Re: The actual US defict....... (into the trillions last year, entirely fatal, US GAO)
- From: RogerDodger <none@xxxxxxxxxxxx>
- Date: Wed, 02 Jan 2008 16:53:32 -0500
On Tue, 1 Jan 2008 15:27:50 -0800 (PST), Lysander
<lysander@xxxxxxxxxxx> wrote:
On Dec 29 2007, 3:02 am, RogerDodger <n...@xxxxxxxxxxxx> wrote:
On Sun, 23 Dec 2007 15:56:04 -0800 (PST), Lysander
<lysan...@xxxxxxxxxxx> wrote:
On Dec 23, 12:47 pm, phil scott <p...@xxxxxxxxxxxxx> wrote:
"... not the $163 billion reported in the press, but $2.386 trillion,
with a "t". More than 14x more.
The cash in today is counted in income. The offsetting liability isn't
recognized as an expense.
This is the problem with accuracy in accrual for the government. What
is the liability? I am a very well trained economist and I can tell
you that I could not give you a number I would feel comfortable with.
So, you feel more comfortable with $0?
The cash flow cost of paying down these obligations will require an
increase in general revenue of six points of GDP by 2030 (on current
law that requires an income tax increase across the board, both
individuals an businesses, of 55%). That's just of for Social Security
and Medicare.
You know, 2030 is only 23 years away -- well less than the length of
the typical home mortgage, well within the working careers of most
people working today -- and projecting liabilities that big that are
so close in time really is not so difficult.
But you believe that because there is some modest measure of
uncertaintly in its exact size, a liability that will cost about 6
points of GDP annually (and rising) that soon should be counted as $0?
To avoid being misleading???
The problem is this is that things like social security, welfare, and
medicare are not like pensions in corporations.
??
The SS retirement benefit, which is 85% of Social Security,*is* a
defined benefit pension. Nothing else.
The liability numbers for it are as rock solid as for any other
defined benefit pension plan, GM's or IBM's or anyone else's.
The actuaries of SS, Medicare, the military pension system and the
rest caclulate their accrued liabilities to retirees and future
retirees as accurately as do the actuaries of any private sector firm
that owes retiree pensions and retireee health benefits. The
liabilities are reported in the annual Trustees Reports of SS,
Medicare, etc.
Yet while private firms are required to report these liablities on the
books with their present value charged against income, the government
ignores them.
I've met a lot of people in my life who at first believed such numbers
for the gov't couldn't possibly be true because they are so large --
but upon reading them in the govt's own reports, none ever said they
believed the govt was right to *not* report them in its financials.
Most were appalled at the govt for not doing so.
Really, you're the first to endorese the practice.
Some people who are familiar with this subject actually believe the
government has a *higher duty*, not a lower one, compared ot private
businesses, to report accurate financials.
After all, what is the purpose of financial statements? To report an
accurate picture of the financial status of an entity to its
stakeholders. So they can gauge its fiscal future, and their safety in
relying upon it.
Of course, the stakeholders of a private business all have *voluntary*
relationships with it -- investors can sell out, employees can quit,
creditors and contract holder can terminate their relationships, etc.
-- if the financial status of the entity heads south so as to harm
them. There's no kind of *public trust* involved in such businesses.
Still, even so, the law requires that private sector financials give
them a picture of the entity's likely fiscal future without "material
misrepresention" so they can be prepared for it.
OTOH, the stakeholders of the federal govt -- voters, SS tax payees,
Medicare payees, etc, -- have *no choice* in the relationship. And
many who are up on this issue think this should obligate the govt to a
*higher* standard of reporting to the public on whose behalf they are
supposed to act. .
Yet what we get from all sitting govt officials (outside of GAO), and
from both political parties is: "OK, a 55% and rising income tax hike
OR massive retiree benefits cuts OR an equivalent combination of both
is coming by 2030, with steadily more later. Shhhh, don't tell the
voters, that would be awkward for us!"
