Big Numbers

There's no question that we're talking big numbers -- with plenty of zeros -- when it comes to efforts to "rescue" the U.S. economy. But it didn't take the latest wave of profligacy to prove that Washington has a serious spending problem. That fact was obvious to anyone who was familiar with the all-in cost of the government's retirement safety net. In "Federal Obligations Exceed World GDP," WorldNetDaily's Jerome R. Corsi covers the issue in frightening detail.

Does $65.5 trillion terrify anyone yet?

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.

The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the "2008 Financial Report of the United States Government" as released by the U.S. Department of Treasury.

The difference between the $455 billion "official" budget deficit numbers and the $5.1 trillion budget deficit cited by "2008 Financial Report of the United States Government" is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.

But the numbers in the 2008 report are calculated on a GAAP basis ("Generally Accepted Accounting Practices") that include year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.

Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits accrue.

"As bad as 2008 was, the $455 billion budget deficit on a cash basis and the $5.1 trillion federal budget deficit on a GAAP accounting basis does not reflect any significant money [from] the financial bailout or Troubled Asset Relief Program, or TARP, which was approved after the close of the fiscal year," economist John Williams, who publishes the Internet website Shadow Government Statistics, told WND.

"The Congressional Budget Office estimated the fiscal year 2009 budget deficit as being $1.2 trillion on a cash basis and that was before taking into consideration the full costs of the war in Iraq and Afghanistan, before the cost of the Obama nearly $800 billion economic stimulus plan, or the cost of the second $350 billion in TARP funds, as well as all current bailouts being contemplated by the U.S. Treasury and Federal Reserve," he said.

"The federal government's deficit is hemorrhaging at a pace which threatens the viability of the financial system," Williams added. "The popularly reported 2009 [deficit] will clearly exceed $2 trillion on a cash basis and that full amount has to be funded by Treasury borrowing.

"It's not likely this will happen without the Federal Reserve acting as lender of last resort for the Treasury by buying Treasury debt and monetizing the debt," he said.

"Monetizing the debt" is a term used to signify that the Federal Reserve will be required simply to print cash to meet the Treasury debt obligations, acting in this capacity only because the Treasury cannot sell the huge of amount debt elsewhere.

The Treasury has been largely dependent upon foreign buyers, principally China and Japan and other major holders of U.S. dollar foreign exchange reserves, including OPEC buyers purchasing U.S. debt through London.

"The appetite of foreign buyers to purchase continued trillions of U.S. debt has become more questionable as the world has witnessed the rapid deterioration of the U.S. fiscal condition in the current financial crisis," Williams noted.

"Truthfully," Williams pointed out, "there is no Social Security 'lock-box.' There are no funds held in reserve today for Social Security and Medicare obligations that are earned each year. It's only a matter of time until the public realizes that the government is truly bankrupt and no taxes are being held in reserve to pay in the future the Social Security and Medicare benefits taxpayers are earning today."

Calculations from the "2008 Financial Report of the United States Government" also show that the GAAP negative net worth of the federal government has increased to $59.3 trillion while the total federal obligations under GAAP accounting now total $65.5 trillion.

The $65.5 trillion total federal obligations under GAAP accounting not only now exceed four times the U.S. gross domestic product, or GDP, the $65.5 trillion deficit exceeds total world GDP.

"In the seven years of GAAP reporting, we have seen an annual average deficit in excess of $4 trillion, which could not be possibly covered by any form of taxation," Williams argued.

"Shy of the government severely slashing social welfare programs, federal deficits of this magnitude are beyond any hope of containment, government or otherwise," he said.

"Put simply, there is no way the government can possibly pay for the level of social welfare benefits the federal government has promised unless the government simply prints cash and debases the currency, which the government will increasingly be doing this year," Williams said, explaining in more detail why he feels the government is now in the process of monetizing the federal debt.

"Social Security and Medicare must be shown as liabilities on the federal balance sheet in the year they accrue according to GAAP accounting," Williams argues. "To do otherwise is irresponsible, nothing more than an attempt to hide the painful truth from the American public. The public has a right to know just how bad off the federal government budget deficit situation really is, especially since the situation is rapidly spinning out of control.

