Hensarling: Why the National Debt Matters
I would like to applaud Jeb Hensarling, Republican Congressman from Texas and Chairman of the House Financial Services Committee, for his recent letter to the editor in the Dallas Morning News March 24, 2014. He pledges to continue to work on the debt and the deficit even though it is not a "front and center" topic of discussion in Washington these days. The recent budget agreement (December 2013) that was developed by Paul Ryan and Patty Murray seems to have settled that discussion, in the minds of most people in Washington, for the next couple of years.
In this letter Congressman Hensarling characterizes the magnitude of our financial crisis in terms of a family in Mesquite, TX that clearly explains just how serious our U.S. Government debt and deficit problem really is and also addresses the magnitude of our Unfunded Liabilities. This assessment of the problem is a current period update to my February 17, 2013 White Paper: "If the Federal Government was a Person" wherein I relate the problem to "Average Joe American". As he states in his letter: "the family has contracted to spend $994,000 in coming years with absolutely no way to pay for it".
Hensarling's example of the family financial situation actually means that his assessment is somewhat larger than the www.usaponzi.com assessment. His example would put the Unfunded Liabilities at $99.4 Trillion while the "USAPonzi Fiscal Model" assesses our Unfunded Liabilities at $76.9 Trillion as of Mar 1, 2014. But the great news is Congressman Hensarling is looking at the total commitment not just the Cash deficit and the Cash debt that most people in Washington use as the measure of the fiscal problem.
Clearly state the magnitude of the Unfunded Liabilities
So Congressman Hensarling I again applaud you for working to resolve the right problem with the proper assessment of the scale of the problem. I do think it would be more helpful however if you would clearly state the magnitude of the future commitments for which the Government has contracted; i.e. state it as $99.4 Trillion and also refer to it as Unfunded Liabilities. The U.S. Citizenry must be informed as to the magnitude of these commitments and also come to recognize that the U.S. Government is making these commitments without making any attempt to fund the Trust Fund that would finance these future promises. So call these liabilities what they are; Unfunded Liabilities. The U.S. Citizenry knows that we have too much National Debt ($17.4 Trillion as of Mar 1, 2014) but they also need to know that our total public liabilities are more than 5 times the amount of our debt. I would also encourage you to use the term "Obligation" to measure these total public liabilities with Obligation defined as the sum of our Debt (money we have spent that we do not have) and our Unfunded Liabilities (money we have promised to spend that we do not have).
Promote the need for GAAP Accounting
I also would ask that Congressman Hensarling address the fundamental cause of the USAPonzi scheme, that being the continued use of Cash Accounting rather than the appropriate GAAP accounting. As the www.usaponzi.com website has repeatedly stated, the continued use of Cash Accounting allows Washington to communicate less than 20% of the fiscal crisis (Debt of $17.4 Trillion vs. Obligation of $94.3 Trillion). GAAP Accounting is a formal methodology that systematically measures the size of our future promises to spend so that the Government routinely knows the level of future commitments that they are making. GAAP Accounting assesses our "real" deficit in FY2014 to be $6.4 Trillion while the Government claims a deficit (Cash basis) that is projected to be "only" $514 Billion. The GAAP deficit of $6.4 Trillion is more than twice our projected income of $3.0 Trillion for FY2014 which means that the Government is spending and increasing our promises to spend by more than 3X our income. That family in Mesquite, TX could not borrow another penny from anybody with that degree of financial irresponsibility and would be forced into immediate bankruptcy by its current creditors.
Propose a Solution for the Fiscal Crisis (Grand Bargain)
I also ask that Congressmen Hensarling propose a definitive plan to address this Fiscal Crisis. I am convinced that most people in Washington do not recognize the magnitude of the crisis that we are facing. I have created a web page (Scoping a Grand Bargain) that clearly states just how big the hurdle is that we face as a country. By using Cash Accounting the Government has avoided telling the U.S. Citizenry that they are not funding the future promises and by doing so has not assessed the $94.3 Trillion in taxes on the wealthy households and business entities that would be required to meet the social benefit promises that the U.S. Government has made. Scoping a Grand Bargain in essence says that the wealthy households and businesses would have to give up more than half their wealth to finance the commitments to the underprivileged at 60% of the current level of social benefit promises. But my conclusion is that even this level of reduction of the wealth of the privileged and this level of cut in benefits to the underprivileged does not solve our problem. The sooner that Washington starts moving toward a compromise of this magnitude the better off our country will be.
This compromise will be extremely painful but by living this lie for 46 years we have created a situation that will lead to a financial crisis of epic proportions.
So again I say thanks to Congressman Hensarling for stepping up by honestly stating the magnitude of the problem that we face. Now he needs to step up again by proposing a definitive resolution to this United States Financial Crisis.
P.S. I have developed a definitive action plan in "My Recommendations" that could be used as a model for this resolution.