Federal obligations exceed world GDP

Does $65.5 trillion
terrify anyone yet?
Posted: February 13, 2009
11:35 pm Eastern

By Jerome R. Corsi
WorldNetDaily

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.

The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the "2008 Financial Report of the United States Government" as released by the U.S. Department of Treasury.

The difference between the $455 billion "official" budget deficit numbers and the $5.1 trillion budget deficit cited by "2008 Financial Report of the United States Government" is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.

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But the numbers in the 2008 report are calculated on a GAAP basis ("Generally Accepted Accounting Practices") that include year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.

Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits accrue.

"As bad as 2008 was, the $455 billion budget deficit on a cash basis and the $5.1 trillion federal budget deficit on a GAAP accounting basis does not reflect any significant money [from] the financial bailout or Troubled Asset Relief Program, or TARP, which was approved after the close of the fiscal year," economist John Williams, who publishes the Internet website Shadow Government Statistics, told WND.

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"The Congressional Budget Office estimated the fiscal year 2009 budget deficit as being $1.2 trillion on a cash basis and that was before taking into consideration the full costs of the war in Iraq and Afghanistan, before the cost of the Obama nearly $800 billion economic stimulus plan, or the cost of the second $350 billion in TARP funds, as well as all current bailouts being contemplated by the U.S. Treasury and Federal Reserve," he said.

"The federal government's deficit is hemorrhaging at a pace which threatens the viability of the financial system," Williams added. "The popularly reported 2009 [deficit] will clearly exceed $2 trillion on a cash basis and that full amount has to be funded by Treasury borrowing.

"It's not likely this will happen without the Federal Reserve acting as lender of last resort for the Treasury by buying Treasury debt and monetizing the debt," he said.

"Monetizing the debt" is a term used to signify that the Federal Reserve will be required simply to print cash to meet the Treasury debt obligations, acting in this capacity only because the Treasury cannot sell the huge of amount debt elsewhere.

The Treasury has been largely dependent upon foreign buyers, principally China and Japan and other major holders of U.S. dollar foreign exchange reserves, including OPEC buyers purchasing U.S. debt through London.

"The appetite of foreign buyers to purchase continued trillions of U.S. debt has become more questionable as the world has witnessed the rapid deterioration of the U.S. fiscal condition in the current financial crisis," Williams noted.


"Truthfully," Williams pointed out, "there is no Social Security 'lock-box.' There are no funds held in reserve today for Social Security and Medicare obligations that are earned each year. It's only a matter of time until the public realizes that the government is truly bankrupt and no taxes are being held in reserve to pay in the future the Social Security and Medicare benefits taxpayers are earning today."

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.

"In the seven years of GAAP reporting, we have seen an annual average deficit in excess of $4 trillion, which could not be possibly covered by any form of taxation," Williams argued.

"Shy of the government severely slashing social welfare programs, federal deficits of this magnitude are beyond any hope of containment, government or otherwise," he said.

"Put simply, there is no way the government can possibly pay for the level of social welfare benefits the federal government has promised unless the government simply prints cash and debases the currency, which the government will increasingly be doing this year," Williams said, explaining in more detail why he feels the government is now in the process of monetizing the federal debt.

"Social Security and Medicare must be shown as liabilities on the federal balance sheet in the year they accrue according to GAAP accounting," Williams argues. "To do otherwise is irresponsible, nothing more than an attempt to hide the painful truth from the American public. The public has a right to know just how bad off the federal government budget deficit situation really is, especially since the situation is rapidly spinning out of control.

"The federal government is bankrupt," Williams told WND. "In a post-Enron world, if the federal government were a corporation such as General Motors, the president and senior Treasury officers would be in federal penitentiary."

World's Largest (Legal) Ponzi Scheme

Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud in what federal prosecutors called a “Ponzi scheme” that could involve losses of more than $50 billion. Some of the world’s richest people were duped by Madoff. He was turned in by his two sons. A Ponzi scheme is an investment program that promises to pay unusually high returns to investors after a specified period of time. A pyramid scheme is similar in that the person running the program pays off the early investors from money paid by later investors who were told that they too can get rich. The early investors, who are often unaware of the fraud, are used as testimonials for how well the program works. So much money is promised to investors that there is no possible way to get enough later investors to meet the investment promises. The Ponzi scheme is named after Charles Ponzi (1882–1949) who was involved in a multi-million dollar fraud scheme where nearly 40,000 people invested about $15 million. And this was in 1921!

