There was little fanfare for the month-late publication of the US federal government’s accounts. But it’s important for the public to be aware of the terrible fiscal situation and that the accounting methods disguise the extent of the problem
Late on January 17, 2013, the Consolidated Financial Report for the US Government for the fiscal year ended September 30, 2012 was released. Each year the Secretary of the Treasury must submit financial statements to the President and the Congress. This year, the annual report was issued a month late of its target date, and without any press briefing.
The US Government Accountability Office (GAO) audits these statements, and yet again the GAO was unable to express an opinion on the federal government’s financial statements, meaning that they cannot be relied upon to fully and fairly present the financial condition of the US Government. The GAO also stressed that the federal government’s fiscal outlook was unsustainable.
If history is any judge, not many people will read this annual report. It is, however, important that Americans, and anyone concerned with the global economy, understand the crucial points in it.
Firstly, the US government uses the cash rather than accrual basis of accounting for annual budgeting purposes. This method can serve to substantially understate annual deficits. In contrast, the federal government’s annual financial statements use the accrual basis of accounting, which are intended to present a more complete and fair view of the federal government’s financial condition and future outlook.
According to the report for fiscal 2012, the cash basis unified deficit was $1.09trn, while the accrual basis deficit was $1.32trn. Furthermore, the way the federal government reports its liabilities obscures its true financial position by excluding debt owed to the Social Security and Medicare Trust Funds and the related unfunded obligations for these important social insurance programmes.
When the above amounts and various other commitments and contingencies are included, the federal government’s total financial hole was about $69.8trn as of September 30, 2012, up from $65.5trn a year earlier. The current estimate of the federal financial hole is about $70.7trn and it is growing by an estimated $8.2m a minute and about $350bn a month.
The federal government needs to increase transparency and accountability by issuing this report on time and making it more known to the American public and others around the globe. No matter what accounting basis is applied, the report illustrates that the fiscal condition and outlook for the US is dire.
