9.1 Trillion Deficits (GAAP) !?

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Davos's picture
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9.1 Trillion Deficits (GAAP) !?

9.1 Trillion Deficits (GAAP) !?!?!?

The more obvious means of demonstrating U.S. insolvency is through the once-a-year “deficit” calculation by the Treasury Department, using GAAP accounting (“generally accepted accounting principles). This is the form of accounting which is required by law for all corporations.

 

Using proper accounting methods, the U.S. had average, real deficits of over $4 trillion per year throughout the entire, eight-year reign of George Bush Jr. (as calculated by the Treasury Department). The real deficit for 2008 was $5.1 trillion. We don't know what the real deficit was for 2009 – because the Treasury Department has refused to publish its report (even though it is mandated by law).

 

It is supposed to be released each November, but the Treasury Department is saying that it won't release the report until February. Personally, I'll believe that when I see it. Despite the fact that the U.S. media totally ignores the only accurate budget calculation of the U.S. government, it's not surprising that the U.S. government wants to hide this information from the small number of commentators who do report it.

 

With U.S. government spending soaring at the same time that government revenues are collapsing, the real deficit for 2009 will be far higher than the $5.1 trillion deficit for 2008. John Williams, who calculates accurate economic statistics for the U.S. economy at Shadowstats.com is expecting the 2009 deficit to approach $9 trillion.

 

 

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Nichoman
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Re: 9.1 Trillion Deficits (GAAP) !?!?!?

Davos,

As a trained, professional researcher...find it interesting their are no posts to your thread.   The latest TIC data says volumes (besides obfuscation).

Two thoughts...

1.)  2010...a year of unraveling in multiple ways.  Beginning of the process of widespread reactions, emergencies, lifestyle consequences.

2.)  2011...a year of accelerating non-linear, forced changes and consequences.

Always look forward to your thoughts.   Please keep it up.

Nichoman

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Re: 9.1 Trillion Deficits (GAAP) !?!?!?
Nichoman wrote:

1.)  2010...a year of unraveling in multiple ways.  Beginning of the process of widespread reactions, emergencies, lifestyle consequences.

Funny, I started to refer to a coming "Great Unraveling" circa 2006 (when I first got a whiff of the subprime bubble [and added it to Peak Oil]).  I stopped using it the middle of last year because it just made people's eyes go all out of focus while they considered what I meant, mulled it over, mentally recoiled in horror (99% of the time), and then they'd focus their eyes again and change the subject.  Undecided

But the effort to up the debt ceiling by US$1.9T goes hand-in-glove with the above story...

Viva anyway -- Sager

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Re: 9.1 Trillion Deficits (GAAP) !?

Hooocouldanode? I honestly am amazed that they have managed to hold it together this long. I really think that 2010 will be a pivotal year. But they are a creative group. Maybe stealing everyones 401k under the guise that we are bad savers will tunnel enough into bonds to hold it off longer.

I have no clue. All I know is it is Enron. The gig will end. 

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Re: 9.1 Trillion Deficits (GAAP) !?

I think its important to consider what might develop as the nations debt increases.  Although i think the situation is getting dramatically worse, I dont think it will result in sudden and uncontrollable shock and awe.  I dont think its an all or none situation either.  That is to say its very unlikely that the currency/government just collapse and the dollar is just useless.  Its far more likely, in a worst case scenario, that the currency gets slowly devalued and erodes over the course of literally decades.  Citing Weimar (a brand new country formed after WWI), Zimbabwe (a country far more poor and far less stable than the US)....etc....are just horrible comparisons to the US today and have almost no relevance to our situation. Perhaps Rome would be more in line, and that decline took over 300 years.

A couple things to think about:  1)  much our our debt is owed to ourselves, and if modified can kick the can down the road for decades while not creating catastrophic results.  For example, if social security benefits were changed to start 5 years later and reduced by 20%, the amount of money saved would be quite meaningful.  GAAP accounting comparisons include medicade and social security - neither of which are absolutes.  These can be reduced with the stroke of a pen.  And, should those benefits be reduced, the value of the dollar skyrockets relative to where we are today.  2)  American private wealth is still huge.  There are many creative ways the government can tax this wealth to kick the can down the road.  While this would piss millions off, it could generate a couple trillion over a few years without creating riots.  3)  The government could end the fed, and start printing its own currency, thus dramatically reducing the amount of interest payments going forward.  This would simply be a return to the way it was done in time of Lincoln or Jackson.  It is not that big a stretch to think that could happen.  4)  While states are strapped, most only need to cut 20% of their budgets and they will be just fine.  To a household or to a business, while that is major, its certainly not life ending, and given the standard of excess even most "poor" Americans have cutting 20% is quite doable.  Public employees, when all benefits are considered, make absurd amounts of money relative to the private sector - - and this is quite easy to cut.  At some point, union contracts will be ruled unjust, and a balance will snap into place.  In short - state budget issues are short term.  Once they get serious and run out of time to play politics, they will cut to levels that are maintainable.  

I think the recent election in MA proves that people are starting to pay attention.  Obamas plan today to separate banking and trading, and Ron Pauls momentum to end the fed are huge and fast moving examples that people are becoming aware.  The information re our debt and banking system has in fact gone viral.

I have lots of hope and confidence that we are in for a long slow diminishing standard of living rather than a sharp violent move to massive social unrest and overhaul.  There are simply too many tools and too much wealth in the US to prevent such catastrophe.  Yes, i am a believer in what this site is all about - - and think that the next 20 years will be far different than the last.  But, it doesnt mean everything just fails.  Do i think there will be violent moves in the financial markets in the near term?  Absolutely - but, if anything they will lead the masses into even more swift action to end the fed/cut budgets, and get us into a more sustainable financial path.

Heres to hope.

