Monday, June 2, 2014

Government Accounting ... Full of Lies ... We the People Get Fleeced, Knowingly or Not ... Sending the Bill to Future Generations

Government accounting purposely lies about the reality of what it does with respect to balancing its books. That's long been the case and it's true of both political parties. A conspiracy of sorts against We the People, if you will.

That said, We the People are complicit in the 'conspiracy' to lie, so that makes us co-conspirators. Hence, maybe it's a no harm, no foul situation. Except it isn't.

Sooner or later, the bill comes due. To paraphrase the old Fram oil filter commercial, "You can pay me now, or pay later." It's only a question of who's "you."

When government borrows money, the "you" is almost always our kids and grandkids. We spend and they get the bill. It's not fair and it's standard government policy. Federal long guarantees are just one example of fraudulent government accounting tricks on We the "all-too-often-willing-to-be-lied-to" People.

Fraudulent Government Accounting is subtitled 'How Congress disguises the real cost of federal long guarantees:'

"Many politicians still claim that taxpayers make money on things like student loans, single-family home mortgages backed by the Federal Housing Administration, and long-term guarantees from the Export-Import Bank. Yet under honest accounting, taxpayers lose on all three.

The Congressional Budget Office, Washington's official financial scorekeeper, says in a new report that the Department of Education's four largest student loan programs will yield an official savings of about $135 billion in fiscal years 2015-2024. That's $135 billion that Congress will claim it has available to spend.

But CBO also notes that under fair-value accounting that is practiced in the real world, the four student loan programs will likely cost $88 billion. An official $14 billion projected taxpayer gain at the Export-Import Bank is actually a $2 billion loss. And the official $63 billion windfall expected from the FHA's single-family mortgage guarantee program is in reality a $30 billion taxpayer fleecing.

CBO is obligated to practice bogus accounting under the amusingly titled Federal Credit Reform Act of 1990. But CBO periodically does a public service by calling attention to this legal fraud and explaining why its official estimates don't accurately measure what these programs really cost. CBO's new report is especially informative. You see, federal law does not allow official bookkeeping to account for a phenomenon that must seem alien to the Beltway culture: "market risk."

As CBO helpfully explains: "The government is exposed to market risk when the economy is weak because borrowers default on their debt obligations more frequently and recoveries from borrowers are lower." Yet even after the financial crisis and a historically weak recovery, Washington officially will not admit that such a scenario is possible.

Just as loans look less expensive for taxpayers than they really are, government guarantees can appear to be nearly a free lunch under federal accounting rules. But the government bears the risk of losses. "Because of that government commitment a lender places more value on a loan with a guarantee than on the same loan without a guarantee. The difference in value between them is the 'fair value' of the guarantee," says CBO.

As bad as the math appears once honest accounting is applied, it still doesn't fully describe the problem for taxpayers. That's because none of these figures includes the administrative costs of federal credit programs, which are counted separately in the federal budget."

Summing Up

Government accounting doesn't factor in market risk, meaning simply that taxpayer guarantees enable government to pass the losses on its investments along to the taxpayers. The government merely acts as a conduit.  But the taxpayers, aka We the People and aka the financiers of the government, get the bill when defaults occur. Who else? How ingenious!

And government administrators and bureaucrats who administer these government programs aren't counted in the cost of the programs. They're free to the government, I guess, and only a cost to the perhaps unsuspecting and at least unvigilant taxpayers. That's We the People.

Mad as hell yet? I am.

So why not pass a law that says government can't borrow but has to tax its way to a balanced budget? Then watch the politicians squirm and watch the majority of the nation's taxpayers be willing and anxious to get the money from the rich.

The problem, however, is that there aren't sufficient numbers of the rich to pay all the bills that government incurs on behalf of We the People.

But the even bigger problem of additional government spending is this: More taxes will yield a slower economy, fewer jobs in the private productive sector, more government jobs in the unproductive public sector, and higher entitlement costs to pay to people who are not working due to retirement or otherwise.

Thus, dramatically higher taxes for an already bloated public sector (other than those arising from economic growth) inevitably result in a slower economy and the need for more government spending. The circle is unbroken.

The only viable solution to our problem is a smaller government which generates less government spending, more accounting transparency, and truthful visibility and genuine accountability for the spending our government officials approve on our behalf.

Because in the end, We the People will always get the actual bill, regardless of the government accounting tricks used by our 'public servants.'

There's no free lunch and that's my take.

Thanks. Bob.

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