On the Other Hand...
by Jim Davies
The Feds Admit They Are $3 Trillion Broke
Thanks to our Congressman, Charlie Bass, a document has fallen into my hands with deeply profound significance: it admits, with astounding lack of concern, that the Federal Government owes $3 trillion more than it owns. I think that's mistaken, but the admission is amazing.
It is Chapter 2 of a paper called "Analytical Perspectives" produced by the President's Office of Management and Budget (OMB) just recently. That Office is headed by Alice Rivlin, widely regarded as one of the more sensible Democrats and shortly to move off to be #2 at the Federal Reserve. If Ms Rivlin's head is on straight, all the other Clintonistas must be living on another planet.
If you still have any illusions that the $1.6T/yr organization we call "our" government has any sense of responsibilty to us, its masters, or to anyone else, be prepared to shed them now. This document proves conclusively that not even the best of them knows which way is up. Here are some of its key points.
Negative Net Worth
Any one of us who operates a household knows what this is about: solvency. We may not actually keep books or retain an accountant, but if we had to (for a loan application, for example) we could within a few hours give a pretty fair idea of what we own and owe. Accountants call those "assets and liabilities", in that order. If we own more than we owe, we have a positive net worth and can hold our head up high; if negative, we're bankrupt in all but name.
Why? - because unless we can fool or put off our creditors a bit longer (they are the folk we owe the money to) there's nothing to stop them moving in to take what we do have, to pay off at least part of what we owe them.
Example: Billy and Alice live in a trailer and own a '77 pickup and a small savings account. Total assets: $23,000. Meanwhile they have a mortgage and some credit card balances, and Billy has some huge gambling debts while Alice is running up some big medical bills. Total liabilities: $53,000. So they are (53-23 =) $30,000 in the hole; they have a $30,000 negative net worth. If I held their mortgage, or any of the other loans, and got to hear of this, I might well foreclose - to avoid losing what is, to me, an investment. Wouldn't you? They'd then lose both truck and home, but we'd recover (23/53 =) 44%.
Well, hear Alice Rivlin's "Perspective", on that organization that boasts about its "full faith and credit" on every bank teller's window in the country:
"[The Federal Government's] formal liabilities exceed the value of assets... by $2.963 trillion." I hope she'll not mind if, to make all those big numbers a little easier to see, I round that disaster up to an even three trillion. Her staff thinks the Feds own $2.3T worth, but owe $5.3T worth. And you thought Billy and Alice had problems in their trailer.
But last time I looked, Alice Rivlin is not carless or homeless and neither are any of the other minions who work in her boss's outfit. In fact, the Washington DC metropolitian area, where a lot of them reside, is known as the most affluent in the Nation. Funny thing!
Atrocious Accounting
So, by the OMB's own figures, if the Feds were to go out of business tomorrow (delicious thought!) its creditors would get only 44 cents on the dollar. That should keep some of them awake nights. And by the way folks, those "creditors" are not some far-off group of rich guys. If you own a savings certificate of the US Government, YOU are one of its creditors. If your pension fund manager owns any T-Bills, YOUR PENSION is at the mercy of this debtor, with its $3T negative net worth; were it to do the honest thing, Alice Rivlin is admitting that your pension would be paid at 44 cents on the dollar. But that's not the half of it; to come, there's good news and bad news.
That news is, that the US President's top accountant, his hand-picked OMB, doesn't appear to me to have gotten its figures anywhere close to real life. This miserable paper has utterly failed to count certain huge liabilities AND (surprisingly) some huge assets as well. So the admitted $3T negative net worth of the world's most respected government is a fairy tale, a meaningless number.
I happen to have done a little work in this subject area, and it's admittedly very hard to do it with much accuracy. But what the Feds own has here been grossly understated; Federal assets by one measure add up to $100 trillion, and are almost certainly over $12 trillion - four or five times the OMB guesstimate. And the liabilities are understated also - by a factor of two or more; the OMB is not even counting its "Social Security" obligations! Those amount to well over $6 trillion, and the Nation's top accountant just happened to overlook them. Welcome to la-la-land on the Potomac.
The Solution
One other memorable phrase in the OMB paper is that the Feds' "sovereign power to tax" will solve any minor imbalances like a $3T negative net worth; in other words, if push ever came to shove, they have the power to take it all away from us, and would use it. Once again, they show they live on a different planet; if you got a bill for your share of that $3T it would be around $30,000 a family. That every one of us would have to cough up thirty grand, on the barrel head. Every one, not just our rich uncles. They just have no idea of what's going on!
The only credible solution I have seen is authored by Harry Browne, and yes, he is running for President, on that "Third Party" ticket all the media pretend to be looking for so hard: the Libertarians. You can vote for him in November, and he is deadly serious in proposing to liquidate 95% of the Federal Government by selling its assets - to pay off that $5.3T debt, and to purchase true social security for victims of the "Social Security" scam. He may well provide our last chance to stop this financial disaster before it ruins us all. Take it!