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Re: 9.1 Trillion Deficits (GAAP) !?

I'm betting the dollar will rise before and after the announcement in february.  Any takers?

I'm kinda thinking like Rickets retirees, govt employess (except for the military and police), and the unemployed are going to "donate" first.  There will probably be some Medicare "holidays" on payments to doctors and hospitals.

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Re: 9.1 Trillion Deficits (GAAP) !?

Rickets, where does peak oil fit in all this? Did the Romans rely on something that suddenly became unattractive for economic purposes like oil?

I agree that the United States, with enough gymnastics, might be able to stitch things together for quite a while just like Japan have been doing for 20 years, but that range didn't coincidence with peak oil...

Samuel

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Re: 9.1 Trillion Deficits (GAAP) !?

Being ever the contrarian, when the global economy starts tanking and it becomes too costly to ship because of fuel prices.  US manufacturing can be revamped over several years and by looting the middle eastern cheap oil, we have maintained US oil reserves in protected areas.( I realise it will take a decade to actually start pumping our reserves and it will be less than we now use  -- but they are there )

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Re: 9.1 Trillion Deficits (GAAP) !?

Guardia,

I totally year you.  My point was not to discredit the idea of longer term hardship due to scarcity of many resources - my point was to give a contra perspective to those who think an utter dollar collapse will happen this year or next. 

Regarding peak oil and its timing....I think we are swimming in natural gas, and way more of it than ever predicted right now.  I think we will exaust that too, but the timing is maybe further down the road than many think.  That said, I think energy will increase in cost consistently for decades, and force us to all change the way we live.  My points are that I am optimistic that we have time, and that the mad max scenario is simply not in play baring nuclear weapon use.

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Re: 9.1 Trillion Deficits (GAAP) !?

I don't get the feeling that most people here expect everything to tank in the next year or so (well, except maybe Davos :)... but it _might_ and I don't think it's a good idea to tell everyone we have a lot of time. It's like climate change. You know, who the hell really gives a damn what the climate might look like in 50 years? (Most people here do, but that's not the point. When we get there, then people will start doing something about it.) Better keep pushing for change IMO

Samuel

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Re: 9.1 Trillion Deficits (GAAP) !?
guardia wrote:

I don't get the feeling that most people here expect everything to tank in the next year or so (well, except maybe Davos :)... but it _might_ and I don't think it's a good idea to tell everyone we have a lot of time. It's like climate change. You know, who the hell really gives a damn what the climate might look like in 50 years? (Most people here do, but that's not the point. When we get there, then people will start doing something about it.) Better keep pushing for change IMO

Samuel

Timing is a funny thing. I expected the housing market to tank sooner and take with it the economy in one fell swoop. Didn't happen that way or then. When I get right down to it: Enron and the USA are a lot alike. Enron was broke for a long time before they came out of the closet. Once they did things went down hill instantly. Madoff's charade was instant as well.

 

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Re: 9.1 Trillion Deficits (GAAP) !?
Davos wrote:

9.1 Trillion Deficits (GAAP) !?!?!?

With U.S. government spending soaring at the same time that government revenues are collapsing, the real deficit for 2009 will be far higher than the $5.1 trillion deficit for 2008. John Williams, who calculates accurate economic statistics for the U.S. economy at Shadowstats.com is expecting the 2009 deficit to approach $9 trillion.

Let's try to put $9 trillion into perspective. European Union guidelines call for member states to restrict fiscal deficits to at most 3% of GDP. By comparison, a $9 trillion deficit is close to 60% of U.S. GDP. Ooh la la! I guess we spendthrifts won't be joining the EU anytime soon.

Even more impressive is a comparison to government revenues of around $2.1 trillion in fiscal year 2009. A deficit of $9 trillion is more than four times revenues. Usgov's negative net worth, in the vicinity of $100 trillion, is close to fifty times revenues.

Unlike the classical bank run problem of being illiquid but solvent -- which is amenable to rescue and recovery -- Usgov faces the opposite bind of being liquid [for now], but hopelessly, preposterously insolvent. By 'liquid,' I mean simply 'able to auction new debt each and every week of the year.' Any interruption of these indispensible debt auctions would plunge credit-addicted Usgov into a quick default. Having almost NO cash on hand, it lives precariously and recklessly hand to mouth.

The last-ditch remedy for the catastrophic failure of a Treasury auction would be to have the Federal Reserve buy the entire issue with reserves created out of thin air. Such a maneuver would avoid technical default. But it would lead to an immediate hyperinflationary currency crisis. Once confidence in Treasury auctions cracks, it will not be restored without a shattering currency devaluation and debt restructuring.

When this happens is unknown, but I now think it will be sooner rather than later. Spending on crackpot imperial adventures -- foreign wars and windmill tilts -- is actually escalating as the fiscal situation crumbles. With no adults in charge, foreign lenders are unlikely to keep funding our gang of crack-addicted feral KongressKiddies in Washing-loony-tune D.C., playing chicken with nuclear weapons on the high-speed electrified train tracks.

Surprised"Timmmmmyyyyyyyyyyyyy!!!!!!!!!!!!!!!!" Surprised

* SPLAT! *


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Re: 9.1 Trillion Deficits (GAAP) !?

MachineHead: You Rock!

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Re: 9.1 Trillion Deficits (GAAP) !?

Yes Machinehead we are liquid because we are buying our own debt as we issue it.  Sooner or later it will collapse, but i think the collapse will be to a european standard of living.  not a third world standard.

 

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Re: 9.1 Trillion Deficits (GAAP) !?
docmims wrote:

Yes Machinehead we are liquid because we are buying our own debt as we issue it.

Why does 'buying our own debt' remind me of recycling urine? It's sterile, you know -- 'tastes like lemonade.' Surprised

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