Do you really think this is right??
If so, don't you think Lay and Fastow & Co. should have been allowed
to keep all those off-the-book liabilites off the books, because
revealing same was so awkard to them?
It wasn't like those guys had been given any kind of ** public trust**
to many millions of people top political leaders have.
?The government buys
the medical care not just insurance where you may and I stress may be
able to find a trend stationary series on the price of medical
insurance. Social security and welfare are heavily tied to inflation.
Welfare is tied to the business cycle. I have no way of even beginning
to give you an accurate projection of welfare benefits 10 years from
now...
Who's talking about welfare?
We're not talking about government programs that are budgeted
annually, like Defense Dept or Agriculture Dept or Whatever Dept.
We are talking about *accrued liabilities* that exist under GAAP
accounting rules that apply to everyone except the federal govt.
<snip>
I respect Greenspan but I also know he is an economist and not an
accountant.
The people at GAO *are* accountants and prepared these numbers for
you, and him before you.
I just do not trust the numbers on SS or what liabilities
that are tied to inflation and stretch over an infinite horizon might
be.
What "infinite" time horizon? When somebody props up the "infinite
time horizon" straw man to knock down, you know their argument is
backed up against their own goal line. ;-)
Is 2030 an infinite number of years from now, when we are projecting
the cash flow cost of these liabilities coming due, year-by-year?
You know Monte Carlo analysis, right?
Do you really think the actuaries and trustees of SS, Medicare, etc.,
are so dim that they wouldn't give their range of projections
considered for the inputs in their calculations -- inflation, GDP
growth, real cost growth, etc. -- and run Monte Carlos with them, and
give the full range of results in their reports?
When they do and the result is ... "lowest cost: trillions, to highest
cost: lots of trillions", do you really think the least misleading
number to report is $0. ???
The CEO then gives himself a bonus for the
record profits he just generated. Besides being materially misleading
of itself, the incentive effects are, well, bad.
I think any bunk accrual number you put for SS, medicare, or TANF
would be worse than cash.
Why would the actuaries of SS and Medicare produce "bunk" numbers?
If officials in our government actually would do such a thing, why,
they shouldn't be trusted to run our benefit programs, some would
think! ;-)
Anyway, you are again saying that when a liability is unquestionably
in the trillions of dollars, an estimate of it...
a ) that is annually updated using best actuarial principles that give
a liability in the trillions of dollars, is "bunk".
b) of $0, is not bunk.
How odd.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Not just for CEOs, but for politicians as well. Which is why
governments other than the federal government now are generally being
required to use their own version of accrual basis GAAP reporting.
(They hate it, and are being dragged kicking and screaming towards
recognizing their pension and health plan retirement liabilities to
their employees.
The problem with pensions and health plans they do not like is now
having to report if the pension plan is over or under funded. This
makes a huge change in liabilities and has made some recorded profits
crash. It is not recognizing the liability that is really the problem....
First of all, that's just wrong.
When you don't even know that accural accounting is required by law
for businesses with income over $1 mil, and deny it is so, you should
pehaps show some care in giving lectures about accounting.
As I said, many governments are kicking and screaming against the new
accrual rules for governmental GAAP accounting that make them newly
recognize retireee health care liabilities on the books for the first
time because it sharply reduces their net income and greatly increases
their reported governmental liabilities PERIOD.
They then have to raise taxes/cut spending to balance their budgets,
as often required by state constitutions, which they don't like -- and
voters also ask them "Where the hell did all this debt we have to
cover suddenly come from??" PERIOD.
Secondly, how can you possibly say in the same sentence "a huge change
in liabilitiies" affects recorded profits (govenments have "profits"?,
sloppy, sloppy, sloppy) but recognizing liabilities is not the
problem??? Hello???
Of course it is recognizing the liability that creates the problem.
An entity using cash accounting like the federal govt *doesn't*
recognize any liaiblity in the future, hence it has no reported
pension liability to fund and no overfunding or underfunding issue at
all.
