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We Owe the World


Businesses are required to track their income, expenses and obligations according to a standard set of rules. The rules are called Generally Accepted Accounting Principles, or GAAP. Although there are complexities and abuses, following GAAP allows businesses to be reliably compared against competitors. GAAP helps the Securities and Exchange Commission deter management from manipulating the books to overstate profits or hide liabilities.

A corporation has to record its liability for worker pensions, for example, at the present value of the promised stream of payments to retired workers. If General Motors has to make $1000 monthly payments to a former autoworker, GM’s books have to show not just the $1000 as a liability, but an amount big enough to keep making that payment for the expected lifetime of the worker. Not showing enough in reserve to be sure the thousand bucks will go out every month would violate GAAP, subjecting GM’s management to criminal charges and SEC penalties.

Government is not bound by GAAP. Congress and the Executive Branch keep the Federal books without any meaningful oversight. There’s no SEC regulating the government’s accounts. Federal liabilities for Social Security and Medicare are not counted as a long-term obligation like they are for General Motors pensions. Following the previous example, government only records the $1000 payment with no reserve for the next month’s obligation.

If the US government kept its books by the same rules as GM and every other business, the Feds would need a $65.5 trillion reserve:

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.

The debt and deficit figures used in popular discussions are fictionally low. The projected $12 trillion national debt for 2009 does not account for promised Social Security payments. Legitimate accounting shows the United States owes more than the entire world produces.



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The US is one “world” in debt today. It could be paid down, gradually, over a generation or two. But if the government keeps using phony accounting, our children will likely pass on two “worlds” worth of debt to their children.