"The federal government is bankrupt," Williams told WND. "In a post-Enron world, if the federal government were a corporation such as General Motors, the president and senior Treasury officers would be in federal penitentiary."

Comments

[Victor Berry]

Why is WorldNetDaily sounding the alarm now? I bet the very same people were ridiculing Al Gore's "lock box" idea back in 2000. Not so ridiculous now, huh?

One of the biggest frauds ever perpetrated on the American public was Social Security reform passed back in 1983 or 1986. Reagan and the Democratic Congress raised SS taxes but permitted the annual surplus collected to be dumped into the general revenue fund. Sure would be nice to have about $3T sitting in a lock box now, huh?

By the way, Jerome Corsi is a big steaming pile of bull shit. If his name is associated with this article, then it contains total crap.

[RR]

Speaking of only one side of the cash flow balance is just incredibly stupid. Equally we could look at a private business and say "OMG, they are liable for trillions in wages in the foreseeable future!". Of course they are.

There is some mischief in the budget deficit figures that are usually presented. Leaving the Social Security Trust Fund surplus out of the budget deficit calculations is an outright lie. But it is a problem for the general fund, not for the SSTF.

Saying that there is no fund just doesn't make sense. If there was no SSTF—and no FICA taxes that are paid into it—the government would have to borrow from someone else. The SSTF surplus is a very real part of the budget deficit for the general fund.

[ArtE]

Actually, there is no problem with our Medicare and Social Security commitments. At some point when they can't be sustained at present levels, they WILL be cut back. Cutbacks will be driven by politicians responding to or realizing an imminent revolt of younger people against the staggering load that the boomers have laid upon them.

There will be a tipping point where most young people and enough of the boomers realize that by clinging to their "entitlements" they are destroying the country (kind of like Unions or AARP that won't back down until bankruptcy). There will be populist politicians who emerge to give voice to the rage of the young.

It's not the fault of the boomers, mind you, it's that the significant extension in lifespan along with declining birthrate have exposed the systemic flaws in the system's assumptions.

The acceleration of the economic collapse will cause many things to come to a head. Grover Norquist's roadmap to the end of the USA (as we know it now) will be followed simply due to the inertia of human behavior. When Foreign Central Banks stop buying T-Bills, the music will stop. When that happens, who knows what the USA will look like? I don't think "Mad Max", but poorer, desperate, confused, humbled, do come to mind.

[stustev]

Isn't the GDP calculation skewed? If the US GDP is 70% retail sales then 70 percent of the GDP is not a product it is a service.
When you compare the relative percentages of debt to (actual product) GDP the numbers are scary.
Using retail sales is just a derivative number (ignoring the current 'wisdom') to inflate the GDP. We cannot sell the retail service. We shouldn't count it is GDP.

[Marion Shaw]

The more I read various viewpoints regarding the
state of the economy, the more realistic the Bible
prophecies seem to point to the enevitable outcome.
There will be a time when a day's wages will earm a
loaf of bread; we will have a universal, global system
that will reguire a registered number (666) to buy
or sell; the system will affect the rich as well as the
poor; gold and silver will save nobody. A supernatural
dictatorship will be imposed upon the world and failure
to pay homage to the dictator, will result in death.
Anyone who goes along with this last ditch effort and
takes the number, will automoatically forfeit their
place in Heaven. It does not sound so far off base
the more I read and the more I observe and the more
I think. It is said that the last holdouts are the
North Koreans; and they brutally persecute a Christian
Church that some say will shake the world with truth
when they are free to speak openly.The one thing the
underground North Korean church is not afraid of, it
is said, is death, suffering and starvation. Time
will tell who was right about what.
The real question is: Is time running out?

[Merry-will-go-round]

This article is chalk-full of propaganda designed to fuel the resignation of the American peasantry-to-be that to continue to have hope in social safety nets is childish, if not foolish, thinking. Hopefully, most readers will feel more insulted than fearful after reading.

