Uncle Sam's Dangerous Deterioration
A month ago, the federal government put out the real news about its financial condition as of September 30, 2010, the most recently ended fiscal year. Predictably, it was barely noticed -- partially because the establishment press is disinterested in such things, and partially because of the report's exquisitely timed release the week before Christmas.
For 14 years, a law with a poorly predictive name -- the Federal Financial Management Improvement Act of 1996 -- has required that Uncle Sam publish consolidated financial statements using generally accepted accounting principles (GAAP), and that the Government Accountability Office (GAO) report on those statements. For the fourteenth consecutive year, the GAO was unable to render an opinion on them, because "weaknesses in federal financial management" prevented it from doing so.
Specifically, the main obstacles to a GAO opinion were: (1) serious financial management problems at the Department of Defense that made its financial statements unauditable; (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies; and (3) the federal government’s ineffective process for preparing the consolidated financial statements.
In September, I pointed out that although the reported fiscal 2010 deficit, using the government's own set of accounting rules, was going to come in lower than 2009, Uncle Sam's cash spending deficit (i.e., receipts less disbursements) would come in significantly higher. The GAO's presentation of the GAAP deficit, with the final two lines below added by me for clarity, proves that contention:
The government has been able to concoct an illusion of improvement because the Obama administration's Treasury Department booked $115 billion in "losses" in the Troubled Asset Relief Program (TARP) in fiscal 2009 before it had sufficient evidence that setbacks of that magnitude would occur. In fiscal 2010 -- shazam! -- Treasury's estimated TARP losses were revised far lower, enabling it to bury a gain of the same amount in its March 2010 monthly statement.
As shown above, after taking this accounting flimflammery out of the picture, the fiscal 2009 and 2010 deficits based on receipts and disbursements were really $1,302.1 billion and $1,409.1 billion, respectively. In other words, last year was about 8% worse than the year before, certainly not better. It is not without cause that radio talker and Liberty and Tyranny author Mark Levin called President Obama "the most profligate, irresponsible spender in world history" on his January 18 program.
Uncle Sam's GAAP deficit, seen above as "Net Operating Cost," was even greater, amounting to $2.080.3 trillion. This dwarfed the comparable number of $1.253 trillion in 2009. The increase occurred because the government's obligations to its military retirees and veterans, civilian retirees, and its functionally bankrupt government service enterprises Fannie Mae and Freddie Mac exploded. More depressing: In 2008 and 2007, the comparable fully-loaded deficits were "only" $1.01 trillion and $275.5 billion, respectively. Again, a situation that was breathtakingly bad in fiscal 2009 got "progressively" worse in 2010.