This is what you are recommending as superior?
it is the report of the liability versus the funding of the pension
plan that is the problem. If the plan is properly funded or over
funded it is not a problem.
Your cash basis books say you don't have the liability.
What's the proper amount to fund on your books a liability that's not
on them?
Politicians do like to be able to recognize cash
received today from health plan contributions as budget-boosting
income they can spend, without recognizing the years of liabilities
for health plan costs that come attached to it, which will materialize
as cash obligations only long after they have moved on, on some other
guy's watch .)
Maybe but do you seriously believe we can put accurate numbers on how
much money will paid out in SS, medicare, and TANF over the next 50
years? That means predicting inflation properly for 50 years...
~ Sigh ~
So you'd rather ignore the work of all the actuaries, economists,
accountants, etc. at the Social Security Administration, Medicare,
GAO, etc., because their estimiate of $50 trillion might be say $5
trillion off. Maybe $10 trillion off.
You'd rather use $0 as a number -- because that's only going to be $40
trillion off, or $45 trillion off ... or maybe $60 trillion off. (The
SSA actuaries et. al. could be off on the *low side* you know.)
Thus we have a new GAAP accounting principle: when a BIG accrued
liability has a measure of uncertainly about it, report it as $0!
Because we mustn't be innaccruate! ;-)
We'll call it "The Ken Lay Rule".
But we'll only apply it to governments, of course. Private
corporations will remain subject to normal GAAP "most accurate to the
real dollar value" estimation rules, because shareholders and
creditors must be protected from financial mal-reporting.
We only want to screw expose voters and those dependent on goverment
who wll be placed in jeopardy when the big fiscal crunch starts
hitting in the 2020s. No warning for them!
Because governments and politicians certainly deserve to be held to a
much *lower* standard of accounting than private businesses, right?
BTW, did you know Standard & Poors projects that on current law the
credit rating of the US will fall from AAA to "junk" in the 10 years
from 2017 to 2027?
http://www2.standardandpoors.com/portal/site/sp/en/eu/page.article/2,1,8,0,1112292523641.html
See Chart 4.
Hey, 2027 ... that ain't "infinity" from now!
But sshhhh... don't tell anybody!!
PS:
Enron never commited a material misrepresentation anywhere near as big
and brazen as the federal govt's receiving SS tax receipts and
including them in income today, while not recognizing expected decades
of future benefit liabilities to the tune of $ 4 trillion, present
value -- because technically they have not been finally "earned",
since the gov't can always change the law to reduce them.
How do you get the 4 trillion number. What assumptions are made about
inflation? What interest rate is used?
Oh, for cryin' out loud ... if you really are such a well-trained
economist, you ought to be able to read primary documents.
They ain't secret.
If you aren't so well trained as to know what they are, the previously
linked to "The Fiscal Year 2007 Financial Report of the United States
Government" ...
http://www.gao.gov/financial/fy2007financialreport.html
.... gives the summary information and notes to the primary sources.
BTW, why'd you cut the link?
Challenging information while cutting the link to it is very bad
usenet form.
Not that much good usenet form exists any more, but just the same...
PPS:
In private sector accounting, similar issues of uncertainty regarding
future liabilities arise all the time. The required action is a "best
estimate", that may change year to year, sometimes by a lot, but still
it is a best estimate. The federal govt's action is to estimate $0.
The corporation projections are not for benefits that adjust to
inflation nor benefits that are paid when the economy is down
Corporate accrued liabilities *sure do* adjust to the effects of
inflation, interest rates, the economy's ups and downs and resulting
effects, etc., when they affect the true cost of a liability. For
many regular ongiong business liabilities as well as corporate retiree
liabilities.
You really don't know much about this subject.
But being that before my last post you didn't even know they had to
use this kind of accounting, why should you?
Corporate accrual accounting is quite complex. Don't try to figure it
out for yourself from first principles. That's how all the dumbass
Georgists operate.
.
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