[Bruce]

Marion,

I too think this financial crisis is predicted in prophecy. Read James Chapter 5, and Revelation 18. When you study those scriptures in depth, it paints a startling portrait to the situation the world is in today. NOTHING can stop the inevitable. The time has come for the destruction of all fiat based monetary systems.

Scary times indeed.

[Rick]

Jerome Corsi? The same Swiftboat D-Bag of Truth Jerome Corsi?

Since when does this guy have even one once of credibility? Indeed, since when does WorldNUTDaily have any credibility?

Consider the source here, please.

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[Gibbon1]

WorldNetDaily.... why in gods name are you quoting anything from that cesspool? And from the worthless tool Corsi pushing lies and disinformation about Social Security no less. I mean WTF?

Anyone who can think rationally about the subject knows that SS's commitment is limited to some (subject to change) share of the future GNP. I understand why Corsi patrons are freaked out,

a) The flow of social security money doesn't flow through their hands and thus they can't strip of their usual 10-20%. This understandably drives them crazy.

b) Having fleeced the baby boom via the social security surplus these last thirty years they are unhappy with the prospect of the cash flow reversing.

Why you, me and anyone else reading this blog should care about a+b is beyond me. I mean their tax cuts were funded by raiding SS, when that is gone, presumably they will be required to pay back in though higher taxes. Excuse me, I'm feeling a boo hoo hoo coming on.

[weinerdog43]

Mr. Panzner, I also echo the previous comments.

Jerome Corsi is a known liar. He has zero credibility. Please don't waste any more time citing trash like World Nut Daily and our Mr. Corsi. Thanks.

[Rob M]

It seems that neither Mr. Corsi or Mr. Williams is responsible for the estimate regarding the true deficit. The estimate comes out of a report issued by the Department of the Treasury. If this is the case, then all these two individuals are doing is reporting the news. In this is true you can't kill the messenger for that.

If anyone deserves to go to jail, besides all those already mentioned, its all members of Congress past and present who voted for these budgets abd submitted them to the various Presidents for approval.

[DBH]

Considering that the majority of our tax money goes toward military expenditures, it would seem obvious that the military budget could be cut, thus freeing up more than enough funds for social security. But of course, that is not what the likes of Mr. Corsi want you to focus on.

[gibbon1]

If anyone deserves to go to jail, besides all those already mentioned, its all members of Congress past and present who voted for these budgets abd submitted them to the various Presidents for approval.

One thing I learned in the eighties, the executive branch branch draws up the budget, congress then does a bunch of budgetary WWF moves and then passes the sucker pretty much unchanged. In particular, without fail the total size of the budget as passed is almost the same as proposed. You can argue all you want about whether things should be done that way, but it's the way it is. Meaning if there is going to be a responsible budget passed, the president has to propose one.

[MacroEconomic]

So when can we start calling it Depression 2.0?

http://depression20.ning.com
(world's first social network based on the next coming great depression)

[Kelvin Jones]

I just noticed that much of what's posted here surrounds books that tout the serious condition of our financial systems and yet these books are being sold in USD. Now, I'll admit that I haven't looked at every comment, I was brought here by a link from www.forexfactory.com, but, what I wondered was, if the writer of the Big Numbers article is even half correct, then, why would anyone be selling a book or anything else for money?

Shouldn't these items be made available on a barter system since money isn't going to be worth anything soon and the only things of value will be food, clothing and shelter? Just a thought.

My comment isn't intended to urk or upset, it was just a passing thought because the argument made in the article makes it quite clear that a) the USD is worthless but the world doesn't know it yet and b) once the world wakes up and realizes "a)", then all other currencies will be equal to it.

Have a nice day.

[pebird]

I'm not discounting that there are real problems for Social Security (not of it's own making), but if you are going to say that SS expenditures will exceed revenues by $40 trillion over 75 years, you should also mention US GDP should be somewhere on the order of $1.2 quadrillion over the same 75 years (assuming the US lasts that long, in which case we don't need to worry about SS either).