« Washington plans to use a decrease in deficit spending as cause for celebration in balancing the budget. (Mandel Ngan/AFP/Getty Images)


The Truth About the Deficit


September 7, 2007 | From


Washington is set to celebrate “good news” about the deficit. Expect this party to get crashed in a bad way. By Robert Morley


The champagne will be flowing and fireworks crackling next month in Washington when the government releases its federal budget details for 2007. Looking at the numbers, it might at first seem like a real cause for celebration. But don’t be fooled by the toasting and big speeches, or even the figures themselves. Beneath convoluted accounting tricks and unaccounted-for spending lies a dirty little government spending secret that will bankrupt the nation.

The Treasury Department is expected to announce that the federal budget deficit for fiscal 2007, which lasts from October 2006 to September 2007, will have dropped to approximately $158 billion. That will be a reduction of almost $90 billion from fiscal 2006, and will probably produce good headlines for a government stuck fighting a losing war in Iraq and trying to keep the economy moving forward despite a bursting housing bubble.

But the government has a little secret that it doesn’t want you to know. If the government used industry standard accounting rules—the rules that public corporate accountants could get thrown in jail for violating—the real federal deficit would be massively greater.

One of the easiest ways Washington pads its books is by “borrowing”—appropriating—Social Security money. Currently, Social Security receives about $78 billion more than it pays out to current retirees. The government takes that $78 billion, uses it to finance spending, and replaces it with a government iou, disregarding the fact that it will have to repay the iou with interest.

The official budget deficit does not account for that $78 billion. Social Security plundering has become one of the government’s favorite tricks—so much so, that the fund is now little more than a bag of ious.

Because of this Social Security “borrowing,” the government must fork over a whopping $108 billion in interest for the fund’s current $2.2 trillion in ious.

How does the government pay for this? It simply throws in $108 billion more—not in cash, but in more ious. This figure does not count in the federal deficit either!

If the government had to honestly account for its Social Security plundering, the deficit would actually be $186 billion higher—more than doubling the official statistics.

Like Social Security, the government uses similar bookkeeping tricks with other government accounts such as the federal employee pension funds. During fiscal 2007 alone, the federal government spent $97 billion worth of pension money and other government accounts—replacing it with some very big ious. None of that borrowing made it into the government’s official deficit statistics either.

But soon Social Security and other pension “borrowing” will begin to backfire. The giant wave of baby boomers that is helping to provide the Social Security surplus is now approaching retirement. When this generation begins retiring, there will suddenly be fewer people paying into government retirement plans and many more collecting from them. Once the money flowing into retirement funds is no longer enough to cover its payments, the government will have to supplement future payments out of its general revenue. This will hit upcoming budgets with a double-whammy. Not only will politicians no longer be able to “borrow” from these funds, but now they will have to pay money into them. The leading edge of the baby boomers wave is just a couple of years away.

Accounting for borrowing from Social Security and other government pension-type plans, a more accurate U.S. budget deficit would be closer to $441 billion. But the true deficit is even worse than that.

The government also does not account for what it considers one-time “emergency spending.” Unfortunately this “emergency spending” includes, but is not limited to, the wars in Iraq and Afghanistan. War spending is not really a one-time event, but using this rationale, the government has not accounted for hundreds of billions over the past six years of war. This past March, for example, the House passed an emergency war funding bill for approximately $124 billion. This borrowing is not accounted for in the official fiscal 2007 deficit either.

In 2005, the government approved $87 billion in “emergency spending” to cover the costs of hurricanes Katrina, Wilma and Rita. Similarly, that money was not included in the government deficit reports.

For a more accurate indication of government spending, look at the government’s own debt tables at the Treasury Department website and ignore the “official” government press releases.

Fancy gimmickry and obscured accounting practices may give government finances a pretty façade—if you consider $158 billion in “official” debt in one year pretty—but this guise will only be sustainable for so long. Eventually, budget shenanigans will fall through. When they do, America’s creditors will flee, and the party will come to a quick end. Instead of champagne and fireworks, Americans will see high interest rates, a bankrupt government, and vastly reduced or non-existent Social Security and government pension benefits.

And that’s just the beginning—wait till the after-party.



From: Source

  The exercise which is slated to run from October 15th to October 20th is described as a way to prepare, prevent and respond to any number of national crises.

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