges. “More and more, people are worried about our fiscal future,” he says.
Key federal obligations:
• Social Security. It will grow by 1 million to 2 million beneficiaries a year from 2008 through 2032, up from 500,000 a year in the 1990s, its actuaries say. Average benefit: $12,089 in 2008.
• Medicare. More than 1 million a year will enroll starting in 2011 when the first Baby Boomer turns 65. Average 2008 benefit: $11,018.
•Retirement programs. Congress has not set aside money to pay military and civil servant pensions or health care for retirees. These unfunded obligations have increased an average of $300 billion a year since 2003 and now stand at $5.3 trillion.
Timmy can make billions disappear just by changing names or categories, just think what he and The O can do to our taxes, or our salaries.
And they talk about Wall Street !
I wonder how many liberals, that’s what they call themselves, are getting the picture in focus.
We need a new word for multi-trillions.
I suggest: Eternillions
http://english.pravda.ru/opinion/columnists/107459-0/American capitalism gone with a whimper
Front page / Opinion / Columnists
27.04.2009 Source: Pravda.Ru
It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people….cont
25.Delia
“eternillions”….I think you’ve got something there”:(
26.aprilnovember811
That article from Pravda is enough to make me weep. The world is laughing–and whatsisname goes to Hollywood while NK shoots off more missiles.
Hey, where are the usual suspects, Sheeshhhh, vino, et al.? I think the topic discussed here requires some real thinking and not just agitation and talking points. Having to actually think is too hard I guess.
Besides every desire to “look good,” the current administration will not comprehend, or will ignore the facts of life. When business is bad, employees get laid off and the remaining are told to “do more with less.”
At home, costs go up, some loses their job and the family must “do more with less,” or get by “without.” Everyone is forced to change their way of doing business. Except for the government.
Who the hell does Congress and this administration think they are growing government at a time like this? Anyone voting for these reckless bill should have “recall” efforts underway. I’m still waiting for Republicans to call for “investigations” of Barney Frank, Chris Dodd and others for the subprime mess.
And now the tax cheats who cook the books are allowed to keep the brew going.
Thank you Mr. Blumer for bringing this to light. It needs a brighter light shined on it. Will John Boehner or Eric Cantor do anything about it? Not from what I’ve seen.
Everything is nature retracts, shrinks, even dies in times of adversity. But our government has changed from a living organism into a cancer. Even as it kills of it’s hosts, it leaps to other hosts and keeps growing. But like the old soviet empire, eventually, it will run out of hosts and will retreat to lie dormant until a new set of hosts appears. Then the game will be on again.
A simple question that I hope some learned CPA/Auditor can answer:
Can the US Government pass an audit under the rules that are currently in place?
It seems doubtful, but I would like to hear what the CPA/Auditor community has to say…….
Indecipherable? Well, I don’t know about other folks acuity, but for me is pretty clear that I am in the hook for $ 50.000, debt I never accrued myself in any manner, but which, from now on will appear in all my bills.
#30, the GAO has reported that it cannot render an opinion on the government’s financial statements because of material internal control and other weaknesses for about 12 years.
Imagine that, the US government is bankrupt and they are talking about using the newest money they print to spend on the ‘progressive’ State of California. That will work, I’m sure. I just wonder why the Somalian government didn’t fix their wobegotten economy by printing more money?
Obama and his handlers are all Communists. Congratulations to all you government ‘educated’ morons who elected him. A pox on all of you useful idiots who follow these clowns with your blinders on. You will get your just rewards when your money is worthless, even the crisp new currrency the ‘enlightened’ government will give you as your reward for your blind faith. Soon, your old boss will seem preferable to what you’ve got. Tough luck though, your government will not ever get smaller, and you will hear yourselves say “Some kind of free country this is!”
Do you suppose I could finance my credit card investments on a modified cash basis by paying only the estimated value of appropriately discounted future cash flows and thereby reducing my $985 investment with credit card companies by, oh, let’s say $175? What!?
O.K., I give up already. Please don’t make those cuffs too tight, officer.
The age of cognitive dissonance, I suppose – checking on Rassmunssen Report lates, I found that people soundly disapprove the bailout scheme (65+ %), and this applies to Michigan, too!
Yet, as Soetoro’s approval rate, that is pretty much still there.
Curious -