[BlackGriffen]

National Review with the Story

A new report from the Congressional Budget Office explains that the deficit is a virtually meaningless measure of the government’s indebtedness. The main reason for this is that the federal government uses cash accounting rather than accrual accounting. What this means is that the government can acquire massive debts far into the future with virtual impunity. The government can also, in effect, cosign for loans and provide insurance that could potentially cost taxpayers hundreds of billion of dollars without it ever showing up in the budget until a check has to be written.

By the CBO’s reckoning, the federal government’s true debt last year was $8.5 trillion — more than twice the debt held by the public, which we generally think of as the national debt. That figure came to $4 trillion, only slightly more than the $3.9 trillion in future benefits owed to government employees and veterans.

But even the $8.5 trillion figure is much too low because it excludes the really big debts that are owed for Social Security and Medicare. Since these obligations extend far into the future, the only way they can realistically be quantified is by using a statistical method called present value. This takes account of the fact that $1 fifty years from now is worth much less than $1 today. Future debts need to be discounted to put them into today’s dollars.

Even with discounting, however, the figures are massive. The CBO estimates the unfunded liability for Social Security at $7.2 trillion. But this is virtually nothing next to the $37.6 trillion cost of Medicare. In short, we would need to have about $45 trillion in the bank today earning interest in order to pay all the promises that have been made for future Social Security and Medicare benefits — over and above the future taxes and premiums that will be collected to fund these programs.

To put these numbers into a form that is comprehensible, the CBO has made a calculation of the future gross domestic product that will be produced over the same time period. These are the actual resources from which Social Security and Medicare benefits will be paid. The CBO estimates that we would have to raise taxes by 6.5 percent of GDP immediately and forever to maintain these programs in perpetuity. This year alone, that would mean a tax increase of $800 billion.
[...]
It goes without saying that if any private corporation had behaved the way the government has, it would soon find its executives being sentenced by a federal judge. It is illegal for businesses to keep their books the way the government does, hiding their long-term liabilities from shareholders the way the government disguises its indebtedness from voters.

Writing in the Nebraska Law Review last year, George Washington University law professor Cheryl Block compared bookkeeping by the federal government to bookkeeping by businesses involved in corporate scandals. She found little difference. Congress, she wrote, “has been guilty of using accounting devices remarkably similar to those used by Enron, WorldCom and others to ‘cook the books’ and to mislead the public with regard to government finances.”
[...]

This particular issue as an old one of bipartisan sleaze - perhaps even under the excuse that it is the way the government has always been run.

Perhaps a think tank should set itself up, as well as it can, as a shadow accountant, just to try to keep the government honest.


BlackGriffen

[chris v]

"I'm shocked! Shocked to find gambling here."

"Your winnings, sire."

"Thank you."

[Secret__Police]

When will the day come that we can no longer service the National Debt??
What happens when/ if we default?

[Logic]

Best economy in 20 years?

[Beewee]

All money should be taken to a 3rd party independent corporation. Basically the government needs a crash course in debt management.

[tie]

Originally posted by Secret__Police:
When will the day come that we can no longer service the National Debt??
What happens when/ if we default?

The debt is in dollars, and we can print money. However a debt crisis would crash the US economy, as well as the rest of the world's -- but the US would not recover for a long time while the rest of the world would. Even without a crisis, though, large debts hurt the economy.

[ringo]

That's the great thing about Bush, he's so dependable. If he says a set of his policies will cost some amount, you can depend that it will cost more when the money gets counted. Maybe Ken Lay gave Dubya some helpful advice along with those campaign contributions.