Tuesday, May 29, 2007

Hey kids, can Gramps borrow a half-million dollars?

From USA Today: "Rules hiding trillions in debt - Liability $516,348 per U.S. household"

Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

The federal government does not follow the rule, so promises for Social Security and Medicare don't show up when the government reports its financial condition.

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.
It's the new math! According to the federal government, if you lend yourself money you've doubled your assets because you have 1.) the cash and 2.) the I.O.U. to yourself. And if you wonder why I agitate over this issue so much, here's why:

This hidden debt is the amount taxpayers would have to pay immediately to cover government's financial obligations. Like a mortgage, it will cost more to repay the debt over time. Every U.S. household would have to pay about $31,000 a year to do so in 75 years.
How can we possibly continue with this accounting fiction?

The White House and the Congressional Budget Office oppose the change, arguing that the programs are not true liabilities because the government can cancel or cut them.
Ha ha ha!!!! Oh, heavens.

More - Great minds (like me and Bulldog Pundit) think alike.

4 comments:

Anonymous said...

This article is absolutely BS.

"Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later."

True, except that in the case of future promises of SS and Medicare, no transaction has occurred yet, so there is no legal liability. The only legal liability is the excess of SS and Medicare collections that the government has collected and used for general account expenditure.

Ask yourself this: What is the legal liability if Congress changes the law next year, and simply cancels SS? Nothing. Politically, that action may not be feasible, but legally, all future liabilities would be wiped out.

Therefore, the federal govt and the CBO are exactly correct in treating the SS and Medicare for what they are, a generational transfer of money from the young and working to the old and retired.

Bram said...

Don't be the one holding US Treasury bonds when the revolution comes - I don't intend to honor them.

Hercules said...

Anonymous, what plane do you live on?

Social Security & Medicare are LIABILITIES to the U. S. Government. Creative Accounting does not hide these liabilities. Congress will NEVER cancel these programs. They could, however, fund them in a more responsible way.

TGK said...

Ask yourself this: What is the legal liability if Congress changes the law next year, and simply cancels SS? Nothing.

What if they don't "simply cancel SS"? What's the liability then?