The Federal government is quick to shut down these schemes and arrest the perpetrators, but they turn a blind eye to their own Ponzi and Pyramid schemes because it can tax and print money without any legal ramifications. Ben Bernanke, when he was head of the Federal Reserve, said that a liquidity crisis that might lead to deflation could be averted by dropping money from a helicopter. Counterfeiting is illegal, but it’s an everyday occurrence in Washington.

Soon after Charles Ponzi was arrested for his pyramid scheme, Congress legalized one of its own—the Social Security System. When Social Security was implemented, the maximum amount any one person paid into the system was $60 per year—a total of two percent from employee and employer of a maximum $3000 per year. Today, the percentage is around 14% on nearly $100,000 per year. This compulsory “contribution,” as in the “employer’s contribution portion of Social Security,” is the largest legalized pyramid scheme in history

The Social Security Administration estimates that those born in 1877 (and retiring in 1942) got an average of 36.5 percent real rate of return on their Social Security contributions, while those born in 1950 (me) will receive on average a 2.2 percent return. Those born in 1975 will get a return of less than 2 percent. It’s even worse for future workers. The government should have seen this coming when Ida Fuller received her first Social Security check:

Ida Fuller was the living (and dying) example of the built-in flaw of the Social Security program [beside the fact that government has no business forcing people to save]. Ida Fuller received her very first Social Security check, issued by the United States, on January 31, 1940. Thirty-four years and $20,000 in retirement benefits later, she died at the age of 100. Her total “contribution” to the program: $22. Her first check, $22.54, matched her total “investment” in the program.[1]

In 1935, there were 45 people paying into SS for every one person receiving benefits. Today, that ratio is about three to one.2 By the year 2030 the ratio will be less than 2 to 1. Is it any wonder the SS has been described as the “world biggest chain letter”?

“The World's Biggest Chain Letter—Unless You’re the Government”: Social Security is a pay-as-you-go retirement program. Those paying in now are paying those receiving benefits now. Social Security works like a chain letter. Some people have described SS as a “Ponzi scheme,” named after Charles Ponzi, a con artist who bilked people of a lot of money. How did he do it? He would tell people that he would pay them a huge return on their investment within a few months. Then he would take their money and pay off the previous investors. It worked great for the first ones to (unknowingly) get in on the scheme. Ponzi then used his early “investors” as testimonials to attract new “investors.” After a time, the number of investors ran out, and so did Ponzi with their money. Ponzi had worked the “pyramid scheme”: the people at the top (those who get in early) receive the benefits that are being paid in from those at the bottom (those getting in late). The following appeared in Parade Magazine (March 28, 1976): “Social Security is a wonderful plan. People say it’s going bankrupt. Don’t believe them. It works. I know. My uncle reached 65 and he sent in the appropriate forms. In a week he received a wonderful letter: “Dear Mr. Gold. Welcome to the Social Security System. Attached is a list of ten names. Just send $100 to each name on the list and retype up a new list with your name at the bottom. But remember, don’t break the chain!’”[2]

If a private insurance company operated this way, the directors would be arrested, tried, and sent to prison for a long time.

In 1981, employees of Galveston County, Texas, chose to leave SS for a private alternative. At first, not everyone was in favor of the innovative idea. The unions (naturally) opposed it. Employees deposited approximately the same amount of money in private accounts. To date, the funds have achieved an average 8.64 percent annual rate of return since inception. Many of these retirees are millionaires today, living off the interest and free to pass on their estate to their children. This can never happen under Social Security.

Consider this scenario: A man and his wife have paid into SS since the first day they went to work—forty-five years of SS payments. They both reach retirement age on the same day. On the way to the mail box to pick up their first checks, they are killed by a drunk driver. Their estate gets nothing. The money is lost.

Charles Ponzi is alive and well and living in Washington, D.C.

This was article posted: December 16th, 2008
Footnotes:
[1]Gary North, Government By Emergency (Ft. Worth, TX: American Bureau of Economic Research, 1983), 8
[2]Quoted in North, Government by Emergency, 4-5